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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 September 30, 2001
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
incorporation or organization) Identification No.)
High Cash Partners, L.P.
c/o Pembroke Companies Inc
70 East 55th Street 7th Floor
New York, New York 10022
(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
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HIGH CASH PARTNERS, L.P.
FORM 10-Q - SEPTEMBER 30, 2001
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
BALANCE SHEETS - September 30, 2001 and December 31, 2000............1
STATEMENTS OF OPERATIONS - For the three and nine months ended
September 30, 2001 and 2000......................................2-3
STATEMENT OF PARTNERS' DEFICIT - For the nine months ended September
30, 2001...........................................................4
STATEMENTS OF CASH FLOWS - For the nine months ended September 30,
2001 and 2000......................................................5
NOTES TO FINANCIAL STATEMENTS........................................6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS........................................9
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K................................14
SIGNATURES....................................................................15
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
September 30, December 31,
2001 2000
(unaudited)
------------ ------------
ASSETS
Real estate, net $ 14,512,404 $ 14,722,456
Cash and cash equivalents 1,325,127 1,103,651
Tenant receivables, net 89,439 86,896
Other assets 195,957 173,206
Prepaid expense 61,855 33,363
------------ ------------
$ 16,184,782 $ 16,119,572
============ ============
LIABILITIES AND PARTNERS' DEFICIT
LIABILITIES
Mortgage loan payable $ 6,500,000 $ 6,500,000
Deferred interest payable 19,312,326 18,026,844
Accounts payable and
accrued expenses 42,471 154,300
Tenants' security
deposits payable 66,180 68,129
------------ ------------
25,920,977 24,749,273
Commitments and contingencies
PARTNERS' DEFICIT
Limited partners' deficit
(96,472 units issued and
outstanding (9,638,831) (8,543,402)
General partners' deficit (97,364) (86,299)
------------ ------------
Total partners' deficit (9,736,195) (8,629,701)
------------ ------------
$ 16,184,782 $ 16,119,572
============= =============
See notes to financial statements.
1
HIGH CASH PARTNERS, L.P.
STATEMENTS OF OPERATIONS
(UNAUDITED)
----------------------------
For the three months ended
September 30,
-------------- -------------
2001 2000
-------------- -------------
REVENUES
Rental income $ 690,602 $ 648,353
Interest income 3,836 7,652
-------------- -------------
694,438 656,005
-------------- -------------
COSTS AND EXPENSES
Mortgage loan interest 714,222 656,516
Operating 125,742 121,285
Depreciation and amortization 107,743 91,071
Partnership management fees 75,369 75,369
Property management fees 20,702 18,179
Administrative 27,566 36,273
-------------- -------------
1,071,344 998,693
-------------- -------------
NET LOSS $ (376,906) $ (342,688)
============== =============
NET LOSS ATTRIBUTABLE TO
Limited partners $ (373,137) $ (339,261)
General partners (3,769) (3,427)
-------------- -------------
$ (376,906) $ (342,688)
============== =============
Net loss per unit of limited
partnership interest (96,472 units
outstanding) $ (3.87) $ (3.52)
-------------- -------------
See notes to financial statements.
2
HIGH CASH PARTNERS, L.P.
STATEMENTS OF OPERATIONS
(UNAUDITED)
----------------------------
For the nine months ended
September 30,
-------------- -------------
2001 2000
-------------- -------------
REVENUES
Rental income $ 2,057,638 $ 1,955,768
Interest income 33,781 22,802
-------------- -------------
2,091,419 1,978,570
-------------- -------------
COSTS AND EXPENSES
Mortgage loan interest 2,113,428 1,909,118
Operating 367,928 366,567
Depreciation and amortization 324,782 269,965
Partnership management fees 226,107 226,107
Property management fees 61,852 58,653
Administrative 103,816 83,211
-------------- -------------
3,197,913 2,913,621
-------------- -------------
NET LOSS $ (1,106,494) $ (935,051)
============== =============
NET LOSS ATTRIBUTABLE TO
Limited partners $ (1,095,429) $ (925,700)
General partners (11,065) (9,351)
-------------- -------------
$ (1,106,494) $ (935,051)
============== =============
Net loss per unit of limited
partnership interest (96,472 units
outstanding) $ (11.36) $ (9.60)
-------------- -------------
See notes to financial statements.
