1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________ TO ___________
COMMISSION FILE NUMBER: 0-26470
AMERICAN RETIREMENT VILLAS
PROPERTIES III, L.P.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 33-0365417
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
245 FISCHER AVENUE, D-1 COSTA MESA, CA 92626
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 751-7400
Indicate by check mark 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 [ ]
The aggregate market value of the voting units held by non-affiliates of
registrant, computed by reference to the price at which units were sold, was
$18,666,480 (for purposes of calculating the preceding amount only, all
directors, executive officers and shareholders holding 5% or greater of the
registrant's units are assumed to be affiliates). The number of Units
outstanding as of March 31, 2001 was 18,666.
================================================================================
2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
American Retirement Villas Properties III, L.P.
(a California limited partnership)
Condensed Consolidated Balance Sheets
(unaudited)
(In thousands, except units)
MARCH 31, DECEMBER 31,
2001 2000
--------- ------------
ASSETS
Properties, at cost:
Land $ 1,549 $ 1,549
Building and improvements, less accumulated depreciation
of $2,483 and $2,371 in 2001 and 2000, respectively 10,054 10,111
Furniture, fixtures and equipment, less accumulated depreciation
of $659 and $609 in 2001 and 2000, respectively 479 510
-------- --------
Net properties 12,082 12,170
Cash 2,884 8,458
Restricted cash 171 168
Loan fees, less accumulated amortization of $269 and $403 in 2001
and 2000, respectively 182 176
Other assets 922 343
-------- --------
$ 16,241 $ 21,315
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Notes payable to banks $ 13,837 $ 13,177
Accounts payable 81 65
Accrued expenses 497 550
Amounts payable to affiliates -- 244
Distributions payable to Partners 198 5,447
-------- --------
Total liabilities 14,613 19,483
-------- --------
Partners' capital (deficit):
General partners (2) (2)
Special limited partners (141) (138)
Limited partners, 18,666 units outstanding 1,771 1,972
-------- --------
Total partners' capital 1,628 1,832
-------- --------
$ 16,241 $ 21,315
======== ========
See accompanying notes to the unaudited financial statements.
2
3
American Retirement Villas Properties III, L.P.
(a California limited partnership)
Consolidated Statements of Income
(unaudited)
(In thousands, except unit data)
FOR THE
THREE MONTHS ENDED
MARCH 31,
------------------
2001 2000
------ ------
Revenues:
Rent $1,507 $1,907
Assisted living 180 268
Interest 42 31
Other 42 60
------ ------
Total operating revenues 1,771 2,266
------ ------
Costs and expenses:
Community property operations 870 1,115
Assisted living 128 179
General and administrative 85 91
Depreciation and amortization 208 271
Property taxes 47 56
Advertising 17 24
Interest 304 383
------ ------
Total operating costs and expenses 1,659 2,119
------ ------
Operating income 112 147
Income tax expense -- 3
------ ------
Income before minority interest in income of majority
owned entities and extraordinary item 112 144
Minority interest in income of majority owned entities -- 80
------ ------
Income before extraordinary item 112 64
Extraordinary loss from extinguishment of debt 66 --
------ ------
Net income $ 46 $ 64
====== ======
Per units:
Net income per limited partner unit before extraordinary
item 5.98 3.43
Extraordinary item 3.52 --
------ ------
Net income per limited partner unit $ 2.46 $ 3.43
====== ======
See accompanying notes to the unaudited financial statements.
3
4
American Retirement Villas Properties III, L.P.
