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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 March 31, 1998
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 Real Estate Group, Inc.
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
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HIGH CASH PARTNERS, L.P.
FORM 10-Q - MARCH 31, 1998
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
BALANCE SHEETS - March 31, 1998 and December 31, 1997 1
STATEMENTS OF OPERATIONS - For the three months ended
March 31, 1998 and 1997 2
STATEMENT OF PARTNERS' EQUITY - For the three months
ended March 31, 1998 3
STATEMENTS OF CASH FLOWS - For the three months
ended March 31, 1998 and 1997 4
NOTES TO FINANCIAL STATEMENTS 5-6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 7-9
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 10
SIGNATURES 11
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
HIGH CASH PARTNERS, L.P.
BALANCE SHEETS
March 31, December 31,
1998 1997
ASSETS
Real estate, net $ 15,472,302 $ 15,551,179
Cash and cash equivalents 3,359,272 3,052,039
Tenant receivables, net 64,977 29,737
Other assets 50,271 53,739
Prepaid insurance premiums 22,042 29,511
Prepaid real estate taxes 60,148 -
$ 19,029,012 $ 18,716,205
LIABILITIES AND PARTNERS' EQUITY
Liabilities
Mortgage loan payable $ 6,500,000 $ 6,500,000
Deferred interest payable 11,537,106 11,040,481
Accounts payable and accrued
expenses 109,389 127,680
Due to affiliates 2,948 2,890
Tenants' security deposits
payable 54,579 54,579
Total liabilities 18,204,022 17,725,630
Commitments and contingencies
Partners' equity
Limited partners' equity
(96,472 units issued
and outstanding) 816,740 980,669
General partners' equity 8,250 9,906
Total partners' equity 824,990 990,575
$ 19,029,012 $ 18,716,205
HIGH CASH PARTNERS, L.P.
STATEMENTS OF OPERATIONS
For the three months ended
March 31,
1998 1997
Revenues
Rental income $ 595,281 $ 621,177
Interest income 37,812 13,711
Other income 1,550 -
634,643 634,888
Costs and expenses
Mortgage loan interest 496,625 444,285
Operating 110,300 156,051
Depreciation and amortization 84,483 121,736
Partnership management fees 75,369 75,369
Property management fees 17,687 18,569
Administrative 15,764 14,955
Write-down for impairment - 6,475,500
800,228 7,306,465
Net loss $ (165,585) $ (6,671,577)
Net loss attributable to
Limited partners $ (163,929) $ (6,604,861)
General partners (1,656) (66,716)
$ (165,585) $ (6,671,577)
Net loss per unit of
limited partnership
interest (96,472
units outstanding) $ (1.70) $ (68.46)
HIGH CASH PARTNERS, L.P.
STATEMENT OF PARTNERS' EQUITY
General Limited Total
Partners' Partners' Partners'
Equity Equity Equity
Balance, January 1, 1998 $ 9,906 $ 980,669 $ 990,575
Net loss for the three
months ended
March 31, 1998 (1,656) (163,929) (165,585)
Balance, March 31, 1998 $ 8,250 $ 816,740 $ 824,990
HIGH CASH PARTNERS, L.P.
STATEMENTS OF CASH FLOWS
For the three months ended
March 31,
1998 1997
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS
Cash flows from operating
activities
Net loss $ (165,585) $ (6,671,577)
Adjustments to reconcile
net loss to net cash
provided by operating
activities
Write-down for impairment - 6,475,500
Deferred interest expense 496,625 444,285
Depreciation and
amortization 84,483 121,736
Changes in assets and
liabilities
Tenant receivables (35,240) -
Other assets (2,138) 6,617
Prepaid real estate taxes (60,148) (58,600)
Prepaid insurance premiums 7,469 21,139
Accounts payable and accrued
expenses (18,291) (14,760)
Due to affiliates 58 (351)
Net cash provided by
operating activities 307,233 323,989
Cash flows from financing activities
Distributions to partners - (305,007)
Net increase in cash and cash
equivalents 307,233 18,982
Cash and cash equivalents,
beginning of period 3,052,039 1,774,565
Cash and cash equivalents,
end of period $ 3,359,272 $ 1,793,547
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, 1997. The results of
operations for the three months ended March 31, 1998 are
not necessarily indicative of the results to be expected
for the full year.
