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 September 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)
None
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by checkmark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ________
HIGH CASH PARTNERS, L.P.
FORM 10-Q - SEPTEMBER 30, 1997
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
BALANCE SHEETS - September 30, 1997 and
December 31, 1996 1
STATEMENTS OF OPERATIONS - For the three
months ended September 30, 1997 and
1996 and the nine months ended
September 30, 1997 and 1996 2
STATEMENT OF PARTNERS' EQUITY - For the
nine months ended September 30, 1997 3
STATEMENTS OF CASH FLOWS - For the nine
months ended September 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
September 30, December 31,
1997 1996
ASSETS
Real estate, net $ 15,710,526 $ 22,465,506
Cash and cash
equivalents 2,581,911 1,774,565
Tenant receivables 219,103 78,929
Other assets 74,691 93,509
Prepaid insurance
premiums 2,128 73,394
$ 18,588,359 $ 24,485,903
LIABILITIES AND PARTNERS' EQUITY
Liabilities
Deferred interest
payable $ 10,557,530 $ 9,191,865
Mortgage loan payable 6,500,000 6,500,000
Accounts payable and
accrued expenses 133,714 125,520
Due to affiliates 4,390 78,817
Tenants' security
deposits payable 55,259 55,259
Distributions payable - 305,007
Total liabilities 17,250,893 16,256,468
Commitments and contingencies
Partners' equity
Limited partners' equity
(as restated) (96,472
units issued and
outstanding) 1,324,102 8,147,151
General partners'
equity(as restated) 13,364 82,284
Total partners' equity 1,337,466 8,229,435
$ 18,588,359 $ 24,485,903
HIGH CASH PARTNERS, L.P.
STATEMENTS OF OPERATIONS
For the three months For the nine months
ended September 30, ended September 30,
1997 1996 1997 1996
Revenues
Rental income $ 661,520 $ 706,731 $ 1,994,399 $1,950,817
Investment
Income 27,416 18,909 73,170 46,628
Other income 1,390 - 5,320 1,641
690,326 725,640 2,072,889 1,999,086
Costs and expenses
Mortgage loan
interest 469,654 415,942 1,365,665 1,221,767
Operating 138,466 139,332 469,626 434,326
Depreciation and
amortization 77,535 118,480 299,599 355,179
Partnership
management fees 75,369 75,369 226,107 226,107
Property manage-
ment fees 19,846 21,202 59,834 58,918
Administrative 31,383 35,210 68,527 109,082
Write-down for
impairment - - 6,475,500 -
812,253 805,535 8,964,858 2,405,379
Net loss $(121,927) $(79,895) $(6,891,969) $ (406,293)
Net loss attribut-
able to
Limited
partners $(120,708) $(79,096) $(6,823,049) $ (402,230)
General part-
ners (1,219) (799) (68,920) (4,063)
$(121,927) $(79,895) $(6,891,969) $ (406,293)
Net loss per unit
of limited part-
nership interest
(96,472 units
outstanding) $ (1.25) $ (0.82) $ (70.73) $ (4.17)
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) -
Balance, January 1,
1997 (as restated) 82,284 8,147,151 8,229,435
Net loss for the nine
months ended
September 30, 1997 (68,920) (6,823,049) (6,891,969)
Balance, September 30,
1997 $ 13,364 $ 1,324,102 $ 1,337,466
HIGH CASH PARTNERS, L.P.
STATEMENTS OF CASH FLOWS
For the nine months ended
September 30,
1997 1996
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS
Cash flows from operating
activities
Net loss $(6,891,969) $ (406,293)
Adjustments to reconcile
net loss to net cash
provided by operating
activities
Write-down for
impairment 6,475,500 -
Deferred interest
expense 1,365,665 1,221,767
Depreciation and
amortization 299,599 355,179
Changes in assets and
liabilities
Tenant receivables (140,174) 13,012
Other assets (1,301) (4,819)
Prepaid real estate
taxes - 793
Prepaid insurance
premiums 71,266 28,000
Accounts payable and
accrued expenses 8,194 18,221
Due to affiliates (74,427) (1,964)
Tenants' security
deposits payable - (400)
Net cash provided
by operating
activities 1,112,353 1,223,496
Cash flows from investing
activities
Additions to real estate - (30,400)
Cash flows from financing
activities
Distributions to partners (305,007) (915,022)
Net increase in cash and cash
equivalents 807,346 278,074
Cash and cash equivalents,
beginning of period 1,774,565 1,407,276
Cash and cash equivalents,
end of period $ 2,581,911 $ 1,685,350
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
nine months ended September 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
HIGH CASH PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
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
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 additional 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.
