- --------------------------------------------------------------------------------
UNITED STATES
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 the quarterly period ended June 30, 2000
Commission file number 0-17651
HIGH CASH PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3347257
(State or other jurisdiction of (I.R.S. Employer
incorporatiom or organization) Identification No.)
High Cash Partners, L.P.
c/o Colliers International
5310 Kietzke Lane, Suite 105
Reno, Nevada 89511
(Address of principal executive offices)
(212) 350-9900
(Registrant's telephone number, including area code)
None
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by checkmark 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
____ ____
- --------------------------------------------------------------------------------
HIGH CASH PARTNERS, L.P.
FORM 10-Q - JUNE 30, 2000
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
BALANCE SHEETS - June 30, 2000 and December 31, 1999................1
STATEMENTS OF OPERATIONS - For the three and six months ended
June 30, 2000 and 1999...........................................2
STATEMENT OF PARTNERS' DEFICIT - For the six months ended
June 30, 2000....................................................3
STATEMENTS OF CASH FLOWS - For the six months ended
June 30, 2000 and 1999...........................................4
NOTES TO FINANCIAL STATEMENTS.......................................5
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.............................7
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K................................10
SIGNATURES....................................................................11
- i -
PART I - FINANCIAL INFORMATION
This report contains statements that constitute forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
Those statements appear in a number of places herein and include statements
regarding the intent, belief or current expectations of the Partnership,
primarily with respect to the future operating performance of the Partnership or
related developments. Any such forward-looking statements are not guarantees of
future performance and involve risks and uncertainties, and actual results and
developments may differ from those described in the forward-looking statements
as a result of various factors, many of which are beyond the control of the
Partnership.
ITEM 1 - FINANCIAL STATEMENTS
HIGH CASH PARTNERS, L.P.
BALANCE SHEETS
(unaudited)
June 30, December 31
2000 1999
--------------- -----------------
ASSETS
Real estate, net $ 14,882,160 $ 15,040,394
Cash and cash equivalents 361,742 957,503
Tenant receivables, net 28,787 66,632
Other assets 93,668 99,967
Prepaid insurance premiums 7,458 28,136
--------------- -----------------
$ 15,373,815 $ 16,192,632
=============== =================
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES
Mortgage loan payable $ 6,500,000 $ 6,500,000
Deferred interest payable 16,687,733 15,435,131
Accounts payable and accrued expenses 42,908 69,681
Due to affiliates -- 1,542
Tenants' security deposits payable 68,129 68,867
--------------- -----------------
$ 23,298,770 $ 22,075,221
Commitments and contingencies
PARTNERS' EQUITY (DEFICIT)
Limited partners' equity (deficit) (7,845,703) (5,823,761)
(96,472 units issued and outstanding)
General partners' equity (deficit) (79,252) (58,828)
--------------- -----------------
Total partners' equity (deficit) (7,924,955) (5,882,589)
--------------- -----------------
$ 15,373,815 $ 16,192,632
=============== =================
See notes to financial statements.
1
HIGH CASH PARTNERS, L.P.
STATEMENTS OF OPERATIONS
(UNAUDITED)
For the three months ended For the six months ended
June 30, June 30,
-------------------------- --------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
Revenues
Rental income $ 647,510 $ 624,378 $ 1,307,415 $ 1,179,162
Interest income 8,043 25,822 15,150 68,962
Other income -- -- -- 10,741
----------- ----------- ----------- -----------
655,553 650,200 1,322,565 1,258,865
----------- ----------- ----------- -----------
Costs and expenses
Mortgage loan interest 631,551 564,815 1,252,602 1,120,241
Operating 126,478 129,574 245,282 264,938
Depreciation and amortization 88,070 90,168 178,894 180,338
Partnership management fees 75,369 75,369 150,738 150,738
Property management fees 19,657 18,014 40,474 35,584
Administrative 29,883 30,200 46,938 53,210
----------- ----------- ----------- -----------
971,008 908,140 1,914,928 1,805,049
----------- ----------- ----------- -----------
Net loss $ (315,455) $ (257,940) $ (592,363) $ (546,184)
=========== =========== =========== ===========
NET LOSS ATTRIBUTABLE TO
Limited partners $ (312,300) $ (255,361) $ (586,439) $ (540,722)
General partners (3,155) (2,579) (5,924) (5,462)
----------- ----------- ----------- -----------
$ (315,455) $ (257,490) $ (592,363) $ (546,184)
=========== =========== =========== ===========
Net loss per unit of limited
partnership interest (96,472
units outstanding) $ (3.23) $ (2.65) $ (6.07) $ (5.60)
----------- ----------- ----------- -----------
See notes to financial statements.
2
HIGH CASH PARTNERS, L.P.
