10-Q 1 june302003-10q.txt 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 June 30, 2003 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 Identification No.) incorporation or organization) 14160 DALLAS PARKWAY, SUITE 300 DALLAS, TX 75254 (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 ---- ---- Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes No X ---- ---- PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP Statements of Net (Liabilities) Assets in Liquidation (LIQUIDATION BASIS)

See notes to financial statements. 1 NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP Statements of Changes in Net (Liabilities) Assets in Liquidation (LIQUIDATION BASIS) For the Six Months Ended June 30, 2003 (Unaudited) Net assets in liquidation at January 1, 2003 $ 132,330 Net loss (203,961) ------------- Net liabilities in liquidation at June 30, 2003 $ (71,631) ============= See notes to financial statements 2 NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP Statements of Operations (LIQUIDATION BASIS) (Unaudited)

See notes to financial statements 3 NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP Statements of Operations (LIQUIDATION BASIS) (Unaudited)

See notes to financial statements 4 NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP Statements of Partners' Equity (Deficit) (Unaudited)

See notes to financial statements 5 NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP Statements of Cash Flows (LIQUIDATION BASIS) (Unaudited)

See notes to financial statements 6 NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP Statements of Cash Flows (LIQUIDATION BASIS) (Unaudited) (Continued)

See notes to financial statements 7 NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP Notes to Financial Statements June 30, 2003 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 ("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 Notes and Interests were invested in residential rental properties for retirement age occupants. Dissolution of Partnership On February 12, 2001, due to the pending maturity of the Pension Notes at December 31, 2001 and to obtain maximum value through an organized disposition of Partnership assets, the General Partner notified the Pension Note holders and Assignee Interest holders of its intent to dissolve the Partnership effective May 21, 2001 and liquidate its remaining property, the Amberleigh. On December 31, 2001, the Partnership sold the Amberleigh to an unaffiliated entity for $20,000,000. The Partnership received two $1,000,000 promissory notes, each payable within 12 months from the date of sale, one note subject to the purchaser obtaining certain levels of financing proceeds and the other note subject to the property achieving certain levels of operating income. The Partnership did not satisfy the requirements for payment under either promissory note, and therefore the Partnership will not receive any proceeds from these notes. The balance of the sale proceeds net of settlement costs and other direct costs associated with the sale was paid in cash, resulting in net sale proceeds of $16,014,830. The Partnership recognized a $1,491,679 loss on the sale in 2001. On December 31, 2001, the principal on the Pension Notes and deferred interest of approximately $35,504,000 matured. Relating to the sale of the Amberleigh on December 31, 2001, the Partnership paid $9,538,066 for a partial redemption of Notes, and paid $7,461,934 for a partial payment of deferred interest, effective February 28, 2002. Cash funds were not sufficient at February 28, 2002 to fully repay the outstanding principal balance of $18,991,176 in Notes and deferred interest. Since available cash after payment of Partnership expenses and potential collection of the Amberleigh promissory notes was insufficient to repay the outstanding Pension Notes and deferred interest, the unpaid debt related to the Pension Notes has been treated as forgiven for book purposes and resulted in $18,991,176 of income for the year ended 2002. For tax purposes, any income relating to the forgiveness of unpaid debt and deferred interest will be recognized in the year the Pension Notes are deemed cancelled, which has not yet occurred. Upon final liquidation of the Partnership's cash reserves, to the extent any funds are in excess of liabilities, those funds will be distributed to the Pension Note holders. 