FORM 10-QSB--QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
QUARTERLY OR TRANSITIONAL REPORT
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
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 0-16877
FOX STRATEGIC HOUSING INCOME PARTNERS
(Exact name of small business issuer as specified in its charter)
California 94-3016373
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Insignia Financial Plaza
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 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
a)
FOX STRATEGIC HOUSING INCOME PARTNERS
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
June 30, 1998
Assets
Cash and cash equivalents $ 5,705
Receivables and deposits 217
Other assets 11
Investment properties:
Land $ 3,119
Buildings and related personal property 18,292
21,411
Less accumulated depreciation (6,732) 14,679
$20,612
Liabilities and Partners' (Deficit) Capital
Liabilities
Accounts payable $ 14
Tenant security deposit liabilities 53
Accrued property taxes 143
Accrued interest 375
Other liabilities 39
Mortgage notes payable 8,263
Partners' (Deficit) Capital:
General partner $ (173)
Limited partners (26,111 units issued and
outstanding) 11,898 11,725
$20,612
See Accompanying Notes to Consolidated Financial Statements
b)
FOX STRATEGIC HOUSING INCOME PARTNERS
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
Revenues:
Rental income $ 755 $ 718 $ 1,469 $ 1,420
Other income 101 96 201 175
Total revenues 856 814 1,670 1,595
Expenses:
Operating 252 262 483 509
General and administrative 51 44 106 103
Depreciation 158 157 316 311
Interest 236 237 467 470
Property taxes 64 71 127 143
Total expenses 761 771 1,499 1,536
Net income $ 95 $ 43 $ 171 $ 59
Net income allocated
to general partner $ 19 $ 9 $ 34 $ 12
Net income allocated
to limited partners 76 34 137 47
$ 95 $ 43 $ 171 $ 59
Net income per limited
partnership unit $ 2.91 $ 1.30 $ 5.24 $ 1.80
See Accompanying Notes to Consolidated Financial Statements
c)
FOX STRATEGIC HOUSING INCOME PARTNERS
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' (DEFICIT) CAPITAL
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partner's Partners' Total
Original capital contributions 26,111 $ -- $26,111 $26,111
Partners' (deficit) capital
at December 31, 1997 26,111 $ (207) $11,761 $11,554
Net income for the six
months ended June 30, 1998 -- 34 137 171
Partners' (deficit) capital
at June 30, 1998 26,111 $ (173) $11,898 $11,725
See Accompanying Notes to Consolidated Financial Statements
d)
FOX STRATEGIC HOUSING INCOME PARTNERS
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
June 30,
1998 1997
Cash flows from operating activities:
Net income $ 171 $ 59
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 316 311
Amortization of loan costs 21 20
Interest added to note payable principal 71 72
Change in accounts:
Receivables and deposits (111) (14)
Other assets 2 (6)
Accounts payable (26) (11)
Tenant security deposit liabilities 4 (3)
Accrued property taxes (28) 63
Accrued interest payable 375 378
Other liabilities (11) --
Net cash provided by operating activities 784 869
Cash flows from investing activities:
Property improvements and replacements (47) (94)
Net cash used in investing activities (47) (94)
Cash flows from financing activities: -- --
Net increase in cash and cash equivalents 737 775
Cash and cash equivalents at beginning of period 4,968 4,315
Cash and cash equivalents at end of period $ 5,705 $ 5,090
Supplemental disclosure of non cash investing and
financing activities:
Beginning accrued interest added to note payable
principal $ 356 $ 358
See Accompanying Notes to Consolidated Financial Statements
e)
FOX STRATEGIC HOUSING INCOME PARTNERS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited financial statements of Fox Strategic Housing Income
Partners (the "Partnership") have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-QSB and Item 310(b) of Regulation S-B. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of Fox Capital Management Corporation ("FCMC" or the "Managing General
Partner"), a California Corporation, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three and six month periods ended June 30,
1998, are not necessarily indicative of the results that may be expected for the
fiscal year ending December 31, 1998. For further information, refer to the
financial statements and footnotes thereto included in the Partnership's annual
report on Form 10-KSB for the year ended December 31, 1997.