STATEMENT OF PARTNERS' EQUITY (DEFICIT)
(UNAUDITED)
General
Partners' Limited
Equity Partners'Equity Total Partners'
(Deficit) (Deficit) Equity (Deficit)
-------------- --------------- ----------------
Balance, January 1, 2000 $ (58,828) $(5,823,761) $(5,882,589)
Net loss for the six months
ended June 30, 2000 (5,924) (586,439) (592,363)
-------------- --------------- ----------------
Distributions to Partners (14,500) (1,435,503) (1,450,003)
-------------- --------------- ----------------
Balance, June 30, 2000 $ (79,252) $(7,845,703) $(7,924,955)
============== =============== ================
See notes to financial statements.
3
HIGH CASH PARTNERS, L.P.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the six months ended
June 30,
---------------------------
2000 1999
------------ ------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
Cash flows from operating activities
Net loss $ (592,363) $ (546,184)
Adjustments to reconcile net loss to net cash provided by
operating activities
Deferred interest expense 1,252,602 1,120,242
Depreciation and amortization 178,894 180,338
Changes in operating assets and liabilities
Tenant receivables 37,845 22,412
Other assets (14,361) (8,742)
Prepaid insurance premiums 20,678 18,114
Accounts payable and accrued expenses (26,773) (21,798)
Due to affiliates (1,542) 3,002
Tenants' security deposits payable (738) --
----------- -----------
Net cash provided by operating activities 854,242 767,384
----------- -----------
Cash flows from financing activities
Distributions to partners (1,450,003) (4,100,000)
----------- -----------
Net decrease in cash and cash equivalents (595,761) (3,332,616)
Cash and cash equivalents, beginning of period 957,503 4,270,688
----------- -----------
Cash and cash equivalents, end of period $ 361,742 $ 938,072
=========== ===========
See notes to financial statements.
4
HIGH CASH PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. INTERIM FINANCIAL INFORMATION
The summarized financial information contained herein is unaudited;
however, in the opinion of management, all adjustments (consisting only
of normal recurring accruals) necessary for a fair presentation of such
financial information have been included. The accompanying financial
statements, footnotes and discussions should be read in conjunction
with the financial statements, related footnotes and discussions
contained in the High Cash Partners, L.P. (the "Partnership") Annual
Report on Form 10-K for the year ended December 31, 1999. The results
of operations for the six months ended June 30, 2000 are not
necessarily indicative of the results to be expected for the full year.
2. CHANGE IN GENERAL PARTNER OWNERSHIP, CONFLICTS OF INTEREST AND
TRANSACTIONS WITH RELATED PARTIES
On June 13, 1997, Resources High Cash, Inc. ("RHC") and Presidio AGP
Corp. ("AGP") sold their general partnership interests in the
Partnership to Pembroke HCP LLC ("Pembroke HCP") and Pembroke AGP Corp.
("Pembroke AGP"), respectively. In the same transaction, XRC Corp., the
parent company of RHC, sold its 8,361 Units to Pembroke Capital II,
LLC, an affiliate of Pembroke HCP and Pembroke AGP. Subsequently,
Pembroke Capital II, LLC acquired beneficial ownership of an aggregate
of an additional 5,807 Units in the secondary market.
Prior to the sale of the general partnership interest in the
Partnership to Pembroke HCP and Pembroke AGP, Wexford Management LLC
had performed management and administrative services for Presidio, XRC
and XRC's direct and indirect subsidiaries, as well as for the
Partnership. Following the sale, an affiliate of Pembroke HCP was
engaged to perform administrative services for the Partnership. During
the quarters ended June 30, 2000 and June 30, 1999, $12,000 and $9,000,
respectively, in reimbursable payroll expenses were paid to the
affiliate of Pembroke HCP for services performed during the quarter.
The Partnership had been a party to a supervisory management agreement
with Resources Supervisory Management Corp. ("Resources Supervisory"),
an affiliate of RHC and AGP, pursuant to which Resources Supervisory
performed certain property management functions. Resources Supervisory
performed such services through June 13, 1997. Effective June 13, 1997,
the Partnership terminated this agreement and entered into a similar
agreement with Pembroke Realty Management LLC ("Pembroke Realty"), an
affiliate of Pembroke HCP and Pembroke AGP. A portion of the property
management fees payable to Resources Supervisory and Pembroke Realty
was paid to an unaffiliated local management company, which has been
engaged for the purpose of performing the local property management
functions. For the quarters ended June 30, 2000 and 1999, Pembroke
5
2. CHANGE IN GENERAL PARTNER OWNERSHIP, CONFLICTS OF INTEREST AND
TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
Realty was entitled to receive $19,657 and $18,014, respectively, of
which $16,380 and $15,012, respectively, was payable to unaffiliated
management companies. No leasing activity compensation was paid to
Pembroke Realty for the quarters ended June 30, 2000 or 1999.