3
HIGH CASH PARTNERS, L.P.
STATEMENT OF PARTNERS' DEFICIT
(UNAUDITED)
General Partners' Limited Partners' Total Partners'
Deficit Deficit Deficit
----------------- ------------------ ------------------
BALANCE, JANUARY 1, 2001 $ (86,299) $ (8,543,402) $ (8,629,701)
Net loss for the nine months
ended September 30, 2001 (11,065) (1,095,429) (1,106,494)
----------------- ------------------ ------------------
BALANCE, SEPTEMBER 30, 2001 $ (97,364) $ (9,638,831) $ (9,736,195)
================= ================== ==================
See notes to financial statements.
4
HIGH CASH PARTNERS, L.P.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the nine months ended
September 30,
-------------------------------
2001 2000
-------------- -------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (1,106,494) $ (935,051)
Adjustments to reconcile net loss to net cash provided by
operating activities
Deferred interest expense 1,285,482 1,909,118
Depreciation and amortization 324,782 269,965
Changes in operating assets and liabilities
Tenant receivables (2,543) 274
Other assets (111,812) (16,846)
Prepaid expense (28,492) (17,060)
Accounts payable and accrued expenses (111,829) (28,329)
Due to affiliates 49 (1,542)
Tenants' security deposits payable (1,949) (738)
------------- -----------
Net cash provided by operating activities 247,194 1,179,791
------------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Real estate additions (25,718) --
------------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions to partners -- (1,450,003)
------------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 221,476 (270,212)
Cash and cash equivalents, beginning of period 1,103,651 957,503
------------- -----------
Cash and cash equivalents, end of period $ 1,325,127 $ 687,291
============= ===========
See notes to financial statements.
5
HIGH CASH PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. However, if the Partnership
is unable to refinance or otherwise restructure its outstanding
indebtedness to Resources Accrued Mortgage Investors 2 L.P. ("RAM 2") prior
to the Extended Maturity Date (as hereinafter defined), the Partnership
will lose its entire interest in its sole real estate asset (See Note 3).
These circumstances raise substantial doubt as to the Partnership's ability
to continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
2. 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, 2000. The results of operations for the
three and nine months ended September 30, 2001 are not necessarily
indicative of the results to be expected for the full year.
3. MORTGAGE LOAN PAYABLE
The mortgage loan payable (the "Mortgage Loan") represents a first mortgage
loan held by RAM 2, a public limited partnership sponsored by affiliates of
the former general partners of the Partnership. The Mortgage Loan bears
interest at the rate of 11.22% per annum, compounded monthly and did not
require payment until its original maturity date of February 28, 2001. The
principal balance, along with deferred interest thereon, was $25,812,326 at
September 30, 2001, and aggregated approximately $25,000,000 at its
original maturity date of February 28, 2001. As of September 30, 2001, the
principal and deferred interest on the Mortgage Loan exceeded the estimated
fair market value of the Partnership's sole real estate asset (the
"Property").
Because the Partnership believed that it would be unable either to repay or
refinance the Mortgage Loan at its original maturity date of February 28,
2001, the Managing General Partner negotiated and caused the Partnership to
enter into a mortgage loan modification agreement (the "Mortgage Loan
Modification Agreement") with RAM 2 in order to effect a modification of
the Mortgage Loan and prevent the immediate foreclosure of the Mortgage
Loan and the consequent loss of the Property. The Mortgage Loan
Modification Agreement became effective on January 31, 2001.