(a California limited partnership)
Consolidated Statements of Cash Flows
(unaudited)
(In thousands)
FOR THE THREE MONTHS
ENDED MARCH 31,
---------------------
2001 2000
------- -------
Cash flows from operating activities:
Net income $ 46 $ 64
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 208 271
Extraordinary loss from extinguishment of debt 66 --
Change in assets and liabilities:
Increase in restricted cash (3) (2)
(Increase) decrease in other assets (56) 21
(Decrease) increase in account payable and
accrued expenses (37) 24
Decrease in amounts payable to affiliate, net (244) (30)
Increase in minority interest -- 80
------- -------
Net cash provided by (used in) operating
activities (20) 428
------- -------
Cash flows from investing activities:
Additions to furniture, fixtures and equipment (80) (30)
------- -------
Net cash used in investing activities (80) (30)
------- -------
Cash flows from financing activities:
Principal repayments on notes payable to banks and others (5,123) (46)
Borrowing under refinancing 5,783 --
Replenishment reserve under refinancing (522) --
Loan fees paid (83) --
Mortgage Insurance paid (29) --
Distributions paid (5,500) (176)
------- -------
Net cash used in financing activities (5,474) (222)
------- -------
Net (decrease) increase in cash (5,574) 176
Cash at beginning of period 8,458 2,190
------- -------
Cash at end of period $ 2,884 $ 2,366
======= =======
Supplemental schedule of cash flow information -
Cash paid during the period for interest $ 341 $ 383
======= =======
See accompanying notes to the unaudited financial statements.
4
5
American Retirement Villas Properties III, L.P.
(a California limited partnership)
Notes to Consolidated Financial Statements
(Unaudited)
March 31, 2001
(1) SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
We prepared the accompanying condensed financial statements of American
Retirement Villas Properties III, L.P. following the requirements of the
Securities and Exchange Commission ("SEC") for interim reporting. As permitted
under those rules, certain footnotes or other financial information that are
normally required by accounting principles generally accepted in the United
States of America can be condensed or omitted.
The financial statements include all normal and recurring adjustments
that we consider necessary for the fair presentation of our financial position
and operating results. These are condensed consolidated financial statements. To
obtain a more detailed understanding of our results, one should also read the
financial statements and notes in our Form 10-K for 2000, which is on file with
the SEC.
The results of operations can vary during each quarter of the year.
Therefore, the results and trends in these interim financial statements may not
be the same as those for the full year.
USE OF ESTIMATES
In the preparation of our financial statements in conformity with
generally accepted accounting principles, we have made estimates and assumptions
that affect the following:
- reported amounts of assets and liabilities at the date of the
financial statements;
- disclosure of contingent assets and liabilities at the date of the
financial statements; and
- reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
LOAN FEES
We amortize loan fees using the effective interest method over the term
of the respective note payable.
RENTAL INCOME
Rent agreements with tenants are on a month-to-month basis. We apply
advance deposits to the first month's rent. Revenue is recognized in the month
earned for rent and assisted living services.
NET INCOME (LOSS) PER LIMITED PARTNER UNIT
Net income (loss) per limited partner unit was based on the weighted
average number of limited partner units outstanding of 18,666 on March 31, 2001
and December 31, 2000.
RECLASSIFICATIONS
We have reclassified certain prior period amounts to conform to the
March 31, 2001 presentation.
(2) TRANSACTIONS WITH AFFILIATES
5
6
We have an agreement with ARV Assisted Living, Inc. ("ARV"), our
Managing General Partner, providing for a property management fee of five
percent of gross revenues amounting to $86,000 and $112,000, for the three-month
periods ended March 31, 2001 and 2000, respectively. Additionally, we pay ARV a
partnership management fee of 10 percent of cash flow before distributions, as
defined in the Partnership Agreement, which amounted to $38,000 and $44,000 for
the three-month periods ended March 31, 2001 and 2000, respectively.
(3) NOTE PAYABLE:
At March 31, 2001 and December 31, 2000, notes payable to banks and
others included the following (in thousands):
MARCH 31, DECEMBER 31,
2001 2000
--------- ------------
Note payable to the bank, bearing interest at 9.15%.
