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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 September 30, 1999
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) 350-9900
(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 - SEPTEMBER 30, 1999
INDEX
PART I - FINANCIAL INFORMATION....................................................................................1
ITEM 1 - FINANCIAL STATEMENTS............................................................................1
BALANCE SHEETS - September 30, 1999 and December 31, 1998.......................................1
STATEMENTS OF OPERATIONS - For the three months ended
September 30, 1999 and 1998 and for the nine months ended
September 30, 1999 and 1998............................................................2
STATEMENT OF PARTNERS' EQUITY (DEFICIT) - For the nine
months ended September 30, 1999........................................................3
STATEMENTS OF CASH FLOWS - For the nine months
ended September 30, 1999 and 1998......................................................4
NOTES TO FINANCIAL STATEMENTS...................................................................5
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS..........................................................7
PART II - OTHER INFORMATION......................................................................................10
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K..............................................................10
SIGNATURES.......................................................................................................11
PART I - FINANCIAL INFORMATION
This report contains statements that constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. Those statements appear in a number of places herein and include
statements regarding the intent, belief or current expectations of the
Partnership, primarily with respect to the future operating performance of the
Partnership or related developments. Any such forward-looking statements are not
guarantees of future performance and involve risks and uncertainties, and actual
results and developments may differ from those described in the forward-looking
statements as a result of various factors, many of which are beyond the control
of the Partnership.
ITEM 1 - FINANCIAL STATEMENTS
HIGH CASH PARTNERS, L.P.
BALANCE SHEETS
September 30, December 31,
1999 1998
------------ ------------
ASSETS
Real estate, net $ 15,114,325 $ 15,358,165
Cash and cash equivalents 1,309,497 4,270,688
Tenant receivables, net 97,779 63,653
Other assets 100,972 114,174
Prepaid insurance premiums 1,079 27,523
------------ ------------
$ 16,623,652 $ 19,834,203
============ ============
LIABILITIES AND PARTNERS' EQUITY
Liabilities
Mortgage loan payable $ 6,500,000 $ 6,500,000
Deferred interest payable 14,824,664 13,117,279
Accounts payable and accrued expenses 76,235 93,429
Due to affiliates 2,861 --
Tenants' security deposits payable 68,867 58,867
------------ ------------
Total liabilities 21,472,627 19,769,575
------------ ------------
Commitments and contingencies
Partners' equity (deficit)
Limited partners' equity (deficit) (96,472 units
issued and outstanding) (4,800,486) 63,981
General partners' equity (deficit) ( 48,489) 647
------------ ------------
Total partners' equity (deficit) (4,848,975) 64,628
------------ ------------
$ 16,623,652 $ 19,834,203
============ ============
See notes to financial statements.
1
HIGH CASH PARTNERS, L.P.
STATEMENTS OF OPERATIONS
For the three months ended For the nine months ended
September 30, September 30,
-------------------------- --------------------------
--------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
Revenues
Rental income $ 632,781 $ 512,577 $ 1,811,943 $ 1,772,928
Interest income 10,760 46,201 79,722 126,282
Other income 186 200 10,926 2,217
----------- ----------- ----------- -----------
643,727 558,978 1,902,591 1,901,427
----------- ----------- ----------- -----------
Costs and expenses
Mortgage loan interest 587,143 525,101 1,707,385 1,530,839
Operating 118,337 137,975 383,275 374,484
Depreciation and amortization 90,169 83,649 270,507 257,278
Partnership management fees 75,369 75,369 226,107 226,107
Property management fees 17,168 19,140 52,752 51,905
Administrative 22,958 22,647 76,168 65,727
----------- ----------- ----------- -----------
911,144 863,881 2,716,194 2,506,340
----------- ----------- ----------- -----------
Net loss $ (267,417) $ (304,903) $ (813,603) $ (604,913)
=========== =========== =========== ===========
Net loss attributable to
Limited partners $ (264,743) $ (301,854) $ (805,467) $ (598,864)
General partners (2,674) (3,049) (8,136) (6,049)
----------- ----------- ----------- -----------
$ (267,417) $ (304,903) $ (813,603) $ (604,913)
=========== =========== =========== ===========
Net loss per unit of limited partnership
interest (96,472 units outstanding) $ (2.74) $ (3.13) $ (8.35) $ (6.21)
=========== =========== =========== ===========
See notes to financial statements.
