UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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.)
c/o Pembroke Companies Inc.
70 East 55th Street 7th Floor
New York, New York 10022
- ----------------------------------------- ----------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 212-350-9900
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on which
Title of each class registered
- -------------------------------- ----------------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
---------------------------------------
(Title of class)
Indicate by check mark whether 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 Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
PART I
ITEM 1. BUSINESS
High Cash Partners, L.P. (the "Partnership") is a Delaware limited partnership
formed in 1986 for the primary purpose of investing in, holding, operating and
otherwise acting with respect to office buildings, shopping centers and other
commercial and industrial properties.
In 1989, the Partnership used all the net proceeds from its public offering of
units of limited partnership interest ("Units") to acquire Sierra Marketplace, a
community retail shopping center completed in October 1988 and situated on 18.67
acres in the southern portion of Reno, Nevada ("Sierra Marketplace" or the
"Property.") Sierra Marketplace consists of two main buildings and three "out
parcel" structures containing approximately 233,000 square feet of net leasable
area. Sierra Marketplace has 34 tenants. Three tenants, Smith's Management
Corp., a grocery and drug store, Good Guys, Inc. ("Good Guys"), a consumer
electronics store, and Bell Furniture, Inc., a furniture store, accounted for
approximately 18%, 19% and 10%, respectively, of the Partnership's total rental
income revenues in 2001.
The Property is subject to a mortgage which matured on February 28, 2001, the
terms of which have been modified, pursuant to a mortgage loan modification
agreement (the "Mortgage Loan Modification Agreement") between the Partnership
and the mortgagee, Resources Accrued Mortgage Investors 2 L.P. ("RAM 2"). The
Mortgage Loan Modification Agreement became effective on January 31, 2001. The
mortgage and the Mortgage Loan Modification Agreement are described in Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."
Levitz Furniture Corporation ("Levitz") had occupied approximately 53,000 square
feet at Sierra Marketplace under a lease that extended through 2008. During
1997, Levitz filed for bankruptcy protection under Chapter 11 of the United
States Bankruptcy Code. In November 1997, Levitz vacated its premises, and
ceased paying rent under the lease as of April 2, 1998. During 1999, the
Partnership entered into a short-term lease on the Levitz space at an annual
rent substantially less than under the Levitz lease; this lease is terminable by
the Partnership upon written notice to the tenant, in the event the Partnership
secures a long-term, creditworthy tenant for the space. The Partnership is
continuing to seek such a tenant.
In 1999, 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. See Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources."
PROPERTY LOCATION AND COMPETITION
The Partnership believes there are approximately 9.3 million square feet of
retail space in the Reno area, in a total of 78 regional malls and community,
neighborhood and strip centers. Sierra Marketplace is located in the southern
section of Reno, which is well developed commercially along major thoroughfares
with substantial residential development along secondary streets. The primary
trade area is considered affluent to middle class. The competition for tenants
(including existing tenants whose leases expire) is strong among existing
centers in the vicinity of the Property. In addition, a portion of the land
available for development in the immediate geographic vicinity of the Property
recently has been developed by centers predominantly occupied by large anchor
tenants, which has created additional competition for the Property. See Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" and "Real Estate Market."
1
EMPLOYEES
The Partnership does not have any employees. Through December 31, 2001, services
were performed for the Partnership by Pembroke HCP, LLC, the Partnership's
Managing General Partner (the "Managing General Partner"), Pembroke Realty
Management LLC ("Pembroke Realty"), an affiliate of the Managing General
Partner, and certain other parties that may be deemed to be affiliated with the
Managing General Partner. Through December 31, 2000, certain services were
performed for Pembroke Realty by Colliers Nevada Management, LLC, an
unaffiliated management company ("Colliers"). In connection with its entering
into the Mortgage Loan Modification Agreement, the Partnership retained Kestrel
Management LP ("Kestrel"), an affiliate of RAM 2, to manage the Property
commencing on January 2, 2001. Kestrel has assumed the property management
services previously performed by Pembroke Realty and Colliers, pursuant to the
terms of a management agreement. In January 2002, responsibility for the
management of the Property was assigned by Kestrel to Pelican, LLC, an affiliate
of the general partner of RAM 2. See Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources," Item 10, "Directors and Executive Officers of Registrant,"
Item 11, "Executive Compensation," Item 12, "Security Ownership of Certain
Beneficial Owners and Management," and Item 13, "Certain Relationships and
Related Transactions."
ITEM 2. PROPERTIES
See Item 1, "Business" above.
ITEM 3. LEGAL PROCEEDINGS
The Partnership is not a party to any material pending legal proceedings, other
than ordinary routine litigation incidental to its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 2001.
2
PART II
ITEM 5. MARKET FOR REGISTRANT'S SECURITIES AND RELATED SECURITY HOLDER MATTERS
There is no established public trading market for the Units, and it is not
anticipated that such a market will develop.
There are certain restrictions in the Partnership's Partnership Agreement that
may limit the ability of a limited partner to transfer Units. Such restrictions
could impair the ability of a limited partner to liquidate its investment in the
event of an emergency or for any other reason.
As of March 15, 2002 there were 1,346 holders of Units, owning an aggregate of
96,472 Units.
In May 1999, October 1999, January 2000 and May 2000, the Partnership paid cash
distributions of approximately $4,100,000, $700,000, $700,000 and $750,000,
respectively, or $42.07, $7.18 $7.18, and $7.70 per Unit, respectively, to
Unitholders of record on May 11, 1999, October 20, 1999, January 1, 2000 and May
30, 2000, respectively. There were no distributions made to Unitholders during
2001.
There are no material legal restrictions on distributions in the Partnership's
Partnership Agreement. See Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources," for a discussion of financial conditions and the terms of the
Mortgage Loan Modification Agreement restricting the Partnership's ability to
make distributions.
