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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 June 30, 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 JUNE 30, 1998
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
BALANCE SHEETS - June 30, 1998 and December 31, 1997 1
STATEMENTS OF OPERATIONS - For the three months ended
June 30, 1998 and 1997 and for the six months ended
June 30, 1998 and 1997 2
STATEMENT OF PARTNERS' EQUITY - For the six months
ended June 30, 1998 3
STATEMENTS OF CASH FLOWS - For the six months
ended June 30, 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
June 30, December 31,
1998 1997
ASSETS
Real estate, net $ 15,394,395 $ 15,551,179
Cash and cash equivalents 3,719,908 3,052,039
Tenant receivables, net 202,634 29,737
Other assets 55,466 53,739
Prepaid insurance premiums 9,073 29,511
---------- -----------
$ 19,381,476 $ 18,716,205
---------- -----------
LIABILITIES AND PARTNERS' EQUITY
Liabilities
Mortgage loan payable $ 6,500,000 $ 6,500,000
Deferred interest payable 12,046,219 11,040,481
Accounts payable and accrued
expenses 86,600 127,680
Due to affiliates 113 2,890
Tenants' security deposits
payable 57,979 54,579
---------- -----------
Total liabilities 18,690,911 17,725,630
---------- -----------
Commitments and contingencies
Partners' equity
Limited partners' equity
(96,472 units issued
and outstanding) 683,659 980,669
General partners' equity 6,906 9,906
------- -------
Total partners' equity 690,565 990,575
------- --------
$ 19,381,476 $ 18,716,205
----------- ----------
HIGH CASH PARTNERS, L.P.
STATEMENTS OF OPERATIONS
For the three months ended
June 30,
1998 1997
Revenues
Rental income $ 665,070 $ 807,782
Interest income 42,269 32,043
Other income 467 3,930
------- -------
707,806 843,755
------- -------
Costs and expenses
Mortgage loan interest 509,113 451,726
Operating 126,209 165,109
Depreciation and amortization 89,146 100,328
Partnership management fees 75,369 75,369
Property management fees 15,078 12,861
Administrative 27,316 12,189
Write-down for impairment - -
------- -------
842,231 817,582
------- -------
Net (loss) Income $ (134,425) $ 26,173
Net (loss) Income attributable to
Limited partners $ (133,081) $ 25,911
General partners (1,344) 262
-------- -------
$ (134,425) $ 26,173
-------- -------
Net (loss) Income per unit of
limited partnership
interest (96,472
units outstanding) $ (1.38) $ .27
-------- -------
HIGH CASH PARTNERS, L.P.
STATEMENTS OF OPERATIONS
For the six months ended
June 30,
1998 1997
Revenues
Rental income $ 1,260,351 $ 1,428,959
Interest income 80,081 45,754
Other income 2,017 3,930
-------- ---------
1,342,449 1,478,643
-------- ---------
Costs and expenses
Mortgage loan interest 1,005,738 896,011
Operating 236,509 321,160
Depreciation and amortization 173,629 222,064
Partnership management fees 150,738 150,738
Property management fees 32,765 31,430
Administrative 43,080 27,144
Write-down for impairment - 6,475,500
--------- ----------
1,642,459 8,124,047
Net (loss) Income $ (300,010) $ (6,645,404)
---------- -----------
Net (loss) Income attributable to
Limited partners $ (297,010) $ (6,578,950)
General partners (3,000) (66,454)
-------- ----------
$ (300,010) $ (6,645,404)
-------- ----------
Net (loss) Income per unit of
limited partnership
interest (96,472
units outstanding) $ (3.08) $ (68.20)
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 six
months ended
June 30, 1998 (3,000) (297,010) (300,010)
------- -------- ---------
Balance, June 30, 1998 $ 6,906 $ 683,659 $ 690,565
------- -------- ---------
HIGH CASH PARTNERS, L.P.
STATEMENTS OF CASH FLOWS
For the six months ended
June 30,
1998 1997
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS
Cash flows from operating
activities
Net loss $ (300,010) $ (6,645,404)
Adjustments to reconcile
net loss to net cash
provided by operating
activities
Write-down for impairment - 6,475,500
Deferred interest expense 1,005,738 896,011
Depreciation and
amortization 173,629 222,064
Changes in assets and
liabilities
Tenant receivables (172,897) (235,446)
Other assets (12,788) (1,945)
Prepaid insurance premiums 20,438 50,789
Accounts payable and
accrued expenses (41,080) (22,666)
Due to affiliates (2,777) 35
Tenants' security deposits
payable 3,400 -
--------- --------
Net cash provided by
operating activities 673,653 738,938
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Cash flows from Investing activities
Additions to real estate (5,784) -
---------- --------
Cash flow from financing activities
Distributions to partners - (305,007)
--------- --------
Net increase in cash and cash
equivalents 667,869 433,931
Cash and cash equivalents,
beginning of period 3,052,039 1,774,565
--------- ---------
Cash and cash equivalents,
end of period $ 3,719,908 $ 2,208,496
--------- ---------
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 six months ended June 30, 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 2,415
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 entity indirectly related to
Pembroke HCP was engaged to perform administrative services
for the Partnership. During the quarter ended June 30,
1998, $9,000 in reimbursable payroll expenses was paid to
the affiliate of Pembroke HCP for services performed during
the quarter.