2. CHANGE IN GENERAL PARTNER OWNERSHIP, CONFLICTS OF INTEREST
AND TRANSACTIONS WITH RELATED PARTIES
On June 13, 1997, Resources High Cash, Inc. ("RHC") and
Presidio AGP Corp. ("AGP") sold their general partnership
interests in the Partnership to Pembroke HCP LLC ("Pembroke
HCP") and Pembroke AGP Corp. ("Pembroke AGP"),
respectively. In the same transaction, XRC Corp., the
parent company of RHC, sold its 8,361 Units to Pembroke
Capital II, LLC, an affiliate of Pembroke HCP and Pembroke
AGP. Subsequently, Pembroke Capital II LLC acquired
beneficial ownership of an aggregate of an additional 1,640
Units in the secondary market.
Prior to the sale of the general partnership interest in
the Partnership to Pembroke HCP and Pembroke AGP, Wexford
Management LLC ("Wexford") had performed management and
administrative services for Presidio, XRC and XRC's direct
and indirect subsidiaries, as well as for the Partnership.
Following the sale, an affiliate of Pembroke HCP was
engaged to perform administrative services for the
Partnership. During the quarter ended March 31, 1998,
$9,000 in reimbursable payroll expenses was payable to the
affiliate of Pembroke HCP for services performed during the
quarter.
The Partnership had been a party to a supervisory
management agreement with Resources Supervisory Management
Corp. ("Resources Supervisory"), an affiliate of RHC and
AGP, pursuant to which Resources Supervisory performed
certain property management functions. Resources
Supervisory performed such services through June 13, 1997.
Effective June 13, 1997, the Partnership terminated this
agreement and entered into a similar agreement with
Pembroke Realty Management LLC ("Pembroke Realty"), an
affiliate of Pembroke HCP and Pembroke AGP. A portion of
the property management fees payable to Resources
Supervisory and Pembroke Realty 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 March 31, 1998 and 1997,
Pembroke Realty and Resources Supervisory collectively were
entitled to receive $17,687 and $18,569, respectively, of
which $14,739 and $15,471, respectively, was payable to the
unaffiliated management company. No leasing activity
compensation was paid to Pembroke Realty or Resources
Supervisory for the quarter ended March 31, 1998 or 1997.
Current fees of $2,948 were payable to Pembroke Realty at
March 31, 1998, which were paid in the subsequent quarter.
3. CHANGE IN GENERAL PARTNER OWNERSHIP, CONFLICTS OF INTEREST
AND TRANSACTIONS WITH RELATED PARTIES (continued)
For managing the affairs of the Partnership, the Managing
General Partner is entitled to an annual partnership
management fee equal to $301,475. For each of the quarters
ended March 31, 1998 and 1997, the Managing General Partner
was entitled to a partnership management fee of $75,369.
The general partners are allocated 1% of the net income or
losses of the Partnership, which amounted to losses of
$1,656 and $66,716 in the quarters ended March 31, 1998 and
1997, respectively. They also are entitled to receive 1%
of distributions.
4. REAL ESTATE
Real estate, which is the Partnership's sole asset, is
summarized as follows:
March 31, December 31,
1998 1997
Land $ 6,667,189 $ 6,667,189
Building and improvements 12,800,714 12,800,714
19,467,903 19,467,903
Accumulated depreciation (3,995,601) (3,916,724)
$ 15,472,302 $ 15,551,179
The land, building and improvements that comprise the
Partnership's sole asset are collateralized by a mortgage
loan payable. In performing its quarterly impairment
review of the Partnership's 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. At that time, prior management
estimated the fair value of the property to be
approximately $15,875,000. Consequently, 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
was allocated to building and improvements. No write-down
for impairment was required during the three months ended
March 31, 1998.
5. DUE TO AFFILIATES
The amounts due to affiliates are as follows:
March 31, December 31,
1998 1997
Supervisory Management Fee $ 6,667,189 $ 6,667,189
ITEM 2- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Partnership's sole property is a community
shopping center located in Reno, Nevada containing
approximately 233,000 square feet of net leasable
area.
The Partnership uses working capital reserves set
aside from the net proceeds of its public offering in
1989 and undistributed cash flow from operations as
its primary measure of liquidity. As of March 31,
1998, working capital reserves amounted to
approximately $3,450,000, which may be used to fund
capital expenditures, insurance, real estate taxes and
loan payments. All expenditures made during the
quarter ended March 31, 1998 were funded from cash
flow from operations.