6
Effective January 31, 2001, the Partnership entered into the Mortgage Loan
Modification Agreement with RAM 2. Pursuant to the terms of the Mortgage
Loan Modification Agreement, RAM 2 agreed to forbear, for not less than one
year and up to two years, the exercise of its rights and remedies under the
Mortgage Loan for the Partnership's failure to repay all amounts due and
payable thereunder at its original maturity date of February 28, 2001.
Under the Mortgage Loan Modification Agreement, the deed to the Property,
along with a bill of sale, assignment of leases and other conveyance
documents (the "Conveyance Documents") were placed in escrow with counsel
to RAM 2. The Conveyance Documents will not be released to RAM 2 until the
earliest to occur of the following dates (the "Extended Maturity Date"):
I. Any date on which any action taken or omitted to be taken by the
Partnership in bad faith, intended to hinder or impede RAM 2's
exercise of its rights or remedies under the terms of the Mortgage
Loan Modification Agreement, remains uncured for more than 10 days
after notice thereof from RAM 2;
II. Any date on or after March 1, 2002, upon the closing date of the sale
or other conveyance of the Property (a) if RAM 2 identifies a bona
fide third party purchaser to acquire the Property, or (b) for any
other reason deemed reasonably necessary by RAM 2 to avoid a material
economic disadvantage to it; and
III. March 1, 2003.
The Mortgage Loan Modification Agreement further provides that, from March
1, 2001, until such time as the Conveyance Documents have been released,
the Partnership will be entitled to receive $100,000 per annum pro-rated
monthly and paid monthly to the extent cash flow generated by the Property
permits and RAM 2 will be entitled to receive the balance of the net
operating income generated by the Property to be applied against current
interest and the outstanding principal and deferred interest on the
Mortgage Loan. For the seven months ended September 30, 2001, the
Partnership retained $58,334 of operating cash flow and applied $827,946 to
current interest incurred under the Mortgage Loan.
Under the terms of the Mortgage Loan Modification Agreement, the
Partnership will retain its interest in the Property until and unless the
Conveyance Documents are released to RAM 2 in accordance with the terms
thereof. Prior to March 1, 2003, until RAM 2 notifies the Partnership that
it has entered into a contract to sell or convey the Property, the
Partnership will have the right to satisfy the Mortgage Loan for an amount
equal to the sum of (x) the then unpaid principal balance of the Mortgage
Loan, and all accrued interest thereon and other charges due thereunder and
(y) 66% of the value of the Property in excess of the amount described in
clause (x) above, as additional interest on the Mortgage Loan. If the
Mortgage Loan is satisfied, the Conveyance Documents will be returned to
the Partnership. If the Partnership is unable to refinance or otherwise
restructure this outstanding indebtedness prior to the Extended Maturity
Date, the Partnership will lose its entire interest in the Property.
Under the terms of the Mortgage Loan, the Partnership was obligated to
provide RAM 2 with a current appraisal of the Property upon RAM 2's
request. If it was 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
7
and (ii) all accrued and unpaid interest on the Mortgage Loan, calculated
at a rate of 6.22% per annum compounded monthly through the date of such
appraisal, exceeded 85% of the appraised value of the Property, an amount
equal to such excess (the "Excess Payment") would become immediately due
and payable to RAM 2. In accordance with the terms of the Mortgage Loan
Modification Agreement, RAM 2 requested an appraisal of the Property by
Greenwich Realty Advisors, a real estate appraisal firm unaffiliated with
the Partnership, Pembroke HCP, LLC, its managing general partner (the
"Managing General Partner") or RAM 2. The appraisal, which was performed as
of March 1, 2001, indicated that an Excess Payment was not due or payable
to RAM 2 at that date. Consequently, under the terms of the Mortgage Loan
Modification Agreement, RAM 2 has no further appraisal right pursuant to
the terms of the Mortgage Loan.
4. 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")
(collectively, the "General Partners"), respectively. In the same
transaction, XRC Corp. ("XRC"), 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 additional 6,257 Units in the secondary market.
