10-Q 1 sept2001_10q.txt SEPT 2001 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Quarterly Report Under Section 13 or 15(d) of the Securities exchange Act of 1934 For the Quarterly Period Ended September 30, 2001 Commission File Number 0-16815 NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP (A Delaware Limited Partnership) (Exact name of registrant as specified in its charter) DELAWARE 52-1453513 (State of other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 14160 DALLAS PARKWAY, SUITE 300 DALLAS, TX 75240 (Address of principal executive offices) (Zip Code) (972) 770-5600 (Registrant's telephone number, including area code) NOT APPLICABLE (Former name, former address and former fiscal year, if changed since last report) 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 ------ ------ PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP Statements of Financial Position

See Notes to financial statements. 1 NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP Statement of Operations (Unaudited)

See Notes to financial statements. 2 NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP Statement of Operations (Unaudited)

See Notes to financial statements. 3 NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP Statement of Partners' Deficit (Unaudited)

See Notes to financial statements. 4 NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP Statements of Cash Flows (Unaudited)

See Notes to financial statements. 5 NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP Statements of Cash Flows (Unaudited) (Continued)

See Notes to financial statements. 6 NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP Notes to Financial Statements September 30, 2001 A. ACCOUNTING POLICIES Nature of Business NHP Retirement Housing Partners I Limited Partnership (the "Partnership") is a limited partnership organized under the laws of the State of Delaware on March 10, 1986. The Partnership was formed for the purpose of raising capital by issuing both Pension Notes ("Pension Notes") to tax-exempt investors and selling additional partnership interests in the form of Assignee Interests ("Interests") to taxable individuals. Interests represent assignments of the limited partnership interests of the Partnership issued to the Assignor Limited Partner, NHP RHP-I Assignor Corporation. The proceeds from the sale of the Pension Notes and Interests have been invested in residential rental properties for retirement age occupants. Dissolution of Partnership On December 31, 2001, the Pension Notes and deferred interest of approximately $37,668,000 will mature and become due. Given the level of the Partnership's cash reserves at December 31, 2000 and estimated value of Partnership assets, the Partnership is not expected to have sufficient funds to fully repay the maturing Pension Notes and deferred interest on December 31, 2001. Accordingly, the Partnership does not expect to have any funds available for distribution to the holders of Interests ("Assignee Holders"). If the Pension Notes are not fully paid at their maturity, a default will occur under the Pension Notes and Trust Indenture under which the Pension Notes are administered. In such event, the Trustee may choose to liquidate the Partnership's assets in an effort to satisfy the Pension Notes. A concern arises that such a sale may be a "fire" or "distressed" sale and, as a result, may not yield the maximum value for the Partnership's assets. Further concern arises from the apparent weakening in the sales market for senior living communities. Because of these factors and the savings that may be obtained from earlier payment on the Pension Notes, Capital Realty Group Senior Housing, Inc. ("the General Partner") has deemed it prudent to dissolve the Partnership and sell its remaining asset to obtain the best terms for a sale and, accordingly, maximize value realization of the Partnership's remaining asset. Accordingly, on February 12, 2001, the General Partner notified the holders of Pension Notes ("Note Holders") and Assignee Holders of its intent to dissolve the Partnership and commence a Plan of Liquidation effective May 21, 2001. There were no objections to the election of dissolution prior to May 21, 2001. Therefore, the Partnership is taking all actions necessary to wind-up the Partnership's business including the sale of all of its remaining assets in an orderly fashion and, to the extent of the proceeds thereof, pay its creditors and claims. On July 5, 2001, the Partnership entered into contract to sell its remaining property, The Amberleigh, to an unaffiliated not for profit entity for $20,000,000 (with lower back up offers from other bidders) subject to certain approvals, completion of due diligence, financing contingencies and other customary closing conditions. The Partnership estimates net proceeds from the sale to be $18,000,000. The Partnership expects closing to occur during the fourth quarter of 2001. 