ITEM 6. SELECTED FINANCIAL DATA
Year ended December 31,
------------------------------------------------------------------------------------
2001 2000 1999 1998 1997
- ------------------------------- ---------------- ---------------- ---------------- ---------------- ----------------
Revenues $ 2,746,571 $ 2,639,242 $ 2,521,650 $ 2,479,904 $ 2,686,095
Net Loss (1) $ (1,537,134) $ (1,297,109) $ (1,147,548) $ (925,947) $ (7,238,860)
Net (Loss) Per Unit (1)(2) $ (15.77) $ (13.31) $ (11.78) $ ( 9.50) $ (74.29)
Distributions Per Unit (2) $ - $ 14.88 $ 49.25 $ - $ -
Long-term Obligations (3) $ 26,191,497 $ 24,526,844 $ 21,935,131 $ 19,617,279 $ 17,540,481
Total Assets $ 16,146,414 $ 16,119,572 $ 16,191,090 $ 19,834,203 $ 18,716,205
- -----------------
(1) Net loss for 1997 includes a write-down for impairment of $(6,475,500), or
$(66.45) per Unit.
(2) Based upon the weighted average number of Units outstanding.
(3) Consists of the principal amount of the RAM 2 loan plus deferred interest
on that loan, which are due on or before March 1, 2003, and are described
in Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources."
1
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Partnership uses undistributed cash flow from operations, which excludes
cash held by the Property Manager, as its primary measure of liquidity. At
December 31, 2001, working capital reserves amounted to approximately
$1,214,000, 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, which are due on or before March 1, 2003. Such
reserves may be used to fund operating expenses of the Partnership, capital
expenditures, insurance, real estate taxes and loan payments. All expenditures
during 2001 were funded from cash flow from operations.
At December 31, 2001, the total amount outstanding on the Mortgage Loan was
$26,191,497, which included deferred interest of $19,691,497. 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.
Because the Partnership believed that it would be unable either to repay or
refinance the Mortgage Loan at that time, the Managing General Partner
negotiated and caused the Partnership to enter into 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.
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.
Unless the Partnership is able to arrange alternate financing, of which there is
no guarantee, the Conveyance Documents will be released to RAM 2 on or before
March 1, 2003, at and after which the Partnership will no longer have any
interest in the Property, but there can be no assurance that RAM 2 will not
foreclose earlier under the other terms of the Conveyance Documents, as set
forth above.
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. During 2001, the Partnership retained $451,000 of
net income allocable to the period ended February 28, 2001. 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
2
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 ten months ended December 31,
2001, the Partnership received approximately $83,000, and RAM 2 received
approximately $1,182,000, of net operating income generated by the Property,
which was utilized to pay interest on the Mortgage Loan.
Under the terms of the Mortgage Loan Modification Agreement, 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 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 became entitled to a refund of expenses
previously paid by it, to the extent that such expenses related to any time
period subsequent to February 28, 2001. During 2001, the Partnership received a
refund of approximately $25,000 for expenses previously paid by it. From and
after February 28, 2001, the Partnership has used 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 December 31, 2001, the Partnership had
cash and cash equivalents of $1,100,234.
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 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, 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 has 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.
The accompanying financial statements have been prepared on the assumption that
the Partnership will continue as a going concern. However, if the Partnership is
unable to refinance or otherwise restructure this outstanding indebtedness prior
to the Extended Maturity Date of March 1, 2003, the Partnership will lose its
entire interest in its property. 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.
3
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 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 had occupied approximately 23% of the 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 Partnership pursued a claim in the
Levitz bankruptcy proceedings and was awarded a general unsecured claim and an
administrative expense claim in 2001. The Company is currently attempting to
collect such claims, though there can be no assurance that it will be able to do
so.
In 1999, 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 vacancy at the Levitz space has resulted in a loss of income to the
Partnership. This vacancy 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. In addition, if a substitute tenant is obtained, the Partnership expects
to have to make capital expenditures to secure such tenant.
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 that 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 Sierra Marketplace. 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 Property (including the Levitz
space) has only limited visibility to the main thoroughfare, has hindered the
leasing of new space.
RESULTS OF OPERATIONS
2001 vs. 2000
The Partnership realized a net loss of $1,537,134 ($15.77 per Unit) for 2001
compared to a net loss of $1,297,109 ($13.31 per Unit) for 2000, an increased
loss of $240,025. The increased loss was primarily a result of an increase in
mortgage loan interest expense coupled with an increase in depreciation and
amortization, partially offset by an increase in rental income.
4
Revenues increased from 2000 to 2001 due to increases in base rentals. Base
rentals increased as a result of scheduled increases in existing leases.
Costs and expenses increased from 2000 to 2001 primarily due to an increase in
mortgage loan interest expense coupled with an increase in the amortization
portion of 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 Agreement, and tenant leasing commissions incurred
during 2001.
2000 vs. 1999
The Partnership realized a net loss of $1,297,109 ($13.31 per Unit) for 2000
compared to a net loss of $1,147,548 ($11.78 per Unit) for 1999, an increased
loss of $149,561. The increased loss 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
expenses.
Mortgage loan interest expense increased due to the compounding effect from the
deferral of the interest expense on the zero coupon mortgage.
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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Our financial instruments consist solely of money market accounts maintained
with international financial institutions. All of our accounts pay market rates
of interest and are insured by federal deposit insurance which eliminates
certain of the risks associated with these investments, except to the extent
that the amounts contained in any accounts exceed dollar limits imposed by
federal deposit insurance.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This document and the documents incorporated by reference into this Form 10-K,
including Item 7, "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity and Capital Resources," contain both
historical and forward-looking statements. All statements other than statements
of historical fact are, or may be deemed to be, forward-looking statements
within the meaning of section 27A of the Securities Act of 1933 and section 21E
of the Securities Exchange Act of 1934 (the "Exchange Act"). These
forward-looking statements are not based on historical facts, but rather reflect
the Partnership's current expectations concerning future results and events.
