10-Q 1 nhp10q331.txt FORM 10Q FOR MARCH 31, 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 MARCH 31, 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)

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

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See notes to financial statements. 5 NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS MARCH 31, 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 Note Holders and Assignee Holders of its intent to dissolve the Partnership and commence a Plan of Liquidation effective May 21, 2001. The dissolution is subject to the rights of the Limited Partners to elect to continue the business of the Partnership. Following an election to dissolve, the Partnership will take 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. 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 March 31, 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 6 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 March 31, 2001 and 2000, results of operations, changes in Partner's deficit and cash flows for three month periods ended March 31, 2001 and 2000. The results of operations for the three-month period ended March 31, 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 and 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 first fiscal quarter ended March 31, 2001 and 2000, were $275,319 and $273,518, respectively. Management fees, dietary fees and other services reimbursed and expensed by the Partnership to CSL for the first fiscal quarter ended March 31, 2001 and 2000, were $160,444 and $154,163, respectively. Distributions of $27,258 were made to the General Partner during the three months ended March 31, 2001. C. VALUATION OF RENTAL PROPERTY Generally accepted accounting principles require that the Partnership evaluate whether it is probable that the estimated undiscounted future cash flows of its properties, taken individually, will be less than the respective net book value of the properties. If such a shortfall exists and is material, then a write-down is warranted. The Partnership performs such evaluations on an on-going basis. During the three months ended March 31, 2001, based on the Partnership's evaluation of its property, the Partnership did not believe that any write-down was warranted. 7 D. LEGAL PROCEEDINGS On or about October 23, 1998, an Assignee Interest 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 Interest 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. E. PENSION NOTES The 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. Using the effective interest method, 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 will be paid. If interest had been provided based on 13 percent versus the effective rate of approximately 9 percent, an additional liability of approximately $155,515 would be recorded at March 31, 2001 and future interest expense would be reduced by this amount. The Partnership's obligation to repay the principal amount of the 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. For the first quarter ended March 31, 2001, an additional $1,000,000 was paid for deferred interest not scheduled to become due until December 31, 2001. 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. AVAILABLE MARCH 31, MARCH 31, UNITS 2001 2000 ----- ---- ---- The Amberleigh at Woodstream Farms Williamsville, New York 271 87% 85% 8 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. Due to licensure and financing requirements, the land currently will not be used for development. Rent collections for the three-month period increased to $1,317,070 in 2001 from $1,239,120 in 2000. Increased rent collections were due to increased occupancy at the Amberleigh. Salaries, management fees and other operating expenses paid likewise decreased, from $1,010,440 in 2000 to $968,746 in 2001. Decreased operating expenses paid primarily were due to decreased other operating expenses paid at March 31, 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 $355,661 for the three-month period ended March 31, 2001. However, an additional $1,000,000 was paid for deferred interest payable during the first quarter ended March 31, 2001. Net cash used in operations after the payment of interest expense during the three months ended March 31, 2001 and 2000 was $956,246 and $64,036, respectively. Interest on the Pension Notes bears stated simple interest at 13 percent rate per annum, and is paid on a 7 percent rate per annum, however it is accrued under the effective interest method at a rate of approximately 9 percent per annum compounded quarterly, which totaled $856,239 and $811,145 for the three months ended March 31, 2001 and 2000, respectively. The remaining 6 percent unpaid portion is due at maturity. Total accrued and unpaid interest amounted to $16,281,005 and $16,780,427 at March 31, 2001 and December 31, 2000, respectively. Capital expenditures decreased $14,273 from $41,472 in 2000 to $27,199 in 2001. Cash and cash equivalents at March 31, 2001 and December 31, 2000 amounted to $4,481,576 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. 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 Note Holders and Assignee Holders of its intent to dissolve the Partnership and commence a Plan of Liquidation effective May 9 21, 2001. The dissolution is subject to the rights of the Limited Partners to elect to continue the business of the Partnership. Following an election to dissolve, the Partnership will take 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. Management's plans are to continue to manage the Property prudently in order to maximize the resale value of the Property during the dissolution of the Partnership. RESULTS OF OPERATIONS The Partnership's net loss for the three months ended March 31, 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 $662,226 to $611,579 for the three-month periods ending March 31, 2000 and 2001, respectively. Net loss per assignee interest decreased from $15 to $14 for the three-month periods ending March 31, 2000 and 2001, respectively. The decrease in the Partnership's net loss was principally due to increased occupancy and revenues at the Amberleigh, and decreased operating expenses. Total revenues for the three-month periods increased from $1,299,945 in 2000 to $1,345,513 in 2001. The increase in total revenues was due to increased occupancy at the Amberleigh. Total operating costs and expenses decreased from $1,015,750 in 2000 to $993,111 in 2001. The decrease in operating expenses primarily was due to decreased taxes and insurance. Pension Note interest expense increased from $811,145 to $856,239 for the three-month periods ending March 31, 2000 and 2001, respectively. Other expenses relating to Partnership administration decreased from $105,525 to $77,991 for the three-month periods ending March 31, 2000 and 2001, respectively, due to decreased professional fees. 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 Interest 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 Interest 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 10 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 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (A) Exhibit: None (B) Reports on Form 8-K None 11 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: May 14, 2001 12

NHP RETIREMENT HOUSING PARTNERS I LTD PARTNERSHIP 10-Q