8 The Partnership adopted Financial Accounting Standards Board (FASB) Statement No. 145, Recession of FASB No. 4,44 and 64, Amendment of FASB No. 13 and Technical Corrections, during the first quarter of 2003. Upon adoption of FASB Statement No. 145, the Partnership reclassified its extraordinary income recorded in 2002 on debt forgiveness to ordinary income. Basis of Presentation The accompanying balance sheet as of December 31, 2002 has been derived from audited financial statements of the Partnership for the year ended December 31, 2002 and the accompanying unaudited financial statements, as of June 30, 2003 and 2002, have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. As of December 31, 2001, the Partnership changed its basis of accounting from going-concern basis to liquidation basis. Under this basis of accounting, assets and liabilities are stated at their net realizable value and estimated costs through the liquidation date are provided to the extent reasonably determinable. Certain information and note disclosures normally included in the annual financial statements prepared in accordance with accounting principles generally accepted in the United States 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, 2002 included in the Partnership's Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 28, 2003. 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 net (liabilities) assets in liquidation as of June 30, 2003 and December 31, 2002, statements of changes in net (liabilities) assets in liquidation for the six month period ended June 30, 2003, results of operations, changes in Partner's equity (deficit) and cash flows for six month periods ended June 30, 2003 and 2002. The results of operations for the three and six-month periods ended June 30, 2003 are not necessarily indicative of the results for the year ending December 31, 2003. 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 CRGSH, Capital Realty Group Corporation, sold all of its shares of CRGSH common stock to Retirement Associates, Inc. ("Associates"). 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 and its affiliates. 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 and related benefits reimbursed and expensed by the Partnership to CSL for each of the fiscal quarter ended June 30, 2003 and 2002, were $0. Management fees, dietary fees and other services reimbursed and expensed by the Partnership to CSL for the fiscal quarter ended June 30, 2003 and 2002, were $26,700 and $0, respectively. Unpaid management fees, dietary fees and other services to CSL at June 30, 2003 were $106,800. In connection with the sale of the Amberleigh, the General Partner became entitled to a brokerage fee of $255,000. In January 2002, the Partnership paid the General Partner one-half of this amount, or $127,500. The General Partner 9 remains entitled to receive the balance of this brokerage fee in the amount of $127,500, which has been accrued for payment at June 30, 2003. There were no distributions to the General Partner during the six months ended June 30, 2003 and 2002. C. LEGAL PROCEEDINGS On September 17, 2002, William Bren filed a putative class action complaint on behalf of certain holders of Pension Notes of the Partnership in the Delaware Court of Chancery, C.A. No. 19902 (the "Bren Action"), against the Partnership and the General Partner. The complaint in the Bren Action, which was amended on December 3, 2002, alleges that the General Partner breached its fiduciary duty by failing to initiate a lawsuit against, among others, the former General Partner and its principals in connection with the sale of four properties by the Partnership in September 1998; failed to disclose material information and promised to make certain distributions when it solicited consents from the Pension Note holders in 2001 to facilitate the sale of the Partnership's fifth property, the Amberleigh, which sale occurred in December 2001; and failed to disclose material information in connection with obtaining releases from the Pension Note holders in 2002. The Bren Action also seeks a judgment against the Partnership for failing to pay the full amount of the principal and interest owed on the Pension Notes on December 21, 2001, the maturity date of the Pension Notes. On February 10, 2003, the defendants moved to dismiss the amended complaint in the Bren Action or, alternatively, for summary judgment. Briefing has been completed on this motion and the matter is expected to be submitted to the Court shortly for decision. Previously, on October 15, 2002, plaintiff filed a motion for class certification, which plaintiff is pursuing at the present time. The Partnership believes the allegations asserted in the Bren Action are without merit and intends to defend against these claims. The Partnership is unable at the time to estimate liability, if any, related to this claim. D. PENSION NOTES Relating to the sale of the Amberleigh on December 31, 2001, the Partnership paid $9,538,066 for a partial redemption of Notes, and paid $7,461,934 for a partial redemption of deferred interest, effective February 28, 2002. Cash funds were not sufficient at February 28, 2002 to fully repay the outstanding principal and deferred interest balance of $18,991,176. Since available cash after payment of Partnership expenses and potential collection of the Amberleigh promissory notes was insufficient to repay the outstanding Notes and deferred interest, the unpaid debt related to the Notes has been treated for book purposes as forgiven and resulted in $18,991,176 of income for the year ended 2002. For tax purposes any income relating to the forgiveness of unpaid debt and deferred interest will be recognized in the year the Notes are deemed cancelled, which has not yet occurred. Upon final liquidation of the Partnership's cash reserves, to the extent any funds are in excess of liabilities, those funds will be distributed to Note Holders. The Partnership's obligation to repay the principal amount of the Notes, which matured on December 31, 2001, and stated interest thereon, is limited to the assets of the Partnership. The 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. 