Prior to the sale of the general partnership interests in the Partnership
to Pembroke HCP and Pembroke AGP, Wexford Management LLC had performed
management and administrative services for AGP, 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 each of the quarters ended September 30, 2001
and 2000, $12,000 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
unaffiliated local management companies that had been engaged for the
purpose of performing the local property management functions. For the
quarter ended September 30, 2000, Pembroke Realty was entitled to receive
$18,179, of which $13,634 was payable to unaffiliated management companies.
No property management fees were payable to Pembroke Realty for the quarter
ended September 30, 2001. No leasing activity compensation was paid to
Pembroke Realty for the quarters ended September 30, 2001 or 2000.
In connection with its entering into the Mortgage Loan Modification
Agreement with RAM 2, which became effective on January 31, 2001, the
Partnership retained Kestrel Management LP ("Kestrel"), an affiliate of RAM
2, to perform property management
8
functions commencing on January 2, 2001. Kestrel has assumed all management
services previously performed by Pembroke Realty and the unaffiliated
management companies, pursuant to the terms of a management agreement. For
the quarter ended September 30, 2001, Kestrel was entitled to receive
$20,702 in respect of property management services rendered to the
Partnership.
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 September 30, 2001 and 2000, 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 $3,769 and $3,427 in the quarters
ended September 30, 2001 and 2000, respectively. They also are entitled to
receive 1% of the distributions of the Partnership.
5. REAL ESTATE
Real estate, which is the Partnership's sole asset, is summarized as
follows:
September 30, 2001 December 31, 2000
(unaudited)
-------------------- -------------------
Land $ 6,667,189 $ 6,667,189
Building and improvements 12,965,944 12,940,226
-------------------- -------------------
19,633,133 19,607,415
Accumulated depreciation (5,120,729) (4,884,959)
-------------------- -------------------
$ 14,512,404 $ 14,722,456
==================== ===================
The land, building and improvements that comprise the Partnership's sole
real estate asset are collateralized by a mortgage loan payable.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. However, if the Partnership
is unable to refinance or otherwise restructure its outstanding
indebtedness to Resources Accrued Mortgage Investors 2 L.P. ("RAM 2") prior
to the Extended Maturity Date, the Partnership will lose its entire
interest in its sole real estate asset. These circumstances raise
substantial doubt as to the Partnership's ability to continue as a going
concern. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
The Partnership's sole real estate asset (the "Property") is a community
shopping center located in Reno, Nevada containing approximately 233,000
square feet of net leasable area.
9
The Partnership uses undistributed cash flow from operations as its primary
measure of liquidity. As of September 30, 2001, working capital reserves
amounted to approximately $1,434,000 which does not include any amount
which may be currently payable under the Partnership's mortgage loan (the
"Mortgage Loan") payable to RAM 2 or deferred interest thereon. Such
reserves may be used to fund capital expenditures, insurance, real estate
taxes and loan payments. All expenditures made during the quarter ended
September 30, 2001 were funded from operations.
At September 30, 2001, the total amount outstanding on the Mortgage Loan
was $25,812,326, which included deferred interest of $19,312,326. The
scheduled maturity date of the Mortgage Loan was originally February 28,
2001, at which time the total amount outstanding on the mortgage was
approximately $25,000,000.
Pursuant to the Mortgage Loan Modification Agreement, RAM 2 has agreed to
forbear for not less than one year and up to two years in the exercise of
its rights and remedies under the Mortgage Loan triggered by the
Partnership's failure to repay fully all amounts due and payable thereunder
at maturity.
Under the Mortgage Loan Modification Agreement, the deed to the Property,
along with a bill of sale, assignment of leases and other conveyance
documents (the "Conveyance Documents") have been placed in escrow with
counsel to RAM 2. The Conveyance Documents will not be released to RAM 2
until the earliest to occur of (such date referred to herein as the
"Extended Maturity Date"):
(i) any date on which any action taken or omitted to be taken by the
Partnership in bad faith, intended to hinder or impede RAM 2's
exercise of its rights or remedies under the terms of the Mortgage
Loan Modification Agreement, remains uncured for more than 10 days
after notice of same from RAM 2;
(ii) any date on or after March 1, 2002, upon the closing date of the sale
or other conveyance of the Property (a) if RAM 2 identifies a bona
fide third party purchaser to acquire the Property or (b) for any
other reason deemed reasonably necessary by RAM 2 to avoid a material
economic disadvantage to it; and
(iii) March 1, 2003.