Monthly principle and interest payment of $69.7
collateralized by property $ 8,056 $13,177
Notes payable, bearing interest at rates 8.06%, payable
in monthly installments of principal and interest
totaling $41.3 collateralized by property,
mature February 2036 5,781 --
------- -------
Total notes payable $13,836 $13,177
======= =======
The annual principal payments of notes payable as of March 31, 2001 are
as follows (in thousands):
For twelve months ended March 31,
2002 $ 8,087
2003 33
2004 37
2005 40
2006 43
Thereafter 5,596
-----------
$ 13,836
===========
In the quarter ended March 31, 2001, certain notes payable were refinanced and
the prior debt extinguished, resulting in an extraordinary loss due to the
remaining costs which were written off at the time of the refinancing.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
6
7
(DOLLARS IN MILLIONS) Three months ended
---------------------
March 31, March 31, Increase/
2001 2000 (decrease)
--------- --------- ----------
Revenues:
Rent $1.51 $1.91 (21.0)%
Assisted living 0.18 0.27 (32.5)%
Interest and other revenue 0.08 0.09 (7.4)%
---- ---- -----
Total revenue 1.77 2.27 (21.8)%
---- ---- ------
Costs and expenses:
Community property operations 0.89 1.14 (22.1)%
Assisted living 0.13 0.18 (28.2)%
General and administrative 0.09 0.10 (6.6)%
Depreciation and amortization 0.20 0.27 (23.5)%
Property taxes 0.05 0.06 (17.2)%
Interest 0.30 0.38 (20.5)%
---- ---- ------
Total costs and expenses 1.66 2.13 (21.7)%
---- ---- ------
Operating income 0.11 0.14 (21.4)%
Minority interest in operations ----- 0.08 (100.0)%
----- ---- -------
Income before extraordinary item 0.11 0.06 (83.3)%
Extraordinary loss from extinguishment of debt (0.06) ----- 100.0%
----- ----- -----
Net income $0.05 $0.06 (27.5)%
===== ===== ======
The decrease in assisted living community rental revenue of $0.40 million from
$1.91 million for three-month period ended March 31, 2000 to $1.51 million for
three-month period ended March 31, 2001, or (21.0)%, is primarily attributable
to:
- the sale of the Bradford Square, L.P. in December 2000;
- average occupancy for our assisted living communities decreased from
98.5% for the three-month period ended March 31, 2000 as compared with
98.1% the three-month period ended March 31, 2001; offset by
- an increase in average rental rate per occupied unit to $1,783 for the
three-month period ended March 31, 2001 as compared with $1,704 for
the three-month period ended March 31, 2000.
The decrease in assisted living revenue of $0.09 million from $0.27 million for
the three-month period ended March 31, 2000 to $0.18 million for the three-month
period ended March 31, 2001, or (32.5)%, is primarily attributable to:
- the sale of the Bradford Square, L.P. in December 2000;
- a decrease in the assisted living rate from $691 per month for the
three-month period ended March 31, 2000 compared to $606 per month for
the three-months ended March 31, 2001; offset by
- an increase in the same store average assisted living residents to 99
residents for the three-month period ended March 31, 2001 as compared
with 79 residents for the three-month period ended March 31, 2000.
The decrease in community property operations and assisted living operating
expenses of $0.30 million from $1.32 million for the three-month period ended
March 31, 2000 to $1.02 million for the three-month period ended March 31, 2001,
or (22.7)%, is primarily attributable to:
- the sale of the Bradford Square, L.P. in December 2000; offset by
- an increase in variable expenses and repair and maintenance expenses;
- the staffing requirements related to increased assisted living
services provided; and
- the increased salaries of staff and fringe benefits.
The decrease in property tax expense of $0.01 million from $0.06 million for the
three-month period ended March 31, 2000 to $0.05 million for the three-month
period ended March 31, 2001, or (17.2)%, is primarily due to the sale of the
Bradford Square, L.P. in December 2000.