For managing the affairs of the Partnership, the Managing General
Partner is entitled to an annual partnership management fee equal to
$301,475. For each of the quarters ended June 30, 2000 and 1999, the
Managing General Partner was entitled to a partnership management fee
of $75,369.
The general partners are allocated 1% of the net income or losses of
the Partnership, which amounted to losses of $3,155 and $2,579 in the
quarters ended June 30, 2000 and 1999, respectively. They also are
entitled to receive 1% of distributions which amounted to $7,500 and
$41,000 in the quarters ended June 30, 2000 and 1999, respectively.
3. REAL ESTATE
Real estate, which is the Partnership's sole asset, is summarized as
follows:
June 30, December 31,
2000 1999
Land $ 6,667,189 $ 6,667,189
Building and improvements 12,940,226 12,940,226
-------------- --------------
19,607,415 19,607,415
Accumulated depreciation (4,725,255) (4,567,021)
-------------- --------------
$ 14,882,160 $ 15,040,394
============== ==============
The land, building and improvements that comprise the Partnership's
sole asset are collateralized by a mortgage loan payable.
4. DUE TO AFFILIATES
The amounts due to affiliates are as follows:
June 30, December 31,
2000 1999
-------------- --------------
Supervisory Management Fee $ -- $ 1,542
5. DISTRIBUTIONS
In January 2000, the Partnership declared and paid a cash distribution
of approximately $700,000 in the aggregate, or $7.18 per Unit, to
Unitholders of record on January 1, 2000. In May, 2000, the Partnership
declared and paid a cash distribution of approximately $750,000 in the
aggregate, or $7.70 per Unit, to Unitholders of record on May 30, 2000.
6
ITEM 2- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's sole property is a community shopping center located
in Reno, Nevada containing approximately 233,000 square feet of net
leasable area.
The Partnership uses working capital reserves set aside from the net
proceeds of its public offering in 1989 and undistributed cash flow
from operations as its primary measure of liquidity. As of June 30,
2000, working capital reserves amounted to approximately $355,000,
which may be used to fund capital expenditures, insurance, real estate
taxes and loan payments. All expenditures made during the quarter ended
June 30, 2000 were funded from cash flow from operations.
At June 30, 2000, the total amount outstanding on the Partnership's
mortgage loan payable to Resources Accrued Mortgage Investors 2 L.P.
("RAM 2") was $23,187,733, which included deferred interest payable of
$16,687,733. The mortgage did not permit a prepayment before March 1,
1999, and, therefore, the Partnership was not able to refinance the
mortgage before that date. The mortgage matures on February 28, 2001.
At that time, the total amount outstanding on the mortgage is expected
to be approximately $25,000,000. If the value of the property at that
time does not exceed $25,000,000, the Partnership may lose its entire
investment in the property. In that connection, in the first quarter of
1997, the value of the property was written down to $15,875,000. At
present, the Partnership believes that, unless conditions change
materially, the value of the Property at February 28, 2001 will be
significantly less than $25,000,000.
The mortgage further requires the Partnership to provide RAM 2 with a
current appraisal of the Partnership's property upon RAM 2's request.
If it is determined, based upon the requested appraisal, that the sum
of (i) the principal balance of the mortgage loan plus all other then
outstanding indebtedness secured by the property and (ii) all accrued
and unpaid interest on the mortgage at 6.22% per annum, compounded
monthly (that sum, the "Measurement Amount"), exceeds 85% of the
appraised value, an amount equal to such excess would become
immediately due and payable to RAM 2.
To date, the lender has not requested an appraisal. There can be no
assurance that, if the lender requests an appraisal, 85% of the
appraised value will equal the Measurement Amount. At June 30, 2000,
the Measurement Amount was approximately $13,176,000, which was
approximately $2,699,000 less than 85% of the $15,875,000 value to
which the Property was written down in the first quarter of 1997. As
interest on the mortgage accrues, the Measurement Amount will increase,
and, therefore, unless the value of the Property is shown to be greater
than the value to which it was written down in the first quarter of
1997, the Measurement Amount will exceed 85% of the appraised value of
the Property during the year 2000.
Management has entered into preliminary discussions with RAM 2
concerning a possible extension of the maturity date of the RAM 2 loan,
and additionally, is evaluating its alternatives with respect to the
RAM 2 loan. Such alternatives are limited due to the fact that the
principal and deferred interest on the RAM 2 loan significantly exceed
the fair market value of the Property. There can be no assurance that
the Partnership will be
7
successful in extending the maturity date of the RAM 2 loan or in
pursuing any of its alternatives. If the Partnership is not successful
in pursuing any of its alternatives, the Partnership will likely lose
its entire interest in the Property. The Partnership's financial
statements do not include any adjustments that might result from the
outcome of this uncertainty.