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.
HIGH CASH PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
3. CHANGE IN GENERAL PARTNER OWNERSHIP, CONFLICTS OF INTEREST
AND TRANSACTIONS WITH RELATED PARTIES
Until June 13, 1997, Resources High Cash, Inc. ("RHC"), 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
partnership units in the Partnership ("Units") to Pembroke
Capital II LLC, an affiliate of Pembroke HCP and Pembroke
AGP. In September, 1997, Pembroke Capital II LLC acquired
an additional 72 Units in the secondary market.
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
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 nine months ended
September 30, 1997 and 1996, Resources Supervisory and
Pembroke Realty collectively were entitled to receive
$59,834 and $58,918, respectively, of which $49,862 and
$49,098, respectively, was payable to the unaffiliated
management company. No leasing activity compensation was
paid to Resources Supervisory or Pembroke Realty for the
quarters ended September 30, 1997 or 1996. Current fees of
$4,390 were payable to Pembroke Realty at September 30,
1997, which were paid in the subsequent quarter.
HIGH CASH PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
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
September 30, 1997 and 1996, reimbursable expenses paid to
Wexford by the Partnership amounted to $0 and $18,391,
respectively.
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 September 30, 1997
and 1996, the Managing General Partner was entitled to a
partnership management fee of $75,369. Current fees
aggregating $226,107 for the nine months ended September 30,
1997 were payable to the former and current Managing General
Partners, in their pro-rata shares. Such fees amounted to
$135,830 and $90,277, which were paid to the former and
current Managing General Partners, respectively.
The general partners are allocated 1% of the net income or
losses of the Partnership, which amounted to losses of
$2,563 and $799 in the quarters ended September 30, 1997 and
1996, respectively. They also are entitled to receive 1% of
distributions.
4. REAL ESTATE
Real estate is summarized as follows:
HIGH CASH PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
September 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 (3,748,210) (3,468,730)
$ 15,710,526 $ 22,465,506
A write-down for impairment of $6,475,500 was recorded as of
March 31, 1997, of which $2,201,670 was allocated to land
and $4,273,830 to building and improvements.
5. DISTRIBUTIONS PAYABLE
Distributions payable are as follows:
December 31
1996
Limited partners $ 301,957
General Partners 3,050
$ 305,007
Such distributions were paid during the first quarter of
1997. No distributions were payable for the nine months
ended September 30, 1997.
HIGH CASH PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
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 participations
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:
September 30, December 31,
1997 1996
Partnership Manage-
ment Fee $ - $ 75,369
Supervisory Property
Management Fee 4,390 3,448
$ 4,390 $ 78,817
Such amounts were paid during October, 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 located 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 September 30,
1997, working capital reserves amounted to approximately
$2,684,470, which may be used to fund capital expenditures,
insurance, real estate taxes and loan payments. All
expenditures made during the quarter ended September 30,
1997 were funded from cash flow from operations.
At September 30, 1997, the total amount outstanding on the
Partnership's mortgage loan payable to RAM 2 was
$17,057,730, which included deferred interest payable of
$10,557,530. The mortgage does not permit a prepayment
before March 1, 1999, and, therefore, the Partnership may
not be able to refinance the mortgage before that date. At
March 1, 1999, the total amount outstanding on the mortgage
is expected to be approximately $20,000,000. If the value
of the property does not exceed $20,000,000 at March 1,
1999, the Partnership may not be able to refinance the
mortgage at that time. The mortgage matures on February 28,
2001. At that time, the total amount outstanding on the
mortgage is expected to be approximately $25,000,000. If
the value of the property at that time does not exceed
$25,000,000, the Partnership may lose its entire investment
in the property. In that connection, in the first quarter
of 1997, the value of the property was written down to
$15,875,000.
The mortgage further requires the Partnership to provide RAM
2 with a current appraisal of the Partnership's property
upon RAM 2's request. If it is determined, based upon the
requested appraisal, that the sum of (i) the principal
balance of the mortgage loan plus all other then outstanding
indebtedness secured by the property and (ii) all accrued
and unpaid interest on the mortgage at 6.22% per annum,
compounded monthly (that sum, the "Measurement Amount"),
exceeds 85% of the appraised value, an amount equal to such
excess would become immediately due and payable to RAM 2.