The decrease in depreciation and amortization of $0.07 million from $0.27
million for the three-month period ended March 31, 2000 to $0.20 million for the
three-month period ended March 31, 2001, or (23.5)%, is primarily due to:
- the sale of the Bradford Square, L.P. in December 2000 and
7
8
- a decrease in amortization of loan fees related to the refinancing in
January 2001 of one assisted living community.
The decrease in interest expense of $0.08 million from $0.38 million for the
three-month period ended March 31, 2000 to $0.30 million for the three-month
period ended March 31, 2001, or (20.5)%, is primarily related to the sale of the
Bradford Square, L.P. in December 2000.
The decrease in minority interest in operations of $0.08 million from $0.08
million for the three-month period ended March 31, 2000 to $0.00 million for the
three-month period ended March 31, 2001, or (100.0)%, is due to the sale of
Bradford Square, L.P. in December 2000.
The extraordinary loss of $0.06 million is the result of the write off of loan
fees due to the refinancing of one assisted living community in January 2001.
LIQUIDITY AND CAPITAL RESOURCES
We expect that cash generated from the operations of our properties will be
adequate to pay operating expenses, make necessary capital improvements, make
required principal reductions of debt and provide distributions to our partners.
On a long-term basis, our liquidity is sustained primarily from cash flow
provided by operating activities.
For the three-month period ended March 31, 2001, net cash used in operating
activities was $0.54 million compared to cash provided by operating activities
of $0.43 million for the corresponding period in 2000. The decrease was due to
decrease in amounts payable to affiliates.
During the three-month period ended March 31, 2001, our net cash used in
investing activities was $0.08 million compared to cash used in investing
activities of $0.03 million for the corresponding period in 2000. The increase
was a result of the physical improvement at our two assisted living communities.
During the three-month period ended March 31, 2001, our net cash used in
financing activities was $5.0 million compared to cash used in financing
activities of $0.2 million for the corresponding period in 2000. The financing
activities consist of:
- distribution of the sale proceed from the sale of Bradford Square L.P.
to the partners,
- principal repayment on notes payable,
- initial deposit to reserve for replenishment and repair escrow that
related to the refinancing of one assisted living community, and
- loan fees and mortgage insurance related to the refinancing, offset by
- borrowing from the refinancing.
We estimate that we will incur approximately $163,000 for the capital
expenditures during 2001 for physical improvements at our two assisted living
communities. As of March 31, 2001 we have made approximately $80,000 in capital
expenditures. The funds for these improvements should be available from
operations.
We are not aware of any trends, other than national economic conditions which
have had, or which may be reasonably expected to have, a material favorable or
unfavorable impact on the revenues or income from the operations or sale of
properties. We believe that if the inflation rate increases they will be able to
pass the subsequent increase in operating expenses onto the residents of the
communities by way of higher rental and assisted living rates. The
implementation of price increases is intended to lead to an increase in revenue
however, those increases may result in an initial or permanent decline in
occupancy and/or a delay in increasing occupancy. If this occurs, revenues may
remain constant or decline.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks related to fluctuations in the interest
rates on our fixed rate notes payable. With respect to our fixed rate notes
payable, changes in the interest rates affect the fair market value of the notes
payable, but not our earnings or cash flows. We do not have an obligation to
prepay fixed rate debt prior to maturity, and as a result, interest rate risk
and changes in fair market value should not have a significant impact on the
fixed rate debt until the earlier of maturity and any required refinancing of
such debt. We do not currently have any variable interest rate debt and,
therefore, are not subject to interest rate risk associate with
8
9
variable interest rate debt. Currently, we do not utilize interest rate swap or
exchange agreements and, therefore, are not subject to interest rate risk
associated with interest rate swaps.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are from time to time subject to lawsuits and other matters in the
normal course of business. While we cannot predict the results with certainty,
we do not believe that any liability from any such lawsuits or other matters
will have a material effect on our financial position, results of operations, or
liquidity.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Report:
(1) Financial Statements
(2) Exhibits
Exhibit Number Description
- -------------- -----------
10.1 Loan Agreement by and between Banc One Capital Funding
Corporation and Retirement Inns III, LLC (Incorporated by
reference to Exhibit 10.1 on Form 10-Q for the fiscal quarter
ended 06-30-99)
10.2 Loan Agreement by and between Banc One Capital Funding
Corporation and Retirement Inns III, LLC (Incorporated by
reference to Exhibit 10.2 on Form 10-Q for the fiscal quarter
ended 06-30-99)
10.3 Letter Agreement as to the Loans in the aggregate amount of
$13,382,200 from Banc One Capital Funding Corporation to
Retirement Inns III (Incorporated by reference to Exhibit
10.14 on Form 10-Q for the fiscal quarter ended 06-30-99)