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources Rent and other asset collections for the six month period ended June 30, 2003 increased to $326,858 in 2003 from $27,159 in 2002. Increased rent and other asset collections were due to collections of accounts receivable and escrows related to the sale of the Amberleigh. Salaries, management fees and other operating expenses paid likewise decreased, from $887,550 in 2002 to $229,581 in 2003. Decreased operating expenses paid was due to the sale of the Amberleigh and its related December 31, 2001 accruals paid in the first quarter ended March 31, 2002. Relating to the sale of the Amberleigh on December 31, 2001, the Partnership paid $9,538,066 for a partial redemption of Notes, and paid $7,461,934 for a partial payment of deferred interest, effective February 28, 2002. Cash funds were not sufficient at February 28, 2002 to fully repay the outstanding principal balance of $18,991,176 in Notes and deferred interest. Since available cash after payment of Partnership expenses and potential collection of the Amberleigh promissory notes was insufficient to repay the outstanding Notes and deferred interest, the unpaid debt has been treated for book purposes as forgiven and resulted in $18,991,176 of income for the year ended 2002. Net cash provided by (used in) operations after the payment of interest expense during the six months ended June 30, 2003 and 2002 was $101,416 and $(8,321,431), respectively. Interest on the Notes bears stated simple interest at 13 percent rate per annum, and is paid on a 7 percent rate per annum, however it was accrued under the effective interest method at a rate of approximately 9 percent per annum compounded quarterly through May 2001. As of June 2001, the Partnership began recording accrued interest on the principal at the stated interest rate which represents the amount that was scheduled to be due upon dissolution of the Partnership. Interest expense totaled $0 and $423,590 for the six months ended June 30, 2003 and 2002, respectively. Cash and cash equivalents at June 30, 2003 and December 31, 2002 amounted to $162,360 and $60,944, respectively. Dissolution of Partnership On February 12, 2001, due to the pending maturity of the Pension Notes at December 31, 2001 and to obtain maximum value through an organized disposition of Partnership assets, the General Partner notified the Pension Note holders and Assignee Interest holders of its intent to dissolve the Partnership effective May 21, 2001 and liquidate its remaining property, the Amberleigh. On December 31, 2001, the Partnership sold the Amberleigh to an unaffiliated entity for $20,000,000. The Partnership received two $1,000,000 promissory notes, each payable within 12 months from the date of sale, one note subject to the purchaser obtaining certain levels of financing proceeds and the other note subject to the property achieving certain levels of operating income. The Partnership did not satisfy the requirements for payment under either promissory note, and therefore the Partnership will not receive any proceeds from these notes. The balance of the sale proceeds net of settlement costs and other direct costs associated with the sale was paid in cash, resulting in net sale proceeds 11 of $16,014,830. The Partnership recognized a $1,491,679 loss on the sale in 2001. On December 31, 2001, the principal on the Pension Notes and deferred interest of approximately $35,504,000 matured. Relating to the sale of the Amberleigh on December 31, 2001, the Partnership paid $9,538,066 for a partial redemption of Notes, and paid $7,461,934 for a partial payment of deferred interest, effective February 28, 2002. Cash funds were not sufficient at February 28, 2002 to fully repay the outstanding principal balance of $18,991,176 in Notes and deferred interest. Since available cash after payment of Partnership expenses and potential collection of the Amberleigh promissory notes was insufficient to repay the outstanding Pension Notes and deferred interest, the unpaid debt related to the Pension Notes has been treated as forgiven for book purposes and resulted in $18,991,176 of income for the year ended 2002. For tax purposes, any income relating to the forgiveness of unpaid debt and deferred interest will be recognized in the year the Pension Notes are deemed cancelled, which has not yet occurred. Upon final liquidation of the Partnership's cash reserves, to the extent any funds are in excess of liabilities, those funds will be distributed to the Pension Note holders. 