These forward-looking statements generally can be identified by use of
statements that include phrases such as "believe," "expect," "anticipate,"
"intend," "plan," "foresee," "likely," "will" or other similar words or phrases.
Similarly, statements that describe the Partnership's objectives, plans or goals
are or may be forward-looking statements. These forward-looking statements
involve known and unknown risks, uncertainties and other factors which may cause
the actual results, performance or achievements of the Partnership to be
different from any future results, performance and achievements expressed or
implied by these statements.
5
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX
Page
Number
------
Independent Auditor's Report F-1
Financial statements:
Balance sheets F-2
Statements of operations F-3
Statement of partners' equity (deficit) F-4
Statements of cash flows F-5
Notes to financial statements F-6
Schedule II:
Valuation and qualifying accounts F-14
Schedule III:
Real estate and accumulated depreciation F-15
All other financial statement schedules are omitted because they are not
applicable or the required information is presented in the financial statements
or notes thereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
6
To the Partners of
High Cash Partners, L.P.
INDEPENDENT AUDITOR'S REPORT
We have audited the accompanying balance sheets of High Cash Partners, L.P. (a
limited partnership) as of December 31, 2001 and 2000, and the related
statements of operations, partners' equity (deficit) and cash flows for each of
the three years in the period ended December 31, 2001. Our audits also included
the financial statement schedules listed in the Index at Item 14(a)2. These
financial statements and the financial statement schedules are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on the financial statements and financial statement schedules based
on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of High Cash Partners, L.P. as of
December 31, 2001 and 2000, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 2001 in conformity
with accounting principles generally accepted in the United States of America.
Also, in our opinion, such financial statement schedules, when considered in
relation to the basic financial statements taken as a whole, present fairly in
all material respects the information set forth therein.
The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. As discussed in Note 5 to the
financial statements, the Partnership's mortgage loan, which had an outstanding
balance of $26,191,497 at December 31, 2001, was scheduled to mature on February
28, 2001. The Partnership entered into an agreement with the holder of the
mortgage loan which extended the maturity date to a date not later than March 1,
2003 assuming the Partnership complies with all of the provisions of the
agreement. The agreement also requires that substantially all of the cash flow
generated from the Partnership's property be remitted to the mortgage holder to
be applied against outstanding principal and deferred interest. If the
Partnership is unable to refinance or otherwise restructure this outstanding
indebtedness prior to the extended maturity date of March 1, 2003, the
Partnership will lose its entire interest in its property. These circumstances
raise substantial doubt as to the Partnership's ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 5. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ Hays & Company LLP
March 18, 2002
New York, New York
1
HIGH CASH PARTNERS, L.P.
BALANCE SHEETS
December 31,
-------------------------------------------
2001 2000
--------------------- -------------------
ASSETS
Real estate, net $ 14,433,815 $ 14,722,456
Cash and cash equivalents 1,100,234 1,103,651
Other assets 441,920 173,206
Tenant receivables, net 112,339 86,896
Prepaid expenses 58,106 33,363
--------------------- -------------------
Total assets $ 16,146,414 $ 16,119,572
===================== ===================
LIABILITIES AND PARTNERS' DEFICIT
LIABILITIES
Mortgage loan payable $ 6,500,000 $ 6,500,000
Deferred interest payable 19,691,497 18,026,844
Accounts payable and accrued expenses 57,134 154,300
Tenants' security deposits payable 64,618 68,129
--------------------- -------------------
Total liabilities 26,313,249 24,749,273
--------------------- -------------------
Commitments and contingencies (Notes 3, 4, 5 and 8)
PARTNERS' DEFICIT
Limited partners' deficit
(96,472 units issued and outstanding) (10,065,165) (8,543,402)
General partners' deficit (101,670) (86,299)
--------------------- -------------------
(10,166,835) (8,629,701)
--------------------- -------------------
$ 16,146,414 $ 15,119,572
===================== ===================
See notes to financial statements.
2
HIGH CASH PARTNERS, L.P.
STATEMENTS OF OPERATIONS
Year ended December 31,
-------------------------------------------------------------------
2001 2000 1999
---------------------- --------------------- ----------------------
REVENUES
Rental income $ 2,711,685 $ 2,604,141 $ 2,420,332
Other Income -- -- 12,526
Interest Income 34,886 35,101 88,792
---------------------- --------------------- ----------------------
2,746,571 2,639,242 2,521,650
---------------------- --------------------- ----------------------
COST AND EXPENSES
Mortgage loan interest 2,846,172 2,591,713 2,317,852
Operating 503,992 488,600 510,366
Depreciation and amortization 430,124 366,176 365,510
Partnership management fees 301,475 301,475 301,475
General and Administrative 121,186 111,106 101,839
Property management fees 80,756 77,281 72,156
---------------------- --------------------- ----------------------
4,283,705 3,936,351 3,669,198
---------------------- --------------------- ----------------------
NET LOSS $ (1,537,134) $ (1,297,109) $ (1,147,548)
====================== ===================== ======================
NET LOSS ATTRIBUTABLE TO
Limited partners $ (1,521,763) $ (1,284,138) $ (1,136,073)
General partners (15,371) (12,971) (11,475)
---------------------- --------------------- ----------------------
$ (1,537,134) $ (1,297,109) $ (1,147,548)
====================== ===================== ======================
Net loss per unit of limited partnership
interest (96,472 units outstanding) $ (15.77) $ (13.31) $ (11.78)
====================== ===================== ======================
See notes to financial statements.
3
HIGH CASH PARTNERS, L.P.