Until November 1997, Levitz Furniture Corporation ("Levitz") had
occupied approximately 23% of the space of the Partnership's property
(i.e., approximately 53,000 out of approximately 233,000 square feet of
net leasable area). In November 1997, Levitz, which had filed for
protection under Chapter 11 of the Bankruptcy Code, vacated its space.
Levitz ceased paying rent to the Partnership as of April 2, 1998.
The vacancy at the Levitz space has resulted in a loss of income to the
Partnership. The vacancy at the Levitz space, as well as a vacancy in
an additional, significant space previously occupied by Good Guys, also
may have adversely affected the surrounding tenants and the
Partnership's ability to attract new tenants, particularly in light of
the limited visibility those tenants have to the main thoroughfare. See
"Real Estate Market" below. The Partnership is actively seeking a
long-term, creditworthy substitute tenant. However, there can be no
assurance the Partnership will succeed in finding a long-term,
creditworthy substitute tenant promptly or on terms comparable to those
under the Levitz lease. In addition, if a substitute tenant is
obtained, the Partnership would be required to make substantial
expenditures in order to secure the substitute tenant and in connection
with a new lease.
During 1999, the Partnership entered into a short-term lease for the
Levitz space with a then existing tenant at an annual rent materially
less than under the Levitz lease. The Partnership has the right to
terminate this lease upon written notice, in the event the Partnership
secures a long-term, creditworthy tenant for the space.
The level of leasing activity cannot be predicted, particularly in
light of the Levitz and Good Guys situations, and, therefore, the
amount of further capital expenditures arising from leasing activity is
uncertain. There can be no assurance the Partnership will have
sufficient liquidity both to make such capital expenditures, and to
make the payments that may be required under the terms of the RAM 2
loan. If there is a default on the RAM 2 loan, the Partnership would be
materially and adversely affected.
In January 2000, the Partnership declared and paid a cash distribution
of approximately $700,000 in the aggregate, or $7.18 per Unit, to
Unitholders of record on January 1, 2000. In May 2000, the Partnership
declared and paid a cash distribution of approximately $750,000 in the
aggregate, or $7.70 per Unit, to Unitholders of record on May 30, 2000.
REAL ESTATE MARKET
A substantial decline in the market value of the Partnership's property
reflects real estate market conditions in the vicinity of the property.
Recently built shopping centers in the vicinity have increased
competition for tenants. This competitive factor, together with the
fact that much of the unleased space in the Partnership's property
(including the Levitz space) has only limited visibility to the main
thoroughfare and the fact that the space previously occupied by Good
8
Guys is vacant and is being marketed for sublet by Good Guys, have
hindered the lease-up of new space. As a result, the Partnership's
investment in its property is at risk.
INFLATION
Inflation has not had a material impact on the Partnership's operations
or financial condition in recent years and is not expected to have a
material impact in the foreseeable future.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED
JUNE 30, 1999
The Partnership realized a net loss of $315,455 ($3.23 per Unit) for
the three months ended June 30, 2000 compared to a net loss of $257,940
($2.65 per Unit) for the corresponding 1999 period, a change of
$57,515. The change was primarily a result of an increase in mortgage
loan interest expense.
Revenues increased from 1999 to 2000 due to increases in base rentals,
primarily due to the signing of new leases.
Costs and expenses increased from 1999 to 2000 primarily due to an
increase in mortgage loan interest expense.
Mortgage loan interest expense increased due to the compounding effect
from the deferral of the interest expense on the zero coupon mortgage.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED
JUNE 30, 1999
The Partnership realized a net loss of $592,363 ($6.07 per Unit) for
the six months ended June 30, 2000 compared to a net loss of $546,184
($5.60 per Unit) for the corresponding 1999 period, a change of
$46,179. The change was primarily a result of an increase in mortgage
loan interest expense, partially offset by an increase in rental
income.
Revenues increased from 1999 to 2000 due to increases in base rentals,
primarily due to the signing of new leases. The increase in rental
income was partially offset by a decrease in interest income due to the
distributions made by the Partnership.
Costs and expenses increased from 1999 to 2000 primarily due to an
increase in mortgage loan interest expense, partially offset by
decreases in operating and administrative expenses.
Mortgage loan interest expense increased due to the compounding effect
from the deferral of the interest expense on the zero coupon mortgage.
9
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: None
(b) Reports on Form 8-K: None.
10
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.
HIGH CASH PARTNERS, L.P.
By: Pembroke HCP, LLC
Managing General Partner
By: Pembroke Companies, Inc.,
Managing Member
Dated: August 14, 2000 By: /S/ LAWRENCE J. COHEN
----------------------
Lawrence J. Cohen
President and Principal
Financial and Accounting Officer
11