10.4 Note and Agreement as to Retirement Inns III, LLC.
(Incorporated by reference to Exhibit 10.16 on Form 10-Q for
the fiscal quarter ended 06-30-99)
10.5 Limited Liability Company Agreement of Retirement Inns III,
LLC. (Incorporated by reference to Exhibit 10.18 on Form 10-Q
for the fiscal quarter ended 06-30-99)
10.6 Deed of Trust Note of ARV Chandler Villas, L.P. to Red
Mortgage Capital, Inc. (Incorporated by reference to Exhibit
10.6 on Form 10-K for the year ended 12-31-00)
10.7 Allonge #1 to Deed of Trust Note of ARV Chandler Villas, L.P.
to Red Mortgage Capital, Inc. (Incorporated by reference to
Exhibit 10.7 on Form 10-K for the year ended 12-31-00)
10.8 Deed of Trust between ARV Chandler Villas, L.P. and Fidelity
National Title Insurance. (Incorporated by reference to
Exhibit 10.8 on Form 10-K for the year ended 12-31-00)
10.9 Regulatory Agreement for U.S. Department of Housing
Multifamily Housing Projects between ARV Chandler Villas, L.P.
and Secretary of Housing and Urban Development. (Incorporated
by reference to Exhibit 10.9 on Form 10-K for the year ended
12-31-00)
10.10 Purchase agreement and Escrow instructions between ARVP
III/Brandford Square, L.P., and Vintage Senior Housing, LLC.
(Incorporated by reference to Exhibit 10.10 on Form 10-K for
the year ended 12-31-00)
10.11 First Amendment to Purchase Agreement and Escrow Instructions
between ARV III/Bradford Square, L.P., and Avalon at Bradford
Square, LLC, assignee of Vintage Senior Housing, LLC.
(Incorporated by reference to Exhibit 10.11 on Form 10-K for
the year ended 12-31-00)
10.12 Second Amendment to Purchase Agreement and Escrow Instructions
between ARV III/ Bradford Square, L.P., and Avalon at Bradford
Square, LLC. (Incorporated by reference to Exhibit 10.12 on
Form 10-K for the year ended 12-31-00)
9
10
(b) Reports on Form 8-K
We did not file any report on Form 8-K for the period ended March 31,
2001.
10
11
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, we have duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AMERICAN RETIREMENT VILLAS PROPERTIES III, A CALIFORNIA LIMITED
PARTNERSHIP, BY THE FOLLOWING PERSONS ON OUR BEHALF.
ARV ASSISTED LIVING, INC.
By: /s/ DOUGLAS M. PASQUALE
---------------------------------
Douglas M. Pasquale
Chief Executive Officer
Date: May 15, 2001
Pursuant to the requirements of the Securities Act of 1934, as amended,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ DOUGLAS M. PASQUALE Chief Executive Officer May 15, 2001
------------------------------ (Principal Executive Officer)
Douglas M. Pasquale
/s/ABDO H. KHOURY President and Chief Financial Officer May 15, 2001
------------------------------ (Principal Financial & Accounting Officer)
Abdo H. Khoury
11