7 Basis of Presentation The accompanying balance sheet as of December 31, 2000 has been derived from audited financial statements of the Partnership for the year ended December 31, 2000 and the accompanying unaudited financial statements, as of September 30, 2001 and 2000, have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in the annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations. For further information, refer to the financial statements and notes thereto for the year ended December 31, 2000 included in the Partnership's Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 31, 2001. In the opinion of management, the accompanying financial statements contain all adjustments (all of which were normal recurring accruals) necessary to present fairly the Partnership's financial position as of September 30, 2001 and its results of operations, changes in partner's deficit and cash flows for nine month periods ended September 30, 2001 and 2000. The results of operations for the nine-month period ended September 30, 2001 are not necessarily indicative of the results for the year ending December 31, 2001. The Financial Accounting Standards Board issued Statement 133 ("FAS 133") "Accounting for Derivative Instruments and Hedging Activities" in June 1998. The Statement is effective for all fiscal quarters of all fiscal years beginning after June 15, 2000. Because of the Partnership's minimal use of derivatives, the adoption of FAS 133 by the Partnership in the first quarter of fiscal 2001 did not have a material effect on the Partnership's earnings or financial position. B. TRANSACTIONS WITH THE GENERAL PARTNER AND AFFILIATES OF THE GENERAL PARTNER Effective January 23, 1995, Capital Realty Group Senior Housing, Inc. (CRGSH) became the sole general partner of the Partnership. On June 10, 1998, the sole owner of the General Partner, Capital Realty Group Corporation, sold all of its shares of CRGSH common stock to Retirement Associates, Inc. ("Associates") for $855,000. The source of the funds is a Promissory Note for $855,000 with a five-year term and bears a current interest rate of 8 percent per annum. The interest will accrue on the Promissory Note and be payable at the maturity of the Promissory Note. Associates is the maker of the Note and Capital Realty Group Corporation is the payee. Mr. Robert Lankford is the President of Associates and has brokered and continues to broker real estate as an independent contractor with Capital Realty Group Corporation or its affiliates. Personnel working at the Property sites and certain home office personnel who perform services for the Partnership are employees of Capital Senior Living, Inc. (CSL), an affiliate of CRGSH until June 30, 1998. The Partnership reimburses CSL for the salaries, related benefits, and overhead reimbursements of such personnel as reflected in the accompanying financial statements. Salary, related benefits and overhead reimbursements reimbursed and expensed by the Partnership to CSL for the third fiscal quarter ended September 30, 2001 and 2000, were $318,640 and $269,054, respectively and were $877,823 and $803,010 for the nine months ended September 30, 2001 and 2000, respectively. Management fees, dietary fees and other services reimbursed and expensed by the Partnership to CSL for the third fiscal quarter ended September 30, 2001 and 2000, were $165,788 and $164,511, respectively and were $488,381 and $470,357 for the nine months ended September 30, 2001 and 2000, respectively. Distributions of $81,538 were made to the General Partner during the nine months ended September 30, 2001. 8 C. LEGAL PROCEEDINGS On or about October 23, 1998, an Assignee Holder filed a putative class action complaint on behalf of certain holders of Assignee Interests in NHP in the Delaware Court of Chancery against the Partnership, Capital Senior Living Corporation, Capital Senior Living Properties 2 - NHPCT, Inc. and CRGSH (collectively "the Defendants"). This Assignee Holder purchased 90 Assignee Interests in the Partnership in February 1993 for $180. The complaint alleges, among other things, that the Defendants breached, or aided and abetted a breach of, the express and implied terms of the Partnership Agreement in connection with the sale of four properties by the Partnership to Capital Senior Living Properties 2 - NHPCT, Inc. Capital Senior Living Properties 2 - NHPCT, Inc. is an affiliate of Capital Senior Living, Inc., the current manager of The Amberleigh. The complaint seeks, among other relief, rescission of the sale of these properties and unspecified damages. The Partnership believes the complaint is without merit and intends to vigorously defend itself in this action. The Partnership has filed a Motion to Dismiss in this case, which currently is pending. The Partnership is unable to estimate liability related to this claim, if any. D. PENSION NOTES The Pension Notes bear stated simple interest at a rate equal to 13 percent per annum. Payment of up to 9 percent of stated interest was subject to deferral through December 31, 1988 and payment of up to 6 percent of stated interest is subject to deferral thereafter. Deferred interest does not bear interest. Interest not deferred is payable quarterly. Through March 31, 2001, the Partnership used the effective interest method, whereby interest on principal and accrued interest of the Pension Notes has been accrued at the rate of approximately 9 percent per annum compounded quarterly. The approximate 9 percent effective interest rate was calculated using estimates of the amounts of interest that will be deferred and the time period in which such deferred amounts would be paid. As of June 30, 2001, the Partnership has begun recording accrued interest on the principal at the stated interest rate which represents the amount which will be paid upon dissolution of the Partnership. The Partnership's obligation to repay the principal amount of the Pension Notes, which mature on December 31, 2001, and stated interest thereon, is secured by a lien on the Partnership's assets. The liability of the Partnership under the Pension Notes is limited to the assets of the Partnership. The Pension Notes are subject to redemption in whole or in part upon not less than 30 or more than 60 days prior notice, at the election of the Partnership. During the nine months ended September 30, 2001, an additional $3,000,000 was paid for deferred interest not scheduled to become due until December 31, 2001. 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources The following schedule summarizes the occupancy levels at The Amberleigh in which the Partnership has a 99.9 percent partnership interest.

