UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
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.
(Sierra Marketplace)
c/o CB Commercial
5190 Neil Road
Suite 100
Reno, Nevada 89502-8500
______________
(Address of principal executive offices)
(212) 399-9193
______________
Registrant's telephone number, including area code)
411 West Putnam Avenue, Greenwich, CT 06830
______________
(Former name, former address and former fiscal year,'
if changed since last report)
Indicate by checkmark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes _X_ No
HIGH CASH PARTNERS, L.P.
FORM 10-Q - JUNE 30, 1997
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
BALANCE SHEETS - June 30, 1997 and December 31, 1996 . . .1
STATEMENTS OF OPERATIONS - For the three months
ended June 30, 1997 and 1996 and the six months
ended June 30, 1997 and 1996 . . . . . . . . . . . . . . . 2
STATEMENT OF PARTNERS' EQUITY - For the six
months ended June 30, 1997 . . . . . . . . . . . . . . . .3
STATEMENTS OF CASH FLOWS - For the six months
ended June 30, 1997 and 1996 . . . . . . . . . . . . . . .4
NOTES TO FINANCIAL STATEMENTS . . . . . . . . . . . . . .5-8
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . 9-11
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . .12
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . .13
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
HIGH CASH PARTNERS, L.P.
BALANCE SHEETS
June 30, December 31,
1997 1996
ASSETS
Real estate, net $15,780,526 $22,465,506
Cash and cash equivalents 2,208,496 1,774,565
Tenant receivables 314,375 78,929
Other assets 82,870 93,509
Prepaid insurance premiums 22,605 73,394
$18,408,872 $24,485,903
LIABILITIES AND PARTNERS' EQUITY
Liabilities
Deferred interest payable $10,087,876 $ 9,191,865
Mortgage loan payable 6,500,000 6,500,000
Accounts payable and accrued
expenses 102,854 125,520
Due to affiliates 78,852 78,817
Tenants' security deposits
payable 55,259 55,259
Distributions payable --- 305,007
Total liabilities 16,824,841 16,256,468
Commitments and contingencies
Partners' equity
Limited partners' equity
(as restated) (96,472
units issued and outstanding) 1,568,201 8,147,151
General partners' equity
(as restated) 15,830 82,284
Total partners' equity 1,584,031 8,229,435
$18,408,872 $24,485,903
HIGH CASH PARTNERS, L.P.
STATEMENTS OF OPERATIONS
For the three months For the six months
ended June 30, ended June 30,
1997 1996 1997 1996
Revenues
Rental income $807,782 $647,428 $1,428,959 $1,244,086
Interest income 32,043 16,751 45,754 27,719
Other income 3,930 890 3,930 1,641
843,755 655,069 1,478,643 1,273,446
Costs and expenses
Mortgage loan
interest 451,726 408,502 896,011 805,825
Operating 165,109 150,165 321,160 294,994
Depreciation and
amortization 100,328 115,964 222,064 236,699
Partnership
management fees 75,369 75,369 150,738 150,738
Property
management fees 12,861 19,426 31,430 37,716
Administrative 12,189 37,409 27,144 73,872
Write-down for
impairment 0 0 6,475,500 0
817,582 806,835 8,124,047 1,599,844
Net income (loss) $26,173 $(141,766) $(6,645,404) $(326,398)
Net income (loss)
attributable to
Limited Partners $25,911 $(140,348) $(6,578,950) $(323,134)
General
partners $ 262 $ (1,418) $ (66,454) $(3,264)
$26,173 $(141,766) $(6,645,404) $(326,398)
Net income (loss) per
unit of limited
partnership interest
(96,472 units
outstanding) $ 0.27 $ (1.46) $ (68.20) $ (3.35)
See notes to financial statements.
HIGH CASH PARTNERS, L.P.
STATEMENT OF PARTNERS' EQUITY
General Limited Total
Partners' Partners' Partners'
Equity Equity Equity
Balance, January 1, 1997 $(157,887) $8,387,322 $8,229,435
Reallocation of partners'
equity 240,171 (240,171) 0
Balance, January 1, 1997
(as restated) 82,284 8,147,151 8,229,435
Net loss for the six months
ended June 30, 1997 (66,454) (6,578,950) (6,645,404)
Balance, June 30, 1997 $15,830 $1,568,201 $1,584,031
See notes to financial statements.
HIGH CASH PARTNERS, L.P.