To date, the lender has not requested an appraisal, and
there can be no assurance that, if the lender requests an
appraisal, 85% of the appraised value at that time will
equal the Measurement Amount. At September 30, 1997, the
Measurement Amount was approximately $11,071,000, which was
approximately $2,423,000 less than 85% of the $15,875,000
value to which the property was written down in the first
quarter of 1997. As interest on the mortgage accrues, the
Measurement Amount will increase, and, therefore, unless the
value of the property increases sufficiently from the value
to which it was written down in the first quarter of 1997,
the Measurement Amount eventually will exceed 85% of the
appraised value of the property.
Levitz Furniture Corporation ("Levitz"), which recently
sought protection under Chapter 11 of the Bankruptcy Code,
has obtained bankruptcy court authorization to close its
store at space Levitz occupies at the Partnership's
property. Levitz also is authorized to reject the lease on
ten days' prior written notice to the Partnership, in which
event the Partnership intends to file a claim for damages
arising from the rejection. Levitz also may seek a court
order to authorize the assignment of the lease to a third
party.
Levitz occupies approximately 23% of the space at the
Partnership's property (i.e., approximately 53,000 square
feet out of approximately 233,000 square feet of total net
rentable area). Rent under the lease for each of the nine-
month periods ended September 30,1996 and 1997 was
approximately $320,000, which was approximately 16% of the
Partnership's total rental income in each such period.
The Levitz space is expected to become vacant for at least
some period, which will result in a loss of income and which
may adversely affect the surrounding 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 substitute tenant.
However, there can be no assurance the Partnership will
succeed in finding a substitute tenant promptly or on terms
comparable to those under the existing lease. In addition,
the Partnership expects to make substantial expenditures in
order to secure a substitute tenant and in connection with a
new lease.
The level of leasing activity cannot be predicted,
particularly in light of the Levitz situation.
Accordingly, the Partnership cannot accurately estimate
further capital expenditures. As a consequence, there can
be no assurance the Partnership will have sufficient
liquidity both to make such capital expenditures, and to
make the payments that may be required under the terms of
the RAM 2 loan. If there is a default on the RAM 2 loan,
the Partnership would be materially and adversely affected.
Consequently, the Partnership has declared no distribution
payable for the nine months ended September 30, 1997 and
will not declare any distribution for the foreseeable future
in order to build up cash reserves.
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 tenants. This competitive factor, together with the
fact that much of the unleased space in the Partnership's
property (including the Levitz space) has only limited
visibility to the main thoroughfare and the fact that the
space occupied by Levitz is expected to become vacant for at
least some period, 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 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 additional 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. An additional write-down for impairment was
not required for the three months ended September 30, 1997
and 1996.
Results of operations
Revenues increased for the nine months ended September 30,
1997 compared with the corresponding period in 1996,
primarily due to an increase in base rentals in the first
six months in 1997 and an increase in interest income
throughout the first nine months in 1997, in each case
compared with the corresponding periods in 1996. However,
revenues decreased in the three months ended September 30,
1997 compared with the corresponding period in 1996,
primarily due to price escalation billings paid in the 1996
period in respect of earlier periods.
Costs and expenses increased for both the nine and three
months ended September 30, 1997 compared with the
corresponding periods in 1996, primarily due to the
$6,475,500 write-down for impairment recorded in the first
quarter of 1997 and an increase in mortgage interest
expense, partially offset by a decrease in general and
administrative expenses. Mortgage interest expense
increased due to the compounding effect from the deferral of
the interest expense on the zero coupon mortgage; interest
expense increased by $53,712 and $143,898, respectively, for
the nine and three months ended September 30, 1997 compared
with the corresponding periods in 1996. General and
administrative expense decreased as a result of actual 1996
payroll costs being less than anticipated and reversed in
1997.
As a result of the foregoing, the net loss increased for
both the nine and three months ended September 30, 1997
compared with the corresponding periods in 1996. For the
nine months ended September 30, 1997, the net loss was
$6,901,684 compared with $406,293 for the corresponding
period in 1996. For the three months ended September 30,
1997, the net loss was $121,927 compared with $79,895 for
the corresponding period in 1996.
PART II - OTHER INFORMATION
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: None
(b) Reports on Form 8-K: None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
HIGH CASH PARTNERS, L.P.
By: Pembroke HCP, LLC
Managing General Partner
By: Pembroke Companies, Inc.,
Managing Member
Dated: November 14, 1997 By: /s/ Lawrence J. Cohen
Lawrence J. Cohen
President and Principal
Financial and Accounting
Officer