On November 5, 1997, the Partnership purchased approximately 3.10 acres of land adjacent to The Amberleigh for $500,000 plus closing costs for the potential expansion of the Amberleigh, as well as to prevent another purchaser from buying the tract and blocking the facility from view from the main intersection. This parcel is being sold with the main facility. Rent collections for the nine-month period increased to $3,943,183 in 2001 from $3,730,074 in 2000. Increased rent collections were due to increased occupancy at the Amberleigh. Salaries, management fees and other operating expenses paid increased, from $2,608,084 in 2000 to $2,665,050 in 2001. Increased operating expenses paid primarily were due to increased salary and related benefits, management fees, dieting fees, and other services paid at September 30, 2001. Cash generated from rental operations prior to the payment of interest expense was sufficient to pay all of the interest on the Pension Notes currently payable, which was $1,055,386 for the nine-month period ended September 30, 2001. However, an additional $3,000,000 was paid for deferred interest payable during the nine months ended September 30, 2001. Net cash (used) provided from operations after the payment of interest expense during the nine months ended September 30, 2001 and 2000 was ($2,670,983) and $271,654, respectively. Interest on the Pension Notes bears stated simple interest at 13 percent rate per annum, and is paid at a rate of 7 percent per annum, however it is accrued under the effective interest method at a rate of approximately 9 percent per annum compounded quarterly through March 31, 2001 and accrued at the stated interest rate at September 30, 2001, which totaled $2,319,112 and $2,469,713 for the nine months ended September 30, 2001 and 2000, respectively. The remaining 6 percent unpaid portion is due at maturity. Total accrued and unpaid interest amounted to $15,044,153 and $16,780,427 at September 30, 2001 and December 31, 2000, respectively. Capital expenditures decreased $11,645 from $130,595 in 2000 to $118,950 in 2001. Cash and cash equivalents at September 30, 2001 and December 31, 2000 amounted to $2,620,808 and $5,492,588, respectively. Dissolution of Partnership On December 31, 2001, the Pension Notes and deferred interest of approximately $37,668,000 will mature and become due. Given the level of the Partnership's cash reserves at December 31, 2000 and estimated value of Partnership assets, the Partnership is not expected to have sufficient funds to fully repay the maturing Pension Notes and deferred interest on December 31, 2001. Accordingly, the Partnership does not expect to have any funds available for distribution to the Assignee Holders. 10 If the Pension Notes are not fully paid at their maturity, a default will occur under the Pension Notes and Trust Indenture under which the Pension Notes are administered. In such event, the Trustee may choose to liquidate the Partnership's assets in an effort to satisfy the Pension Notes. A concern arises that such a sale may be a "fire" or "distressed" sale and, as a result, may not yield the maximum value for the Partnership's assets. Further concern arises from the apparent weakening in the sales market for senior living communities. Because of these factors and the savings that may be obtained from earlier payment on the Pension Notes, the General Partner has deemed it prudent to dissolve the Partnership and sell its remaining asset to obtain the best terms for a sale and accordingly, maximize value realization of the Partnership's remaining asset. Accordingly, on February 12, 2001, the General Partner notified the holders of Pension Notes ("Note Holders") and Assignee Holders of its intent to dissolve the Partnership and commence a Plan of Liquidation effective May 21, 2001. There were no objections to the election of dissolution prior to May 21, 2001. Following an election to dissolve, therefore, the Partnership is taking all actions necessary to wind-up the Partnership's business including the sale of its remaining assets in an orderly fashion and, to the extent of the proceeds thereof, pay