2
HIGH CASH PARTNERS, L.P.
STATEMENT OF PARTNERS' EQUITY (DEFICIT)
General Limited Total
Partners' Partners' Partners'
Equity Equity Equity
(Deficit) (Deficit) (Deficit)
----------- ----------- -----------
Balance, January 1, 1999 $ 647 $ 63,981 $ 64,628
Net loss for the nine months ended
September 30, 1999 (8,136) (805,467) (813,603)
Distributions (41,000) (4,059,000) (4,100,000)
----------- ----------- -----------
Balance, September 30, 1999 $ (48,489) $(4,800,486) $(4,848,975)
=========== =========== ===========
See notes to financial statements.
3
HIGH CASH PARTNERS, L.P.
STATEMENTS OF CASH FLOWS
For the nine months ended
September 30,
--------------------------
1999 1998
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Cash flows from operating activities
Net loss $ (813,603) $ (604,913)
Adjustments to reconcile net loss to net cash
provided by operating activities
Deferred interest expense 1,707,385 1,530,839
Depreciation and amortization 270,507 257,278
Changes in assets and liabilities
Tenant receivables (34,126) (42,008)
Other assets (13,465) (52,137)
Prepaid insurance premiums 26,444 (9,820)
Accounts payable and accrued expenses (17,194) (45,485)
Due to affiliates 2,861 413
Tenants' security deposits payable 10,000 3,200
----------- -----------
Net cash provided by operating activities 1,138,809 1,037,367
----------- -----------
Cash flows from Investing activities
Additions to real estate -- (26,161)
----------- -----------
Cash flows from financing activities (4,100,000) --
Distributions to partners
----------- -----------
Net (decrease) increase in cash and cash equivalents (2,961,191) 1,011,206
Cash and cash equivalents, beginning of period 4,270,688 3,052,039
----------- -----------
Cash and cash equivalents, end of period $ 1,309,497 $ 4,063,245
=========== ===========
See notes to financial statements.
4
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, 1998. The results of operations for the
nine months ended September 30, 1999 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 5,736 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 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 September 30, 1999,
$12,000 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 September 30, 1999
and 1998, Pembroke Realty was entitled to receive $17,168 and $19,140,
respectively, of which $14,307 and $15,950, respectively, was payable to
the unaffiliated management company. No leasing activity compensation was
paid to Pembroke Realty for the quarters ended September 30, 1999 or 1998.
Current fees of $2,861 payable to Pembroke Realty at September 30, 1999
were paid in the subsequent quarter.
5
2. 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 September 30, 1999 and 1998, 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 $2,674 and $3,049 in the quarters
ended September 30, 1999 and 1998, respectively. They also are entitled to
receive 1% of distributions. There were no distributions in the quarters
ended September 30, 1999 and 1998.
3. REAL ESTATE
Real estate, which is the Partnership's sole asset, is summarized as
follows:
September 30, December 31,
1999 1998
------------ ------------
Land $ 6,667,189 $ 6,667,189
Building and improvements 12,932,876 12,932,876
------------ ------------
19,600,065 19,600,065
Accumulated depreciation (4,485,740) (4,241,900)
------------ ------------
$ 15,114,325 $ 15,358,165
============ ============
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, 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,
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 September 30,
1999 or 1998.
4. DUE TO AFFILIATES
The amounts due to affiliates are as follows:
September 30, December 31,
1999 1998
------------ -----------
Supervisory Management Fee $ 2,861 $ -0-
============ ===========
6
5. DISTRIBUTIONS
In May 1999, the Partnership effected a cash distribution of $4,100,000 in
the aggregate, or $42.07 per Unit, to Unitholders of record on May 11,
1999. On October 20, 1999, the Partnership effected a distribution of
$700,000 in the aggregate, or $7.18 per Unit.
6. SUBSEQUENT EVENT
As of October 1, 1999 a new property management company was engaged to
perform property management and leasing functions. The management and
leasing agreements are substantially similar to the agreements with the
prior property management company.