STATEMENTS OF CASH FLOWS
For the six months ended
June 30,
1997 1996
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS
Cash flows from operating activities
Net loss $(6,645,404) $(326,398)
Adjustments to reconcile net loss
to net cash provided by operating
activities
Write down for impairment 6,475,500 0
Deferred interest expense 896,011 805,825
Depreciation and amortization 222,064 236,699
Changes in assets and liabilities
Tenant receivables (235,446) 13,012
Other assets (1,945) (4,359)
Prepaid real estate taxes 0 59,393
Prepaid insurance premiums 50,789 2,943
Accounts payable and accrued
expenses (22,666) (1,081)
Due to affiliates 35 (1,374)
Tenants' security deposits payable 0 (400)
Net cash provided by
operating activities 738,938 784,260
Cash flow from investing activities
Additions to real estate 0 (30,400)
Cash flows from financing activities
Distributions to partners (305,007) (610,014)
Net increase in cash and cash
equivalents 433,931 143,846
Cash and cash equivalents,
beginning of period 1,774,565 1,407,276
Cash and cash equivalents,
end of period $2,208,496 $1,551,122
See notes to financial statements.
HIGH CASH PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
1. INTERIM FINANCIAL INFORMATION
The summarized financial information contained herein is
unaudited; however, in the opinion of management, all
adjustments (consisting only of normal recurring accruals)
necessary for a fair presentation of such financial
information have been included. The accompanying financial
statements, footnotes and discussions should be read in
conjunction with the financial statements, related footnotes
and discussions contained in the High Cash Partners, L.P.
(the "Partnership") annual report on Form 10-K for the year
ended December 31, 1996. The results of operations for the
six months ended June 30, 1997 are not necessarily
indicative of the results to be expected for the full year.
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
averaged over the life of the lease.
Depreciation
Depreciation is computed using the straight-line method over
the useful life of the property, which is estimated to be 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.
Write-down for impairment
A write-down for impairment is recorded based upon a
quarterly review of the property in the Partnership's
portfolio. Real estate property is carried at the lower of
depreciated cost or estimated fair value. In performing
this review, management considers the estimated fair value
of the property, based upon the undiscounted future cash
flows, as well as other factors, such as the current
occupancy, the prospects for the property and the economic
situation in the region where the property is located.
Because this determination of estimated fair value is based
HIGH CASH PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
upon future economic events, the amounts ultimately realized
upon a disposition may differ materially from the carrying
value.
A write-down is inherently subjective and is based upon
management's best estimate of current conditions and
assumptions about expected future conditions. The
Partnership may provide for write-downs in the future and
such write-downs could be material.
In performing its quarterly impairment review of the Sierra
property, prior management determined that the aggregate
undiscounted cash flows from the property over the
anticipated holding period were below its net carrying value
at March 31, 1997 and, therefore, an impairment existed.
Prior management performed an internal analysis of the fair
value of the property, which indicated an estimated fair
value of approximately $15,875,000. Consequently, a
write-down for impairment of $6,475,500 was recorded as of
March 31, 1997. A write-down for impairment was not
required for the three months ended June 30, 1997 or 1996.
Recently issued accounting pronouncement
The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share"
in February, 1997. This pronouncement establishes standards
for computing and presenting earnings per share, and is
effective for the Partnership's 1997 year-end financial
statements. The Partnership's management has determined
that this standard will have no impact on the Partnership's
computation or presentation of net income per unit of
limited partnership interest.
3. CHANGE IN GENERAL PARTNER OWNERSHIP, CONFLICTS OF INTEREST
AND TRANSACTIONS WITH RELATED PARTIES
Until June 13, 1997, Resources High Cash, Inc., a
wholly-owned subsidiary of XRC Corp. ('XRC'), and Presidio
AGP Corp. ('AGP'), a wholly-owned subsidiary of Presidio
Capital Corp. ('Presidio'), were the general partners of the
Partnership. On June 13, 1997, RHC and AGP sold their
general partnership interests to Pembroke HCP LLC ("Pembroke
HCP") and Pembroke AGP Corp. ("Pembroke AGP"), respectively.
In the same transaction, XRC sold its 8,361 limited
HIGH CASH PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
partnership units in the Partnership to Pembroke Capital II
LLC, an affiliate of Pembroke HCP and Pembroke AGP.
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, an affiliate of Pembroke HCP and Pembroke
AGP. A portion of the property management fees payable to
Resources Supervisory were paid to an unaffiliated
management company, which had been engaged for the purpose
of performing the property management functions that were
the subject of the supervisory management agreement. For
the quarters ended June 30, 1997 and 1996, Resources
Supervisory was entitled to receive $12,861 and $19,426,
respectively, of which $9,376 and $15,299, respectively, was
paid to the unaffiliated management company. No leasing
activity compensation was paid to Resources Supervisory for
the quarter ended June 30, 1997 or 1996. Current fees of
$3,483 were payable to Resources Supervisory at June 30,
1997, which were paid in the subsequent quarter.