STATEMENT OF PARTNERS' EQUITY (DEFICIT)
PERIOD FROM JANUARY 1, 1999 THROUGH DECEMBER 31, 2001
General Limited Total
Partners' Partners' Partners'
Equity (Deficit) Equity (Deficit) Equity (Deficit)
--------------------- --------------------- ---------------------
Balance, January 1, 1999 $ 647 $ 63,981 $ 64,628
Net loss - 1999 (11,475) (1,136,073) (1,147,548)
Distributions (48,000) (4,751,669) (4,799,669)
--------------------- --------------------- ---------------------
Balance, December 31, 1999 (58,828) (5,823,761) (5,882,589)
Net loss - 2000 (12,971) (1,284,138) (1,297,109)
Distributions (14,500) (1,435,503) (1,450,003)
--------------------- --------------------- ---------------------
Balance, December 31, 2000 (86,299) (8,543,402) (8,629,701)
Net loss - 2001 (15,371) (1,521,763) (1,537,134)
--------------------- --------------------- ---------------------
Balance, December 31, 2001 $ (101,670) $ (10,065,165) $ (10,166,835)
===================== ===================== =====================
See notes to financial statements.
4
HIGH CASH PARTNERS, L.P.
STATEMENTS OF CASH FLOWS
Year ended December 31,
-----------------------------------------------------------------
2001 2000 1999
--------------------- --------------------- ---------------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (1,537,134) $ (1,297,109) $ (1,147,548)
Adjustments to reconcile net loss to net cash
provided by operating activities
Deferred interest expense 1,664,653 2,591,713 2,317,852
Depreciation and amortization 430,124 366,176 365,510
Changes in operating assets and liabilities
Leasing commissions paid (51,294) (1,969) (27,504)
Other assets (269,171) (21,050) 2,864
Tenant receivables, net (25,443) (20,264) (2,979)
Prepaid expenses (24,743) (5,227) (613)
Accounts payable and accrued expenses 14,604 (15,381) (23,748)
Tenants' security deposits payable (3,511) (738) 10,000
--------------------- --------------------- ---------------------
Net cash provided by operating
activities 198,085 1,596,151 1,493,834
--------------------- --------------------- ---------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to real estate (25,719) -- (7,350)
--------------------- --------------------- ---------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Deferred financing costs paid (175,783) -- --
Distributions to partners -- (1,450,003) (4,799,669)
--------------------- --------------------- ---------------------
Net cash used in financing activities (175,783) (1,450,003) (4,799,669)
--------------------- --------------------- ---------------------
NET (DECREASE) INCREASE IN CASH AND CASH (3,417) 146,148 (3,313,185)
Cash and cash equivalents, beginning of year 1,103,651 957,503 4,270,688
--------------------- --------------------- ---------------------
Cash and cash equivalents, end of year $ 1,100,234 $ 1,103,651 $ 957,503
===================== ===================== =====================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest Paid $ 1,181,519 $ --- $ --
===================== ===================== =====================
See notes to financial statements.
5
HIGH CASH PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
1 ORGANIZATION
High Cash Partners, L.P. (formerly High Income Partners L.P. - Series
87) (the "Partnership") was formed in May 1986 pursuant to the Delaware
Revised Uniform Limited Partnership Act for the purpose of acquiring
and operating real estate. The Partnership will terminate on December
31, 2030 or sooner, in accordance with its Amended and Restated
Agreement of Limited Partnership (the "Limited Partnership Agreement").
The Partnership filed a Form S-11 registration statement with the
Securities and Exchange Commission, which became effective on June 29,
1988, covering an offering of 400,000 limited partnership units
(subject to increase, if the Underwriter exercised its right to sell an
additional 200,000 units) at $250 per unit.
The Partnership's public offering terminated on June 29, 1990, at which
time the Partnership had accepted subscriptions for 77,901 limited
partnership units (including those units sold to the initial limited
partner) for aggregate net proceeds of $17,284,566 (gross proceeds of
$19,475,250, less organization and offering costs aggregating
$2,190,684). The Partnership received $2,500 and $1,000 for
contributions to the Partnership from the initial limited partner and
the general partners, respectively. The Partnership had committed 100%
of its net proceeds available for investment to the Sierra Marketplace
acquisition, a retail shopping center.
The Partnership sold 18,571 unregistered limited partnership units to
Integrated Resources, Inc. ("Integrated"), the former parent of the
original Managing General Partner of the Partnership, for aggregate net
proceeds of $4,120,441 (gross proceeds of $4,642,750, less organization
and offering costs aggregating $522,309). Simultaneously, Integrated
sold these units to the Partnership's three bank creditors. The sale of
the aforementioned units, effective January 1, 1991, was part of a
transaction that enabled the Partnership to repay its unsecured loans
on December 19, 1990.
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
LEASES
The Partnership accounts for its leases under the operating method.
Under this method, revenue is recognized as rentals become due, except
for stepped leases, where revenue is recognized on a straight-line
basis over the life of the lease.
DEPRECIATION
Depreciation is computed using the straight-line method over the
estimated useful life of the property, which is approximately 40 years.
The cost of the Property represents the initial cost of the Property to
the Partnership plus acquisition and closing costs. Repairs and
maintenance are charged to operations as incurred.
FINANCIAL STATEMENTS
The financial statements include only those assets, liabilities and
results of operations that relate to the business of the Partnership.
CASH AND CASH EQUIVALENTS
The Partnership considers all short-term investments that have original
maturities of three months or less to be cash equivalents. The
Partnership's cash balances are held at various financial institutions,
however, at times, cash balances may exceed insured limits.
6
HIGH CASH PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of financial instruments is determined by reference to
market data and other valuation techniques as appropriate. The
Partnership's financial instruments consist principally of cash and
cash equivalents, tenant receivables, accounts payable and accrued
expenses and a mortgage loan payable. Unless otherwise disclosed, the
fair value of financial instruments approximates their recorded values.
NET LOSS AND DISTRIBUTIONS PER UNIT OF LIMITED PARTNERSHIP INTEREST
Net loss and distributions per unit of limited partnership interest are
computed based upon the number of units outstanding (96,472) during the
years ended December 31, 2001, 2000 and 1999.