The Mortgage Loan Modification Agreement further provides that 100% of the
net operating income generated by the Property allocable to the period
ending February 28, 2001, the original maturity date of the Mortgage Loan,
will be retained by the Partnership. From and after March 1, 2001 until
such time as the Conveyance Documents have been released, the Partnership
will be entitled to receive $100,000 per annum pro-rated monthly and paid
monthly to the extent cash flow permits and RAM 2 will be entitled to
receive the balance of the net operating income generated by the Property
to be applied to current interest and the outstanding principal and
deferred interest on the Mortgage Loan. For the seven months ended
September 30, 2001, the Partnership retained $58,334 of operating cash flow
and applied $827,946 to current interest incurred under the Mortgage Loan.
In addition, RAM 2 has agreed to release the Partnership and its affiliates
from all claims for principal or interest due under the Mortgage Loan
effective on the date that the Conveyance Documents are released to RAM 2
or such other party as agreed to by RAM 2. Such release will be effective
provided that the Partnership (i) does not become
10
the subject of any bankruptcy proceeding on or before one year from the
date of release of the Conveyance Documents and (ii) has not perpetrated
any fraud upon RAM 2. In addition, the Partnership will be entitled to a
refund of expenses previously paid by it, to the extent that such expenses
relate to any time period subsequent to February 28, 2001. Thereafter, the
Partnership will use its cash flow and cash reserves to fund the payment of
Partnership fees and expenses. To the extent not used to pay Partnership
fees and expenses, these funds will be available for distribution to the
Limited Partners. However, there can be no assurance that the Partnership
will have excess cash available, or that future distributions will be made
to the Limited Partners. At September 30, 2001, the Partnership had cash
and cash equivalents of $1,325,127.
Under the terms of the Mortgage Loan, the Partnership was obligated to
provide RAM 2 with a current appraisal of the Property upon RAM 2's
request. If it was 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 Loan calculated at a rate of 6.22% per
annum compounded monthly through the date of such appraisal (that sum, the
"Measurement Amount"), exceeded 85% of the appraised value of the Property,
an amount equal to such excess (the "Excess Payment") would become
immediately due and payable to RAM 2. Any amount so paid by the Partnership
would be applied first against accrued and unpaid interest on the Mortgage
Loan, and the balance, if any, against the principal thereof. In accordance
with the terms of the Mortgage Loan Modification Agreement, RAM 2 was
entitled to request an appraisal of the Property; however, if such
appraisal indicated that no Excess Payment was due, RAM 2 would have no
further appraisal rights. RAM 2 requested that the Property be appraised by
Greenwich Realty Advisors, a real estate appraisal firm unaffiliated with
the Partnership, the Managing General Partner or RAM 2. The appraisal,
which was performed as of March 1, 2001, indicated a fair market value of
$20 million for the Property. As of March 1, 2001 the Measurement Amount
was $13,684,645. Because the Measurement Amount did not exceed 85% of the
appraised value of the Property on that date, no Excess Payment was or is
payable to RAM 2. Consequently, under the terms of the Mortgage Loan
Modification Agreement, RAM 2 has no further appraisal right thereunder.
Under the terms of the Mortgage Loan Modification Agreement, the
Partnership will retain its interest in the Property until and unless the
Conveyance Documents are released to RAM 2 in accordance with the terms
thereof. In addition, the Partnership retained the right to repay the
Mortgage Loan in accordance with its terms on any date prior to March 1,
2001. Thereafter, and prior to March 1, 2003, until RAM 2 notifies the
Partnership that it has entered into a contract to sell or convey the
Property, the Partnership will have the right to satisfy the Mortgage Loan
for an amount equal to the sum of (x) the then unpaid principal balance of
the Mortgage Loan, and all accrued interest thereon and other charges due
thereunder and (y) 66% of the value of the Property in excess of the amount
described in clause (x) above, as additional interest on the Mortgage Loan.