Certain reclassifications have been made to the 1997 information to conform to
the 1998 presentation.
NOTE B - TRANSACTIONS WITH AFFILIATED PARTIES
The Partnership has no employees and is dependent on the Managing General
Partner and its affiliates for the management and administration of all
partnership activities. The Managing General Partner is wholly-owned by Insignia
Properties Trust ("IPT"), an affiliate of Insignia Financial Group, Inc.
("Insignia"). The Partnership Agreement provides for certain payments to
affiliates for services and as reimbursement of certain expenses incurred by
affiliates on behalf of the Partnership.
Fox Partners VIII, a California general partnership, is the General Partner.
The general partners of Fox Partners VIII are FCMC and Fox Realty Investors
("FRI"), a California general partnership.
The following transactions with the Managing General Partner and its affiliates
were incurred during the six months ended June 30, 1998 and 1997 (in thousands):
1998 1997
Property management fees (included in operating
expenses) $ 78 $ 76
Reimbursement for services of affiliates (included
in general and administrative expenses) 31 35
For the period from January 1, 1997 to August 31, 1997, the Partnership insured
its properties under a master policy through an agency affiliated with the
Managing General Partner with an insurer unaffiliated with the Managing General
Partner. An affiliate of the Managing General Partner acquired, in the
acquisition of a business, certain financial obligations from an insurance
agency which was later acquired by the agent who placed the current year's
master policy. The agent assumed the financial obligations to the affiliate of
the Managing General Partner which received payment on these obligations from
the agent. The amount of the Partnership's insurance premiums accruing to the
benefit of the affiliate of the Managing General Partner by virtue of the
agent's obligations was not significant.
On August 28, 1997, an Insignia affiliate (the "Purchaser") commenced tender
offers for limited partnership interests in six real estate limited partnerships
(including the Partnership) in which various Insignia affiliates act as general
partner. The Purchaser offered to purchase up to 11,750 of the outstanding
units of limited partnership interest in the Partnership at $260.00 per Unit,
net to the seller in cash, upon the terms and subject to the conditions set
forth in the Offer to Purchase dated August 28, 1997 (the "Offer to Purchase")
and the related Assignment of Partnership Interest attached as Exhibits (a)(1)
and (a)(2), respectively, to the Tender Offer Statement on Schedule 14D-1
originally filed with the Securities and Exchange Commission on August 28, 1997.
Because of the existing and potential future conflicts of interest (described in
the Partnership's Statements on Schedule 14D-9 filed with the Securities and
Exchange Commission), neither the Partnership nor the General Partner expressed
any opinion as to the Offer to Purchase and made no recommendation as to whether
unit holders should tender their units in response to the Offer to Purchase. In
addition, because of these conflicts of interest, including as a result of the
Purchaser's affiliation with various Insignia affiliates that provide property
management services to the Partnership's properties, the manner in which the
Purchaser votes its limited partner interests in the Partnership may not always
be consistent with the best interests of the other limited partners. As a
result of the tender offer, an Insignia affiliate purchased 3,919 of the
outstanding limited partner units of the Partnership.
On March 17, 1998, Insignia entered into an agreement to merge its national
residential property management operations, and its controlling interest in IPT,
with Apartment Investment and Management Company ("AIMCO"), a publicly traded
real estate investment trust. The closing, which is anticipated to happen in
September or October of 1998, is subject to customary conditions, including
government approvals and the approval of Insignia's shareholders. If the
closing occurs, AIMCO will then control the Managing General Partner of the
Partnership.