its creditors and claims. On July 5 2001, the Partnership entered into contract to sell its remaining property, The Amberleigh, to an unaffiliated not for profit entity for $20,000,000 (with lower back up offers from other bidders) subject to certain approvals, completion of due diligence, financing contingencies and other customary closing conditions. The Partnership estimates net proceeds from the sale to be $18,000,000. The Partnership expects closing to occur during the fourth quarter of 2001. Results of Operations The Partnership's net loss for the nine months ended September 30, 2001 includes rental operations from the Partnership's property. The net loss also includes depreciation, amortization of Pension Notes issuance costs, and accrued Pension Note interest expense, which are non-cash in nature. The Partnership net loss decreased from $1,804,940 to $1,614,947 for the nine-month periods ending September 30, 2000 and 2001, respectively. Net loss per Assignee Interest was $42 and $38 for the nine-month periods ending September 30, 2000 and 2001, respectively. The decrease in the Partnership's net loss was principally due to increased occupancy and revenues at the Amberleigh, decreased interest expense and decreased other expenses. Total revenues for the nine-month periods increased from $3,934,629 in 2000 to $4,051,248 in 2001. The increase in total revenues was due to increased occupancy at the Amberleigh. Total operating costs and expenses increased from $2,922,556 in 2000 to $3,021,570 in 2001. The increase in operating expenses primarily was due to inflationary cost increases. Pension Note interest expense decreased from $2,469,713 to $2,319,112 for the nine-month periods ending September 30, 2000 and 2001, respectively. The decrease in pension note expense was due to calculating deferred interest at the stated interest rate of 13% from the effective interest rate of 9%. Other expenses relating to Partnership administration decreased from $258,047 to $236,260 for the nine-month periods ending September 30, 2000 and 2001, respectively, due to decreased professional fees. 11 ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK. The Partnership invests its cash in money market accounts. As a result, the Partnership believes any impact of market risk to the Partnership's investments is immaterial. PART II Item 1. Legal Proceedings On or about October 23, 1998, an Assignee Holder filed a putative class action complaint on behalf of certain holders of Assignee Interests in NHP in the Delaware Court of Chancery against the Partnership, Capital Senior Living Corporation, Capital Senior Living Properties 2 - NHPCT, Inc. and CRGSH (collectively "the Defendants"). This Assignee Holder purchased 90 Assignee Interests in the Partnership in February 1993 for $180. The complaint alleges, among other things, that the Defendants breached, or aided and abetted a breach of, the express and implied terms of the Partnership Agreement in connection with the sale of four properties by the Partnership to Capital Senior Living Properties 2 - NHPCT, Inc. Capital Senior Living Properties 2 - NHPCT, Inc. is an affiliate of Capital Senior Living, Inc., the current manager of The Amberleigh. The complaint seeks, among other relief, rescission of the sale of these properties and unspecified damages. The Partnership believes the complaint is without merit and intends to vigorously defend itself in this action. The Partnership has filed a Motion to Dismiss in this case, which currently is pending. The Partnership is unable to estimate liability related to this claim, if any. All other items are not applicable. Item 2. Changes in Securities 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 12 Item 6. Exhibits and Reports on Form 8-K (A) Exhibit: 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. NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP By: Capital Realty Group Senior Housing, Inc. General Partner By: /s/ Robert Lankford ---------------------------------------------------- Robert Lankford President Date: November 13, 2001 13

NHP RETIREMENT HOUSING PARTNERS I LTD PARTNERSHIP 10-Q