The Partnership had been a party to a supervisory
management agreement with Resources Supervisory Management
Corp. ("Resources Supervisory"), an affiliate of RHC and
AGP, pursuant to which Resources Supervisory performed
certain property management functions. Resources
Supervisory performed such services through June 13, 1997.
Effective June 13, 1997, the Partnership terminated this
agreement and entered into a similar agreement with
Pembroke Realty Management LLC ("Pembroke Realty"), an
affiliate of Pembroke HCP and Pembroke AGP. A portion of
the property management fees payable to Resources
Supervisory and Pembroke Realty 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, 1998 and 1997,
Pembroke Realty and Resources Supervisory collectively were
entitled to receive $15,078 and $12,861, respectively, of
which $12,565 and $9,376, respectively, was payable to the
unaffiliated management company. No leasing activity
compensation was paid to Pembroke Realty or Resources
Supervisory for the quarter ended June 30, 1998 or 1997.
Current fees of $113 were payable to Pembroke Realty at
June 30, 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 June 30, 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 net income
(loss) of $(1,344) and $262 in the quarters ended June 30,
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:
June 30, December 31,
1998 1997
Land $ 6,667,189 $ 6,667,189
Building and improvements 12,806,498 12,800,714
---------- ----------
19,473,687 19,467,903
Accumulated depreciation (4,079,292) (3,916,724)
---------- ----------
$ 15,394,395 $ 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
June 30, 1998.
5. DUE TO AFFILIATES
The amounts due to affiliates are as follows:
June 30, December 31,
1998 1997
Supervisory Management Fee $ 113 $ 2,890
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 June 30,
1998, working capital reserves amounted to
approximately $3,800,000, which may be used to fund
capital expenditures, insurance, real estate taxes and
loan payments. All expenditures made during the
quarter ended June 30, 1998 were funded from cash flow
from operations.
At June 30, 1998, the total amount outstanding on the
Partnership's mortgage loan payable to Resources
Accrued Mortgage Investors 2 L.P. ("RAM 2") was
$18,546,219, which included deferred interest payable
of $12,046,219. 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 June 30, 1998, the
Measurement Amount was approximately $11,638,000,
which was approximately $1,856,000 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 has resulted 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 six months
ended June 30, 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
Three months ended June 30, 1988 compared to three
months ended June 30, 1997.
The Partnership realized a net loss of $134,425 for
the three months ended June 30, 1998 compared to net
income of $26,173 for the corresponding 1997 period, a
change of $160,598. The change was primarily a result
of a decrease in rental revenue caused by Levitz
ceasing paying rent as of April 2, 1998, as well as an
increase in mortgage loan interest expense.
Revenues decreased from 1997 to 1998 primarily due to
the loss of Levitz as a tenant, as well as other
decreases in base rentals.
Costs and expenses increased from 1997 to 1998
primarily due to an increase in mortgage loan interest
expense, which was partially offset by a decrease in
operating expenses.
Operating expenses decreased as a result of lower
insurance and repairs and maintenance costs. Mortgage
loan interest expense increased due to the compounding
effect from the deferral of the interest expense on
the zero coupon mortgage. Administrative expenses
increased primarily due to an increase in legal fees.
Six months ended June 30, 1998 compared to six months
ended June 30, 1997.
The Partnership realized a net loss of $300,010 for
the six months ended June 30, 1998 compared to a net
loss of $6,645,404 for the corresponding 1997 period,
a change of $6,345,394. The change was primarily a
result of the write-down for impairment recorded in
March 1997 on the Sierra property.
Revenues decreased from 1997 to 1998 due to the loss
of Levitz as a tenant, as well as other decreases in
base rentals.
Costs and expenses decreased from 1997 to 1998
primarily due to the write-down for impairment
recorded in 1997. 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 insurance and
repairs and maintenance costs. Depreciation expense
decreased as a result of the impairment recorded in
March 1997. 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: August 12, 1998 By: /s/ Lawrence J. Cohen
Lawrence J. Cohen
President and Principal
Financial and Accounting Officer