If the Mortgage Loan is satisfied, the Conveyance Documents will be
returned to the Partnership.
In connection with the Partnership's entering into the Mortgage Loan
Modification Agreement, Lawrence J. Cohen, the sole shareholder and
director of Pembroke Companies Inc., which is the sole member and the
manager of the Managing General Partner, has executed an unconditional
limited guaranty of payment in the amount of the
11
principal balance of the Mortgage Loan, all accrued and unpaid interest
thereon and all other charges due thereunder, that will be effective only
if Mr. Cohen or his affiliates cause the Partnership to file for bankruptcy
or to commence a civil action seeking to hinder, impede or delay RAM 2's
exercise of any right or remedy available to it.
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.
In 1999, Good Guys, Inc. ("Good Guys") vacated its premises and ceased
paying rent under the lease as of December 1, 2000. In April 2001, the
Partnership agreed to consent to Good Guys' sublet of its premises; in
connection with this agreement Good Guys paid all of its past due rent.
The vacancies at the Levitz and Good Guy spaces have resulted in a loss of
income to the Partnership. These vacancies 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 for the Levitz
space. 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.
During 1999, the Partnership entered into a short-term lease for the Levitz
space with a then existing tenant at an annual rent substantially less than
under the Levitz lease. The Partnership has the right to terminate this
lease upon written notice in the event that 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 situation, 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 to make such
capital expenditures.
REAL ESTATE MARKET
The market value of the Property reflects real estate market conditions in
the vicinity of 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 has hindered the lease-up of new space.
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.
12
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 2000
The Partnership realized a net loss of $376,906 ($3.87 per Unit) for the
three months ended September 30, 2001 compared to a net loss of $342,688
($3.52 per Unit) for the corresponding 2000 period, an increased loss of
$34,218. The increased loss was primarily the result of an increase in
mortgage loan interest expense and depreciation and amortization.
Revenues increased from 2000 to 2001, principally due to increased tenant
reimbursements.
Costs and expenses increased from 2000 to 2001 primarily due to an increase
in mortgage loan interest expense and depreciation and amortization offset
by a decrease in administrative expenses.
Mortgage loan interest expense increased due to the compounding effect from
the deferral of the interest expense on the Mortgage Loan.
Administrative expenses decreased principally due to decreased legal fees.
Depreciation and amortization increased due to the amortization of costs
associated with the Mortgage Loan modification.
NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 2000.
The Partnership realized a net loss of $1,106,494 ($11.36 per Unit) for the
nine months ended September 30, 2001 compared to a net loss of $935,051
($9.60 per Unit) for the corresponding 2000 period, an increased loss of
$171,443. The increased loss was primarily the result of an increase in
mortgage loan interest, partially offset by an increase in revenues.
Revenues increased from 2000 to 2001, primarily due to increased base
rental income and tenant reimbursements.
Costs and expenses increased from 2000 to 2001 primarily due to an increase
in mortgage loan interest expense, administrative expenses, and
depreciation and amortization.
Mortgage loan interest expense increased due to the compounding effect from
the deferral of the interest expense on the Mortgage Loan.
Depreciation and amortization increased due to the amortization of costs
associated with the Mortgage Loan modification.
Administrative expenses increased due to increased legal costs and
professional fees associated with activities of the Partnership.
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PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: None
(b) Reports on Form 8-K: None
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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.
HIGH CASH PARTNERS, L.P.
By: Pembroke HCP, LLC
Managing General Partner
By: Pembroke Companies, Inc.
Managing Member
Dated: November 14, 2001 By: /s/ Lawrence J. Cohen
--------------------------
President and Principal
Financial and Accounting Officer
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