DEFERRED FINANCING COSTS
Costs incurred in connection with obtaining long-term debt are
capitalized and amortized over the life of the debt.
INCOME TAXES
No provisions have been made for federal, state and local income taxes,
since they are the personal responsibility of the partners.
The income tax returns of the Partnership are subject to examination by
federal, state and local taxing authorities. Such examinations could
result in adjustments to Partnership losses, which could affect the
income tax liability of the individual partners.
RECLASSIFICATIONS
Certain reclassifications have been made to the financial statements
shown for the prior years in order to conform to the current year's
classifications.
ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
3 CHANGE IN GENERAL PARTNER OWNERSHIP, CONFLICTS OF INTEREST AND
TRANSACTIONS WITH RELATED PARTIES
Until June 13, 1997, the Managing General Partner of the Partnership
was Resources High Cash, Inc. ("RHC"). RHC was, until November 3, 1994,
a wholly-owned subsidiary of Integrated, at which time, pursuant to the
consummation of Integrated's Plan of Reorganization, substantially all
the assets of Integrated, but not the stock of RHC, were sold to
Presidio Capital Corp. ("Presidio"). RHC became a wholly-owned
subsidiary of XRC Corp. ("XRC"), which is a subsidiary of Presidio. The
other general partner of the Partnership was, until June 13, 1997,
Presidio AGP Corp. ("AGP"), a Delaware Corporation that is a
wholly-owned subsidiary of Presidio. Presidio also is the parent of
other entities that were, or may have been, engaged in
7
HIGH CASH PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
businesses that may have been in competition with the Partnership.
Accordingly, conflicts of interest may have arisen between the
Partnership and such other businesses.
Resources Accrued Mortgage Investors 2 L.P. ("RAM 2"), whose managing
general partner is owned by Presidio, made a zero coupon first mortgage
loan to the Partnership (Note 5).
Effective April 1, 1991, Integrated purchased, in an arms-length
transaction from an unaffiliated third party, 8,361 limited partnership
units ("Units"). Effective January 1, 1995, pursuant to the
consummation of Integrated's Plan of Reorganization, these Units were
transferred to XRC.
On June 13, 1997, RHC and 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 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 6,277 Units in the secondary
market.
Following the sale on June 13, 1997, an affiliate of Pembroke HCP was
engaged to perform administrative services for the Partnership. During
the years ended December 31, 2001, 2000 and 1999 reimbursable expenses
paid to the affiliate by the Partnership amounted to $48,000, $48,000
and $42,000 respectively.
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 property management functions
that were the subject of the supervisory management agreement. For the
years ended December 31, 2001, 2000, and 1999, Pembroke Realty was
entitled to receive $13,002, $77,281 and $72,156, respectively, of
which $10,033, $51,961 and $58,513, respectively, was paid to the
unaffiliated management companies. No leasing activity compensation was
paid to Pembroke Realty for the years ended December 31, 2001, 2000,
and 1999.
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 functions commencing on January
2, 2001. Kestrel assumed all management services previously performed
by Pembroke Realty and the unaffiliated management company, pursuant to
the terms of a management agreement. As compensation for its management
services, Kestrel is entitled to receive a management fee equal to 3%
of the cash collected in respect of revenues generated by the Property.
For the year ended December 31, 2001, Kestrel earned a management fee
of $67,754.
For managing the affairs of the Partnership, the Managing General
Partner is entitled to receive a partnership management fee in an
annual amount equal to $301,475.
The General Partners are allocated 1% of the net income or losses of
the Partnership and are also entitled to receive 1% of distributions.
8
HIGH CASH PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
4 REAL ESTATE, NET
Real estate assets represent the Partnership's principal asset, Sierra
Marketplace, a community marketplace located in Reno, Nevada (the
"Property"). The Property was purchased by the Partnership on February
10, 1989, and is summarized as follows:
December 31,
----------------------------------------------------
2001 2000
-------------------------- -------------------------
Land $ 6,667,189 $ 6,667,189
Building and improvements 12,965,945 12,940,226
-------------------------- -------------------------
19,633,134 19,607,415
Less accumulated depreciation (5,199,319) (4,884,959)
-------------------------- -------------------------
$ 14,433,815 $ 14,722,456
========================== =========================
Depreciation expense for the years ended December 31, 2001, 2000, and
1999 was $314,360, $317,938 and $325,121, respectively.
During 2001 each of three tenants accounted for more than 10% of the
Partnership's rental revenues. Such tenants accounted for approximately
18%, 19% and 10% of rental revenue, with leases expiring in years 2008,
2003 and 2002, respectively.
During 2000, each of three tenants accounted for more than 10% of the
Partnership's rental revenues. Such tenants accounted for approximately
18% 19%, and 14% of rental revenues, with leases expiring in years
2002, 2008, and 2003, respectively.
During 1999, each of three tenants accounted for more than 10% of the
Partnership's rental revenues. Such tenants accounted for approximately
20%, 19% and 18% of rental revenues, with leases expiring in 2002, 2008
and 2003, respectively.
9
HIGH CASH PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
Minimum future rental payments receivable, excluding operating
escalations and other charges, due from tenants pursuant to the terms
of existing noncancellable leases as of December 31, 2001 are as
follows:
Year ending December 31,
2002 $ 2,049,988
2003 1,516,166
2004 930,066
2005 804,019
2006 701,125
Thereafter 924,399
--------------------------------
$ 6,925,763
================================
5 MORTGAGE LOAN PAYABLE
The mortgage loan payable (the "Mortgage Loan") represents a zero
coupon first mortgage loan held by RAM 2, a public limited partnership
sponsored by affiliates of the former general partners. The Mortgage
Loan bears interest at the rate of 11.22% per annum, compounded
monthly. The principal balance, along with deferred interest thereon,
is $26,191,497 at December 31, 2001, and aggregated approximately
$25,000,000 at its original maturity date of February 28, 2001. As of
December 31, 2001, the principal and deferred interest on the Mortgage
Loan exceeded the estimated fair market value of the Property.