NOTE C - SUBSEQUENT EVENT
On July 30, 1998, the Partnership refinanced the mortgage indebtedness
encumbering its properties. The new mortgage encumbering Woodview Apartments is
in the principal amount of $5,600,000, bears interest at a rate of 6.64% per
annum and requires monthly debt service payments of $35,912.97. The new
mortgage encumbering Barrington Place Apartments is in the principal amount of
$4,900,000, bears interest at a rate of 6.65% and requires monthly debt service
payments of $31,456.28. Both mortgage loans mature on August 1, 2008 at which
time the properties will either be refinanced or sold. The Partnership received
net proceeds from these refinancings in the aggregate amount of approximately
$1,300,000. In addition, the Partnership was required to establish escrows with
the lender for tax and insurance costs.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The Partnership's investment properties consist of two apartment complexes. The
following table sets forth the average occupancy of the properties for each of
the six months ended June 30, 1998 and 1997:
Average
Occupancy
Property 1998 1997
Barrington Place Apartments
Westlake, Ohio 95% 95%
Wood View Apartments
Atlanta, Georgia 93% 93%
The Partnership reported net income for the six months ended June 30, 1998, of
approximately $171,000 as compared to net income of approximately $59,000 for
the corresponding period of 1997. The Partnership reported net income for the
three months ended June 30, 1998, of approximately $95,000 as compared to net
income of approximately $43,000 for the corresponding period of 1997. The
increase in net income is attributed to increases in both rental and other
income and decreases in operating expenses and property taxes. Rental income
increased at both investment properties during the three and six month periods
ended June 30, 1998 due to rental rate increases. Other income increased
primarily due to increases in corporate unit and interest income at Barrington
Place. Operating expenses decreased in 1998 due to decreases in both ordinary
and major repairs and maintenance expenses at both of the Partnership's
investment properties and decreases in salary-related (due to job sharing) and
utility expenses at Wood View. The decrease in property tax expense is
attributable to a tax refund received at Wood View and a decrease in the
effective tax rate by the taxing authority for Barrington Place.
Included in operating expenses for the six months ended June 30, 1998 is
approximately $14,000 of major repairs and maintenance comprised primarily of
landscaping and exterior building repairs. Included in operating expense for
the six months ended June 30, 1997 is approximately $23,000 of major repairs and
maintenance comprised primarily of landscaping costs.
As part of the ongoing business plan of the Partnership, the Managing General
Partner monitors the rental market environment of its investment properties to
assess the feasibility of increasing rents, maintaining or increasing occupancy
levels and protecting the Partnership from increases in expense. As part of
this plan, the Managing General Partner attempts to protect the Partnership from
the burden of inflation-related increases in expenses by increasing rents and
maintaining a high overall occupancy level. However, due to changing market
conditions, which can result in the use of rental concessions and rental
reductions to offset softening market conditions, there is no guarantee that the
Managing General Partner will be able to sustain such a plan.
At June 30, 1998, the Partnership had cash and cash equivalents of approximately
$5,705,000 compared to approximately $5,090,000 for the corresponding period of
1997. The net increase in cash and cash equivalents for the six months ended
June 30, 1998 and 1997 is approximately $737,000 and $775,000, respectively.
Net cash provided by operating activities decreased primarily due to an increase
in receivables and deposits and a decrease in accrued property taxes due to the
timing of receipts and payments, respectively. This decrease in cash was
partially offset by the increase in net income as discussed above. Net cash
used in investing activities decreased due to a decrease in property
improvements and replacements in 1998 as compared to 1997.
As of July 30, 1998, the Partnership's properties were cross-collateralized by a
zero coupon first mortgage which secured the entire amount of the note payable.
Interest accrued on the amount borrowed at a contract rate of 10.9 percent per
annum, with the accrued interest added to principal each January and July. On
July 30, 1998, the Partnership refinanced this indebtedness with net mortgage
loans on each of the properties. As a result, the properties are no longer
cross-collateralized. The new loan on the Woodview Apartments is in the
principal amount of $5,600,000, bears interest at a rate of 6.64% per annum and
requires monthly debt service payments of $35,912.97. The new mortgage
encumbering Barrington Place Apartments is in the principal amount of
$4,900,000, bears interest at a rate of 6.65% and requires monthly debt service
payments of $31,456.28. Both mortgage loans mature on August 1, 2008 at which
time the properties will either be refinanced or sold. The Partnership received
net proceeds from these refinancings in the aggregate amount of approximately
$1,300,000. In addition, the Partnership was required to establish escrows with
the lender for tax and insurance costs.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the various properties to adequately maintain the
physical assets and other operating needs of the Partnership. Such assets are
currently thought to be sufficient for any near-term needs of the Partnership.