12 Results of Operations The Partnership net income (loss) decreased from $18,307,651 to $(203,961) for the six-month periods ended June 30, 2002 and 2003, respectively. Net income (loss) per assignee interest decreased from $428 to $(5) for the three-month periods ended June 30, 2002 and 2003, respectively. The increase in the Partnership's net loss was principally due to $18,991,176 of income recognized from the dissolution of the Partnership and debt forgiveness of outstanding notes and deferred interest in 2002. Total revenues for the six-month periods increased from $2,092 in 2002 to $4,139 in 2003. Total operating costs and expenses decreased from $76,041 in 2002 to $9,519 in 2003. The decrease in operating expenses primarily was due to decreased administrative and marketing costs. Note interest expense decreased from $423,590 to $0 for the six-month periods ended June 30, 2002 and 2003, respectively. The decrease in Note interest expense is due to the cessation of interest expense on the Note release date of February 28, 2002. Other expenses relating to Partnership administration increased from $185,986 to $198,581 for the six-month periods ended June 30, 2002 and 2003, respectively, due to increased professional costs. For the three months ended June 30, 2003 as compared with the three months ended June 30, 2002, the Partnership's revenue was impacted by the same shifts of revenue as discussed above. Similarly, a comparison of second quarter 2003 operating expenses versus second quarter 2002 reflects the same variances as discussed above, with the exception that other expense decreased from $94,611 to $86,459 for the quarter ending June 30, 2002 and 2003, respectively, due to decreased printing costs. 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. ITEM 4. CONTROLS AND PROCEDURES The Partnership's General Partner including its Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of the Partnership's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) have concluded in their judgment that, as of the end of the period covered by this quarterly report on Form 10-Q, the Partnership's disclosure controls and procedures were adequate and designed to ensure that material information relating to the Partnership and its subsidiaries would be made known to them. There were no significant changes in the Partnership's internal controls or, to the General Partner's knowledge, in other factors that could significantly affect its disclosure controls and procedures subsequent to the date of evaluation. 13 PART II Item 1. Legal Proceedings On September 17, 2002, William Bren filed a putative class action complaint on behalf of certain holders of Pension Notes of the Partnership in the Delaware Court of Chancery, C.A. No. 19902 (the "Bren Action"), against the Partnership and the General Partner. The complaint in the Bren Action, which was amended on December 3, 2002, alleges that the General Partner breached its fiduciary duty by failing to initiate a lawsuit against, among others, the former General Partner and its principals in connection with the sale of four properties by the Partnership in September 1998; failed to disclose material information and promised to make certain distributions when it solicited consents from the Pension Note holders in 2001 to facilitate the sale of the Partnership's fifth property, the Amberleigh, which sale occurred in December 2001; and failed to disclose material information in connection with obtaining releases from the Pension Note holders in 2002. The Bren Action also seeks a judgment against the Partnership for failing to pay the full amount of the principal and interest owed on the Pension Notes on December 21, 2001, the maturity date of the Pension Notes. On February 10, 2003, the defendants moved to dismiss the amended complaint in the Bren Action or, alternatively, for summary judgment. Briefing has been completed on this motion and the matter is expected to be submitted to the Court shortly for decision. Previously, on October 15, 2002, plaintiff filed a motion for class certification, which plaintiff is pursuing at the present time. The Partnership believes the allegations asserted in the Bren Action are without merit and intends to defend against these claims. The Partnership is unable at the time to estimate liability, if any, related to this claim. 14 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 Item 6. Exhibits and Reports on Form 8-K (A) Exhibit: 31.1 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (B) Reports on Form 8-K None 15 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 (duly authorized officer and principal financial officer) Date: August 14, 2003

NHP RETIREMENT HOUSING PARTNERS I LTD PARTNERSHIP 10-Q