Effective January 31, 2001, the Partnership entered into a mortgage
loan modification agreement (referred to in this Note 5 as the
"Modification Agreement") with RAM 2. Pursuant to the terms of the
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 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 (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
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.
10
HIGH CASH PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
Unless the Partnership is able to arrange alternate financing, of which
there is no guarantee, the Conveyance Documents will be released to RAM
2 on or before March 1, 2003, at and after which the Partnership will
no longer have any interest in the Property, but there can be no
assurance that RAM 2 will not foreclose earlier under the other terms
of the Conveyance Documents, as set forth above.
The 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 retain $100,000 per annum pro-rated
monthly and RAM 2 will be entitled to receive the balance of the net
operating income generated by the Property to be applied against the
outstanding principal and deferred interest on the Mortgage Loan. For
the period after March 1, 2001, the Partnership retained approximately
$83,000, and RAM 2 received approximately $1,182,000, of net operating
income generated by the Property, which was applied to interest on the
Mortgage Loan.
Under the terms of the 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 of March 1, 2003, the
Partnership will lose its entire interest in its 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 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 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
on 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
Modification Agreement, RAM 2 has no further appraisal right pursuant
to the terms of the Mortgage Loan.
6 DISTRIBUTIONS
In May 1999, October 1999, January 2000 and May 2000, the Partnership
paid cash distributions of approximately $4,100,000, $700,000,
$700,000 and $750,000, respectively, or $42.07, $7.18, $7.18, and
$7.70 per Unit, respectively, to Unitholders of record on May 11,
1999, October 20, 1999, January 1, 2000 and May 30, 2000,
respectively. There were no distributions made to Unitholders during
2001.
7 RECONCILIATION OF NET LOSS AND NET ASSETS PER FINANCIAL STATEMENTS TO
TAX BASIS
11
HIGH CASH PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
The Partnership files its tax return on an accrual basis. The
Partnership has computed depreciation for tax purposes using the
Modified Accelerated Cost Recovery System, which is not in accordance
with accounting principles generally accepted in the United States of
America. A reconciliation of net loss per financial statements to the
tax basis of accounting is as follows:
12
HIGH CASH PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
Year ended December 31,
---------------------------------------------------------------
2001 2000 1999
------------------- -------------------- ----------------------
Net loss per financial statements $ (1,537,134) $ (1,297,109) $ (1,147,548)
Tax depreciation and amortization
in excess of financial statement
depreciation and amortization (145,007) (207,849) (221,800)
------------------- -------------------- ----------------------
Net loss per tax basis $ (1,682,141) $ (1,504,958) $ (1,369,348)
=================== ==================== ======================
The differences between the Partnership's net assets per financial
statements and the tax basis of accounting are as follows:
December 31,
-------------------------------------------------
2001 2000
------------------------- -----------------------
Net assets per financial statements $ (10,166,835) $ (8,629,701)
Cumulative tax depreciation and
amortization in excess of financial
statement depreciation (1,558,953) (1,413,946)
Write-down for impairment 6,475,500 6,475,500
Syndication costs 2,712,993 2,712,993
------------------------- -----------------------
Net assets per tax basis $ (2,537,295) $ (855,154)
========================= =======================
8 TENANT DEFAULTS
Until November 1997, Levitz Department Store ("Levitz") had occupied
approximately 23% of the space at the Property. Rent under the lease
for each of 1997 and 1996 was approximately $412,000, which was
approximately 16% of the Partnership's total rental income revenues in
each such period. In November 1997, Levitz, which had filed for
protection under Chapter 11 of the Bankruptcy Code, vacated its space.
Levitz ceased paying rent as of April 2, 1998. The Partnership pursued
a claim in the Levitz bankruptcy proceedings and was awarded a general
unsecured claim and an administrative expense claim in 2001. The
Company is currently attempting to collect such claims, though there
can be no assurance that it will be able to do so.
During 1999, the Partnership entered into a short-term lease for the
space formerly occupied by Levitz with an existing tenant at an annual
rent substantially less than under the Levitz lease; this lease is
terminable by the Partnership upon written notice to the tenant, in the
event the Partnership secures a long-term, creditworthy tenant for the
space.
13
HIGH CASH PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
In 1999, 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 vacancy at the Levitz space has resulted in a loss of income to the
Partnership. This vacancy also may have adversely affected the
surrounding tenants, particularly in light of the limited visibility
those tenants have to the main thoroughfare. The Partnership is
actively seeking a long-term, creditworthy substitute tenant for the
Levitz space. However, there can be no assurance that 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 such a tenant is obtained, the Partnership may be required
to make substantial expenditures in order to secure such substitute
tenant and in connection with the new lease.
14
HIGH CASH PARTNERS, L.P.
Schedule II - VALUATION AND QUALIFYING ACCOUNTS
ADDITIONS
----------------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF PERIOD (A) EXPENSES ACCOUNTS DEDUCTIONS PERIOD
-------------- ---------------- -------------- -------------- --------------
Year ended December 31, 2001
Reno, Nevada
Sierra Marketplace $ 6,475,500 $ - $ - $ - $ 6,475,500
============== ================ ============== ============== ==============
Year ended December 31, 2000
Reno, Nevada
Sierra Marketplace $ 6,475,500 $ - $ - $ - $ 6,475,500
============== ================ ============== ============== ==============
Year ended December 31, 1999
Reno, Nevada
Sierra Marketplace $ 6,475,500 $ - $ - $ - $ 6,475,500
============== ================ ============== ============== ==============
(A) Represents an allowance for impairment provided on the Sierra Marketplace
property during 1997.