Affiliates of RHC and AGP are engaged in businesses related
to the acquisition and operation of real estate. 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. See "Item 2.
Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital
Resources."
Prior to the sale of the general partnership interest in the
Partnership, Wexford Management LLC ("Wexford") had
performed management and administrative services for
Presidio, XRC and XRC's direct and indirect subsidiaries, as
well as for the Partnership. During the three months ended
June 30, 1997 and 1996, reimbursable expenses paid to
Wexford by the Partnership amounted to $4,167 and $5,175,
respectively.
HIGH CASH PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
For managing the affairs of the Partnership, the Managing General
Partner is entitled to an annual partnership management fee equal
to 1.25% of the gross offering proceeds. For each of the
quarters ended June 30, 1997 and 1996, the Managing General
Partner was entitled to a partnership management fee of $75,369.
Current fees aggregating $75,369 were payable to the former and
current Managing General Partner, in their pro-rata shares, at
June 30, 1997, which were paid in the subsequent quarter.
The general partners are allocated 1% of the net income or losses
of the Partnership, which amounted to losses of $2,093 and $1,418
in the quarters ended June 30, 1997 and 1996, respectively. They
also are entitled to receive 1% of distributions, which amounted
to $3,050 for the quarter ended June 30, 1996.
4. REAL ESTATE
Real estate is summarized as follows:
June 30, December 31
1997 1996
Land $6,667,189 $8,868,859
Building and improvements 12,791,547 17,065,377
__________ __________
19,458,736 25,934,236
Accumulated Depreciation (3,678,210) (3,468,730)
___________ ___________
$15,780,526 $22,465,506
5. DISTRIBUTIONS PAYABLE
Distributions payable are as follows:
December 31
1996
Limited partners $ 301,957
General Partners 3,050
___________
$ 305,007
HIGH CASH PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
Such distributions were paid during the first quarter of 1997.
No distributions are payable for
the second quarter of 1997.
6. PARTNERS' EQUITY
The General Partners hold a 1% equity interest in the
Partnership. However, at the inception of the Partnership,
the General Partners' equity account was credited only with
the $1,000 of actual capital contributed in cash. The
Partnership's prior management determined that this
accounting did not appropriately reflect the Limited
Partners' and the General Partners' relative participating
in the Partnership's net assets, since it did not reflect
the General Partners' 1% equity interest in the Partnership.
Thus, the Partnership has restated its financial statements
to reallocate $240,171 (1% of the gross proceeds raised at
the Partnership's formation) of the partners' equity to the
General Partners' equity account. This reallocation was
made as of the inception of the Partnership and all periods
presented in the financial statements have been restated to
reflect the reallocation. The reallocation has no impact on
the Partnership's financial position, results of operations,
cash flows, distributions to partners, or the partners' tax
basis capital accounts.
7. DUE TO AFFILIATES
Due to affiliates are as follows:
June 30 December 31,
1997 1996
Partnership Management Fee $75,369 $75,369
Supervisory Management Fee 3,483 3,448
_______ ________
$78,852 $78,817
Such amounts were paid during July 1997 and February 1997,
respectively.
HIGH CASH PARTNERS, L.P.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Partnership's sole property is a community shopping
center in Reno, Nevada containing approximately 233,000
square feet of net rentable area.
The Partnership uses working capital reserves set aside from
the net proceeds of its public offering and undistributed
cash flow from operations as its primary measure of
liquidity. The Partnership's working capital reserves
initially consisted of 5% of the gross proceeds from its
public offering that were set aside. As of June 30, 1997,
working capital reserves amounted to approximately
$2,208,000, which may be used to fund capital expenditures,
insurance, real estate taxes and loan payments. All
expenditures made during the quarter ended June 30, 1997
were funded from cash flow from operations.
The Partnership's mortgage loan payable to RAM 2 contains a
provision that requires the Partnership to provide RAM 2
with a current appraisal of the Sierra Property upon RAM 2's
request. If it is determined, based upon the requested
appraisal, that the sum of (i) the principal balance of the
mortgage loan plus all other then outstanding indebtedness
secured by the property and (ii) all accrued and unpaid
interest in excess of 5% per annum of the principal balance
of such mortgages exceeds 85% of the appraised value, an
amount equal to such excess would become immediately due and
payable to RAM 2. RAM 2 did not request such an appraisal
during 1996 or the six months ended June 30, 1997, but RAM 2
may make such a request in the future.