At March 31, 1998, the total amount outstanding on the
Partnership's mortgage loan payable to Resources
Accrued Mortgage Investors 2 L.P. ("RAM 2") was
$18,037,106, which included deferred interest payable
of $11,537,106. 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. See "Write-Down for Impairment" below.
The mortgage further requires the Partnership to
provide RAM 2 with a current appraisal of the
Partnership's property upon RAM 2's request. If it is
determined, based upon the requested appraisal, that
the sum of (i) the principal balance of the mortgage
loan plus all other then outstanding indebtedness
secured by the property and (ii) all accrued and
unpaid interest on the mortgage at 6.22% per annum,
compounded monthly (that sum, the "Measurement
Amount"), exceeds 85% of the appraised value, an
amount equal to such excess would become immediately
due and payable to RAM 2.
To date, the lender has not requested an appraisal.
There can be no assurance that, if the lender requests
an appraisal, 85% of the appraised value will equal
the Measurement Amount. At March 31, 1998, the
Measurement Amount was approximately $11,460,000,
which was approximately $2,034,000 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.
Until November 1997, Levitz Furniture Corporation
("Levitz") had occupied approximately 23% of the space
of the Partnership's property (i.e., approximately
53,000 out of approximately 233,000 square feet of net
leasable area). In November 1997, Levitz, which had
filed for protection under Chapter 11 of the
Bankruptcy Code, vacated its space. Levitz ceased
paying rent to the Partnership as of April 2, 1998.
The vacancy at the Levitz space will result in a loss
of income to the Partnership, and 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 Levitz
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, and
therefore, the amount of further capital expenditures
arising from leasing activity is uncertain. There can
be no assurance the Partnership will have sufficient
liquidity both to make such capital expenditures, and
to make the payments that may be required under the
terms of the RAM 2 loan. If there is a default on the
RAM 2 loan, the Partnership would be materially and
adversely affected. Consequently, the Partnership has
declared no distribution payable for the three months
ended March 31, 1998 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 be vacant for at least some
period, have hindered the lease-up of new space. As a
result, the Partnership's investment in its property
is at risk.
Write-Down for Impairment
The Partnership's property is reflected in the
Partnership's financial statements at the lower of
depreciated cost or estimated fair value. A
write-down for impairment with respect to the
Partnership's property may be recorded from time to
time based upon quarterly reviews of the property. In
performing this review, management considers the
estimated fair value of the property based upon
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 of the property may differ
materially from the value reflected in the
Partnership's financial statements. A write-down for
impairment is inherently subjective and is based upon
management's best estimate of current conditions and
assumptions about expected future conditions.
In the first quarter of 1997, prior management
determined that the aggregate undiscounted cash flows
from the property over the anticipated holding period
were below the value of the property reflected in the
Partnership's financial statements at March 31, 1997
and, therefore, an impairment existed. At that time,
prior management estimated the fair value of the
property to be approximately $15,875,000.
Consequently, a write-down for impairment of
$6,475,500 was recorded at March 31, 1997.
No additional write-down for impairment has been
required since March 31, 1997. However, the
Partnership may provide for additional write-downs in
the future and such write-downs could be material.
Results of Operations
The net loss decreased for the quarter ended March 31,
1998 compared with the quarter ended March 31, 1997,
which primarily reflects the write-down for impairment
recorded in the 1997 period. See "Liquidity and
Capital Resources" above.
Revenues decreased slightly for the quarter ended
March 31, 1998 compared with the quarter ended March
31, 1997, primarily due to a decrease in rental
revenue, which resulted from additional tenant
reimbursements being recorded during the earlier
period, partially offset by an increase in interest
income in the latter period (principally due to the
build-up of cash reserves referred to in "Liquidity
and Capital Resources" above).
Costs and expenses decreased for the quarter ended
March 31, 1998 compared with the quarter ended March
31, 1997, which primarily reflects the write-down for
impairment recorded in the 1997 period. Decreases in
operating and depreciation expenses were partially
offset by an increase in mortgage loan interest
expense. Operating expenses decreased as a result of
lower repairs and maintenance costs. The decrease in
depreciation expense reflects the impairment recorded
in the 1997 period. Mortgage loan interest expense
increased due to the compounding effect from the
deferral of the interest expense on the zero coupon
mortgage.
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: May 14, 1998 By: /s/ Lawrence J. Cohen
Lawrence J. Cohen
President and Principal
Financial and Accounting Officer