See notes to financial statements.
14
HIGH CASH PARTNERS, L.P.
Schedule III - REAL ESTATE AND ACCUMMULATED DEPRECIATION
INITIAL COST (1) COSTS CAPITALIZED GROSS AMOUNT AT WHICH CARRIED AT
---------------- ----------------- --------------------------------
Building Building
and and
Encum- Improve- Improve- Carrying Improve-
Description brances Land ments ments Costs Land ments Total
- ------------------- ------------- ------------ ------------- ----------- ---------- ------------- ------------- -------------
Sierra
Marketplace
Retail
Shopping
Center
Reno, Nevada $26,191,497 $6,868,859 $16,494,467 $ 719,589 $ - $6,667,189 $12,965,945 $19,633,134
------------- ------------ ------------- ----------- ---------- ------------- ------------- -------------
Life on which
Accumu- Depreciation in
lated Date of Latest Income
Deprecia- Construc- Date Statement is
tion tion Acquired Computed
------------- ------------ ------------- --------------
Sierra
Marketplace
Retail
Shopping
Center
Straight-line
Reno, Nevada $ 5,199,319 10/88 2/89 method 40 years
------------- ------------ ------------- ---------------
Year ended December 31,
------------------------------------------------------------
1999 2000 2001
------------------- ------------------- --------------------
(A) RECONCILATION OF
REAL ESTATE OWNED
Balance at beginning of year $ 19,600,065 $ 19,607,415 $ 19,607,415
Subtractions during year
Write-down for impairment - - -
------------------- ------------------- --------------------
19,600,065 19,607,415 19,607,415
Additions during
year improvements 7,350 - 25,719
------------------- ------------------- --------------------
Balance at end of year $ 19,607,415 $ 19,607,415 $ 19,633,134
=================== =================== ====================
15
(B) RECONCILIATION OF Year ended December 31,
ACCUMULATED ------------------------------------------------------------
DEPRECIATION
1999 2000 2001
------------------- ------------------- --------------------
Balance at beginning of year $ 4,241,900 $ 4,567,021 $ 4,884,959
Additions during the year
Depreciation 325,121 317,938 314,360
------------------- ------------------- --------------------
Balance at end of year $ 4,567,021 $ 4,884,959 $ 5,199,319
=================== =================== ====================
(1) The aggregate cost for income tax purposes is $26,108,634 at December 31,
2001.
See notes to financial statements.
16
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
The Partnership has no officers or directors. Pembroke HCP, LLC, the Managing
General Partner, manages and controls substantially all the Partnership's
affairs and has general responsibility and ultimate authority in all matters
affecting its business. Pembroke AGP Corp., the Associate General Partner, in
its capacity as such, does not devote a material amount of time or attention to
the Partnership's affairs.
Based on a review of the filings under Section 16(a) of the Exchange Act, none
of the Managing General Partner, the sole member or the officers of the Managing
General Partner or the beneficial owners of more than 10% of the Units failed to
file on a timely basis reports required by Section 16(a) of the Exchange Act
during 2001 or prior years, except for the failure by Pembroke Capital II, LLC
("PC") to file reports on Forms 4 and 5 in respect of approximately 12
transactions in 1997, 1998, 1999, 2000 and 2001 resulting in PC's acquisition of
an aggregate of 6,277 Units.
Lawrence J. Cohen, age 46, is, and for more than seven years has been, the sole
shareholder and director of Pembroke Companies, Inc., which is the sole member
and the manager of each of the Managing General Partner and the Associate
General Partner. Pembroke Companies, Inc. is a privately-held investment
management company, which makes investments in, and provides management services
to, a variety of real estate-related businesses.
ITEM 11. EXECUTIVE COMPENSATION
The Partnership is not required to pay, and has not paid, the officers, the
manager or the sole member of the Managing General Partner or the Associate
General Partner, or the officers or directors of the sole member of the Managing
General Partner or the Assistant General Partner. Certain officers and directors
of the former managing general partner of the Partnership received compensation
from the former managing general partner or its affiliates (but not from the
Partnership) for services performed for various affiliated entities, which may
have included services performed for the Partnership; in addition, certain
individuals affiliated with the Managing General Partner receive compensation
from the Managing General Partner or its affiliates (but not from the
Partnership) for services performed for various affiliated entities, which may
have included services for the Partnership. See Item 13, "Certain Relationships
and Related Transactions."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PC and Equity Resources Fund XIV Limited Partnership ("ERF") are the only
persons known by the Partnership to be the beneficial owners of more than 5% of
the Units. The Partnership believes PC and ERF beneficially own 14,638 Units and
8,998 Units, respectively, which are 15.2% and 9.3%, respectively, of the
outstanding Units. Mr. Cohen is the sole member of PC, and, therefore, he may be
deemed to be the beneficial owner of PC's 14,638 Units. See Item 10, "Directors
and Executive Officers of Registrant" above. The address of each of PC and Mr.
Cohen is Pembroke Companies, Inc., 70 East 55th Street, New York, New York
10022. The address of ERF is 14 Story Street, Cambridge, Massachusetts 02138.
1
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 2001, the General Partners and their respective affiliates received
compensation or payments for services from or with respect to the Partnership as
follows:
NAME CAPACITY IN WHICH SERVED COMPENSATION
Pembroke HCP, LLC Managing General Partner $ 301,475 (1)
Pembroke AGP, LLC Associate General Partner - (2)
Pembroke Realty Management LLC Supervisory Property Manager $ 2,969 (3)
(1) Represents a partnership management fee earned by the Managing General
Partner. Under the Partnership's Partnership Agreement, .99% of the net
income, net loss and distributions of the Partnership are allocated to
the Managing General Partner. For 2001, $16,653 of the Partnership's
tax loss was allocated to the Managing General Partner.