The Partnership recorded a write-down on the Sierra Property
to a fair value of approximately $15,825,000 as of March 31,
1997. If RAM 2 requests an appraisal and the fair value of
the property at that time equals $15,825,000, the
Partnership has determined that the excess interest
described above will begin to become due to RAM 2 as early
as December 1997. Consequently, the Partnership has
declared no distribution payable for the six months ended
June 30, 1997 and will not declare any distribution for the
foreseeable future in order to build up cash reserves.
HIGH CASH PARTNERS, L.P.
To the extent that adjusted cash from operations during the
operating years exceeds 11% per annum, noncumulative, of
original contributions of the offering, such excess may be
retained in a separate reserve account to prepay a portion
of RAM 2's loan obligations. However, it is unlikely that
adjusted cash flow will exceed such a threshold in the near
future.
The Managing General Partner believes that cash flow from
operations combined with current working capital reserves
will be sufficient to fund future essential capital
expenditures. A portion of capital expenditures consists of
capitalized lease procurement costs. Since the level of
leasing activity cannot be predicted with any degree of
certainty, the Partnership cannot accurately estimate
capital expenditures for the remainder of the year, but
believes that its existing reserves will be sufficient.
However, the Partnership may not have sufficient liquidity
to make the payments that may be required under the terms of
the RAM 2 loan in certain circumstances. In that event,
there would be a default on the RAM 2 loan, which could
materially and adversely affect the Partnership.
Real estate market
A substantial decline in the market value of the
Partnership's property reflects real estate market
conditions in the vicinity of that property. Recently built
shopping centers in the vicinity have increased competition
for non-anchor tenants. This competitive factor, together
with the fact that much of the unleased space in the
Partnership's property has only limited visibility to the
main thoroughfare, have hindered the lease-up of space. As
a result, the Partnership's investment in its property is at
risk.
Write-down for impairment
A write-down for impairment is recorded based upon a
quarterly review of the property in the Partnership's
portfolio. Real estate property is carried at the lower of
depreciated cost or estimated fair value. In performing
this review, management considers the estimated fair value
of the property based upon the undiscounted future cash
flows, as well as other factors, such as the current
occupancy, the prospects for the property and the economic
HIGH CASH PARTNERS, L.P.
situation in the region where the property is located.
Because this determination of estimated fair value is based
upon future economic events, the amounts ultimately realized
upon a disposition may differ materially from the carrying
value.
A write-down is inherently subjective and is based upon
management's best estimate of current conditions and
assumptions about expected future conditions. The
Partnership may provide for write-downs in the future and
such write-downs could be material.
In performing its quarterly impairment review of the Sierra
property during the first quarter of 1997, prior management
determined that the aggregate undiscounted cash flows from
the property over the anticipated holding period were below
its net carrying value at March 31, 1997 and, therefore, an
impairment existed. Prior management performed an internal
analysis of the property, which indicated an estimated fair
value of approximately $15,875,000. Consequently, a
write-down for impairment of $6,475,500 was recorded as of
March 31, 1997. A write-down for impairment was not
required for the three months ended June 30, 1997 and 1996.
Results of operations
The net loss increased for the six months ended June 30,
1997 compared with the corresponding period in 1996. The
increase was primarily a result of the write-down for
impairment recorded in the first quarter of 1997 discussed
above. For the three months ended June 30, 1997, net income
was $26,173 compared with a net loss of $141,766 for the
corresponding period in 1996; this resulted from an increase
in rental income.
Revenues increased for both the three and six months ended
June 30, 1997 compared with the corresponding periods in
1996, primarily due to an increase in base rentals and
interest income.
Costs and expenses increased for both the three and six
months ended June 30, 1997 compared with the corresponding
periods in 1996, primarily due to the write-down for
impairment recorded in 1997, and an increase in mortgage
HIGH CASH PARTNERS, L.P.
interest expense, partially offset by a decrease in general
and administrative expense. Mortgage loan interest expense
increased due to the compounding effect from the deferral of
the interest expense on the zero coupon mortgage. General
and administrative expense decreased as a result of actual
1996 payroll costs being less than anticipated and reversed
in 1997.
PART II - OTHER INFORMATION
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: None
(b) Reports on Form 8-K:Current report on Form 8-K dated
June 25, 1997.
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 Companies, Inc.,
Managing General Partner
By: Pembroke HCP, LLC
Managing Member
Dated: August 14, 1997 By: /s/ Lawrence J. Cohen
Lawrence J. Cohen
President and Principal Financial
and Accounting Officer