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 September 30, 1999,
working capital reserves amounted to approximately $1,300,000, which may be
used to fund capital expenditures, insurance, real estate taxes and loan
payments. All expenditures made during the quarter ended September 30, 1999
were funded from cash flow from operations.
At September 30, 1999, the total amount outstanding on the Partnership's
mortgage loan payable to Resources Accrued Mortgage Investors 2 L.P. ("RAM
2") was $21,324,664 which included deferred interest payable of
$14,824,664. The mortgage did not permit a prepayment before March 1, 1999,
and, therefore, the Partnership was not able to refinance the mortgage
before that date. It is believed that the value of the property is not
sufficient to enable the Partnership to refinance the mortgage at this
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. There can be no
assurance that, if the lender requests an appraisal, 85% of the appraised
value will equal the Measurement Amount. At September 30, 1999, the
Measurement Amount was approximately $13,381,000, which was approximately
$113,000, 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
7
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. The vacancy at the Levitz space, as well as a vacancy in an
additional, significant space previously occupied by Good Guys, also 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 credit
worthy substitute tenant. However, there can be no assurance the
Partnership will succeed in finding a long-term credit worthy 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
make substantial expenditures in order to secure the substitute tenant and
in connection with a new lease.
In that regard, the Partnership has entered into a short-term lease with an
existing tenant of the property for the Levitz space. Total rent under the
lease, which is for a term of 38 months, is $208,534 per year (i.e.,
$222,710 per year less than under the Levitz lease). The Partnership has
the right to terminate this lease upon written notice in the event that it
secures a long-term credit worthy tenant.
The level of leasing activity cannot be predicted, particularly in light of
the Levitz and Good Guys situations, 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. In May 1999 and
October 1999, the Partnership effected cash distributions of $4,100,000 and
$700,000, respectively, or $42.07 and $7.18 per Unit, respectively, to
Unitholders of record on May 11, 1999 and October 20, 1999, respectively.
Real Estate Market
A substantial decline in the market value of the Partnership's property
reflects real estate market conditions in the vicinity of the 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 spaces previously occupied by Levitz and Good Guys are expected to
be vacant for at least some period, have hindered the lease-up of new space
and has negatively impacted certain tenants. As a result, the Partnership's
investment in its property is at risk.
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.
Year 2000
Costs associated with the year 2000 conversion are not expected to have a
material effect on the Partnership.
8
Results of Operations [To Be Updated]
Three months Ended September 30, 1999 Compared to Three Months Ended
September 30, 1998
The Partnership realized a net loss of $267,417 for the three months ended
September 30, 1999 compared to a net loss of $304,903 for the corresponding
1998 period, a change of $37,486. The change was primarily a result of an
increase in rental income, offset by an increase in mortgage loan interest
expense.
Revenues increased from 1998 to 1999 due to the timing of tenant real
estate tax billings, as well as an increase in base rentals.
Costs and expenses increased from 1998 to 1999 primarily due to an increase
in mortgage loan interest expense.
Mortgage loan interest expense increased due to the compounding effect from
the deferral of the interest expense on the zero coupon mortgage.
Nine months Ended September 30, 1999 Compared to Nine Months Ended
September 30, 1998
The Partnership realized a net loss of $813,603 for the nine months ended
September 30, 1999 compared to a net loss of $604,913 for the corresponding
1998 period, a change of $208,690. The change was primarily a result of an
increase in mortgage loan interest expense.
Costs and expenses increased from 1998 to 1999 primarily due to an increase
in mortgage loan interest expense.
Mortgage loan interest expense increased due to the compounding effect from
the deferral of the interest expense on the zero coupon mortgage.
9
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.1 Management Agreement dated September 22, 1999 between
Pembroke Supervisory Management, LLC ("Pembroke SM") and
Colliers Nevada Management, LLC ("Colliers").
10.2 Exclusive Leasing Listing Agreement dated September 9, 1999
between Pembroke SM and Colliers.
(b) Reports on Form 8-K: None.
10
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 15, 1999 By: /s/ Lawrence J. Cohen
-----------------------------------
Lawrence J. Cohen
President and Principal
Financial and Accounting Officer
11