(2) Under the Partnership Agreement, .01% of the Partnership's net income,
net loss and distributions are allocated to the Associate General
Partner. For 2001, $168 of the Partnership's tax loss was allocated to
the Associate General Partner.
(3) This amount was earned pursuant to a supervisory management agreement
with the Partnership for performance of certain functions related to
property management. In addition, during 2001, $10,033 was paid to
Colliers Nevada Management, LLC, an unaffiliated property management
company that performed services for the Partnership.
2
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS: SEE "INDEX TO FINANCIAL STATEMENTS" IN ITEM
8 ABOVE.
(a)(2) FINANCIAL STATEMENT SCHEDULES: SEE "INDEX TO FINANCIAL STATEMENTS"
IN ITEM 8 ABOVE.
(a)(3) EXHIBITS:
3. (a) Second Amended and Restated Partnership Agreement
("Partnership Agreement") of Registrant, incorporated by
reference to Exhibit 3D to Amendment No. 2 to Registrant's
Registration Statement on Form S-11 filed on June 24, 1988
(Reg. No. 33-6412) (hereinafter the "Form S-11").
(b) Amended and Restated Certificate of Limited Partnership of
Registrant, incorporated by reference to Exhibit 3C to the
Form S-11.
(c) Amendment to Partnership Agreement, incorporated by
reference to Supplement No. 1 dated August 19, 1988 to
Registrant's Prospectus filed pursuant to Rules 424(b) and
424(c) (Reg. No. 33-6412).
10. (a) Management Services Agreement between Registrant and
Resources Property Management Corp., incorporated by
reference to Exhibit 1 OB to Amendment No. 2 to the Form
S-11.
(b) Acquisition and Disposition Services Agreement among
Registrant, Realty Resources Inc., and Resources High
Cash, Inc., incorporated by reference to Exhibit 10.(b) of
Registrant's Report on Form 10-K for the year ended
December 31, 1988 (hereinafter the "1988 10-K").
(c) Agreement among Resources High Cash, Inc., Integrated
Resources, Inc. and Fourth Group Partners, incorporated by
reference to Exhibit 10.(c) of the 1988 10-K.
(d) Agreement of Purchase and Sale between Sierra Virginia,
Inc. and Nevada Corp., incorporated by reference to
Exhibit 10A to Registrant's Form 8 with respect to
Registrant's current report on Form 8-K dated February 10,
1989.
(e) Registered Note by Registrant to RAM 2 in connection with
the purchase of Sierra Marketplace, incorporated by
reference to Exhibit 10B to Registrant's Form 8 with
respect to Registrant's current report on Form 8-K dated
February 10, 1989, incorporated by reference to Exhibit
10(f) of Registrant's Report on Form 10-K for the year
ended December 31, 1989 (hereinafter the "1989 10-K").
(f) Settlement Agreement, dated October 17, 1990 among
Registrant, Integrated, First Interstate Bank of Denver
N.A., First Interstate Bank of Washington, N.A. and First
American National Bank, Incorporated, incorporated by
reference to Exhibit 10(a) to Registrant's Current Report
on Form 8-K dated December 19, 1990.
1
(g) Supervisory Management Agreement dated as of November 1,
1991 between Registrant and Resources Supervisory
Management Corporation incorporated by reference to
Exhibit 10(g) to Registrant's Report on Form 10K for the
year ended December 31, 1991.
(h) Management Agreement dated as of November 1, 1991 among
Registrant, Resources Supervisory Management Corp. and CB
Commercial Real Estate Group, Inc., incorporated by
reference to Exhibit 10(h) to Registrant's Report on Form
10-K for the year ended December 31, 1991.
(i) Exclusive Leasing Listing Agreement dated as of January 1,
1993 between Resources Supervisory Management Corp. and CB
Commercial Real Estate Group, Inc., incorporated by
reference to Exhibit 10(i) to Registrant's Report on Form
10-K for the year ended December 31, 1993.
(j) First Amendment to Exclusive Leasing Listing Agreement
dated as of January 1, 1994 between Resources Supervisory
Management Corp. and CB Commercial Real Estate Group,
Inc., incorporated by reference to Exhibit 100 to
Registrant's Report on Form 10-K for the year ended
December 31, 1993.
(k) Second Amendment to Management Agreement dated as of
January 1, 1994 between Resources Supervisory Management
Corp. and CB Commercial Real Estate Group, Inc.,
incorporated by reference to Exhibit 10(k) to Registrant's
Report on Form 10-K for the year ended December 31, 1993.
(l) Management Agreement dated September 22, 1999 between
Pembroke Supervisory Management, LLC and Colliers Nevada
Management, LLC, incorporated by reference to Exhibit 10.1
to Registrant's Quarterly Report on Form 10-Q for the
fiscal quarter ended September 30, 1999.
(m) Exclusive Leasing Listing Agreement dated September 9,
1999 between Pembroke Supervisory Management, LLC and
Colliers Nevada Management, LLC, incorporated by reference
to Exhibit 10.2 to Registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended September 30, 1999.
(n) Mortgage Loan Modification Agreement dated December 21,
2000 between High Cash Partners, L.P. and Resources
Accrued Mortgage Investors 2 L.P., incorporated by
reference to Exhibit 10.1 to Registrant's Current Report
on Form 8-K dated February 8, 2001.
(b) REPORT ON FORM 8-K:
No reports on Form 8-K were filed during the quarter ended
December 31, 2001.
2
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
HIGH CASH PARTNERS, L.P.
By: Pembroke HCP, LLC
Managing General Partner
Dated: March 29, 2002 By: Pembroke Companies, Inc.
Managing Member
By: /s/ Lawrence J. Cohen
--------------------------------
Lawrence J. Cohen
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of Registrant and in
the capacities (with respect to the Managing General Partner) and on the date
indicated.
Dated: March 29, 2002 /s/ Lawrence J. Cohen
-----------------------------------
Lawrence J. Cohen