Future cash distributions will depend on the levels of net cash generated from
operations, capital expenditure requirements, property sales, refinancings, and
the availability of cash reserves. No cash distributions were paid during either
of the six months ended June 30, 1998 or 1997. However, the Managing General
Partner anticipates making cash distributions during the third and fourth
quarters of 1998.
Year 2000
The Partnership is dependent upon the Managing General Partner and Insignia for
management and administrative services. Insignia has completed an assessment
and will have to modify or replace portions of its software so that its computer
systems will function properly with respect to dates in the year 2000 and
thereafter (the "Year 2000 Issue"). The project is estimated to be completed no
later than December 31, 1998, which is prior to any anticipated impact on its
operating systems. The Managing General Partner believes that with
modifications to existing software and conversions to new software, the Year
2000 Issue will not pose significant operational problems for its computer
systems. However, if such modifications and conversions are not made, or are not
completed timely, the Year 2000 Issue could have a material impact on the
operations of the Partnership.
Other
Certain items discussed in this quarterly report may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 (the "Reform Act") and as such may involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Partnership to be materially different from future
results, performance or achievements expressed or implied by such forward-
looking statements. Such forward-looking statements speak only as of the date
of this quarterly report. The Partnership expressly disclaims any obligation or
undertaking to release publicly any updates or revisions to any forward-looking
statements contained herein to reflect any change in the Partnership's
expectations with regard thereto or any change in events, conditions or
circumstances on which any such statement is based.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled ROSALIE NUANES, ET AL. V. INSIGNIA
FINANCIAL GROUP, INC., ET AL. in the Superior Court of the State of California
for the County of San Mateo. The plaintiffs named as defendants, among others,
the Partnership, the Managing General Partner and several of their affiliated
partnerships and corporate entities. The complaint purports to assert claims on
behalf of a class of limited partners and derivatively on behalf of a number of
limited partnerships (including the Partnership) which are named as nominal
defendants, challenging the acquisition by Insignia and its affiliates of
interests in certain general partner entities, past tender offers by Insignia
affiliates as well as a recently announced agreement between Insignia and
Apartment Investment and Management Company. The complaint seeks monetary
damages and equitable relief, including judicial dissolution of the Partnership.
On June 25, 1998, the Managing General Partner filed a motion seeking dismissal
of the action. In lieu of responding to the motion, the plaintiffs have filed
an amended complaint. The Managing General Partner believes the action to be
without merit, and intends to vigorously defend it.
In April 1998, a limited partner of the Partnership commenced an action in the
Circuit Court for Jackson County, Missouri entitled BOND PURCHASE LLC V. FOX
STRATEGIC HOUSING INCOME PARTNERS, ET AL. The complaint claims that the
Partnership and the Managing General Partner breached certain contractual and
fiduciary duties allegedly owed to the claimant and seeks damages and injunctive
relief. The Managing General Partner believes the claims to be without merit
and intends to vigorously defend the claims.
The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature. The Managing General Partner believes that all such
other matters are adequately covered by insurance and will be resolved without a
material adverse effect upon the business, financial condition, results of
operations, or liquidity of the Partnership.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibit 27, Financial Data Schedule, is filed as an exhibit to this
report.
b) Reports on Form 8-K: None filed during the quarter ended June 30, 1998.
SIGNATURES
In accordance with 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.
FOX STRATEGIC HOUSING INCOME PARTNERS
By: FOX PARTNERS VIII
Its General Partner
By: FOX CAPITAL MANAGEMENT CORPORATION
Its Managing General Partner
By: /s/William H. Jarrard, Jr.
William H. Jarrard, Jr.
President and Director
By: /s/Ronald Uretta
Ronald Uretta
Vice President and Treasurer
Date: August 14, 1998