FORM 10-QSB---QUARTERLY OR TRANSITIONAL 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 March 31, 2001
[ ] 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.)
55 Beattie Place, PO Box 1089
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 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
a)
FOX STRATEGIC HOUSING INCOME PARTNERS
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
March 31, 2001
Assets
Cash and cash equivalents $ 310
Receivables and deposits 76
Other assets 250
Investment properties:
Land $ 3,119
Buildings and related personal property 19,071
22,190
Less accumulated depreciation (8,605) 13,585
$ 14,221
Liabilities and Partners' (Deficit) Capital
Liabilities
Accounts payable $ 30
Due to general partner 230
Tenant security deposit liabilities 48
Accrued property taxes 159
Other liabilities 123
Mortgage notes payable 10,189
Partners' (Deficit) Capital
General partner $ (294)
Limited partners (26,111 units issued and
outstanding) 3,736 3,442
$ 14,221
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
March 31,
2001 2000
Revenues:
Rental income $ 746 $ 744
Other income 43 28
Total revenues 789 772
Expenses:
Operating 229 226
General and administrative 106 53
Depreciation 185 173
Interest 176 179
Property taxes 69 70
Total expenses 765 701
Net income $ 24 $ 71
Net income allocated to general partner $ 5 $ 14
Net income allocated to limited partners 19 57
$ 24 $ 71
Net income per limited partnership unit $ .73 $ 2.18
Distributions per limited partnership unit $ 19.34 $ --
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 Partners Total
Original capital contributions 26,111 $ -- $26,111 $26,111
Partners' (deficit) capital at
December 31, 2000 26,111 $ (291) $ 4,222 $ 3,931
Distributions to partners -- (8) (505) (513)
Net income for the three months
ended March 31, 2001 -- 5 19 24
Partners' (deficit) capital
at March 31, 2001 26,111 $ (294) $ 3,736 $ 3,442
See Accompanying Notes to Consolidated Financial Statements
d)
FOX STRATEGIC HOUSING INCOME PARTNERS
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three Months Ended
March 31,
2001 2000
Cash flows from operating activities:
Net income $ 24 $ 71
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 185 173
Amortization of loan costs 7 8
Change in accounts:
Receivables and deposits (19) 52
Other assets (22) (6)
Accounts payable (12) 20
Tenant security deposit liabilities (1) 1
Accrued property taxes (14) (12)
Due to general partner 26 (53)
Other liabilities 2 (18)
Net cash provided by operating activities 176 236
Cash flows used in investing activities:
Net withdrawals from restricted escrows 50 --
Property improvements and replacements (82) (112)
Net cash used in investing activities (32) (112)
Cash flows used in financing activities:
Distributions to partners (513) --
Payments on mortgage notes payable (33) (31)
Net cash used in financing activities (546) (31)
Net (decrease) increase in cash and cash equivalents (402) 93
Cash and cash equivalents at beginning of period 712 987
Cash and cash equivalents at end of period $ 310 $ 1,080
Supplemental disclosure of cash flow information:
Cash paid for interest $ 170 $ 172
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 consolidated financial statements of Fox Strategic
Housing Income Partners (the "Partnership" or "Registrant") 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. The Partnership's General Partner is Fox Capital
Management Corporation ("FCMC" or the Managing General Partner), an affiliate of
Apartment Investment and Management Company ("AIMCO"), a publicly traded real
estate investment trust. In the opinion of FCMC all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month period ended March 31,
2001, are not necessarily indicative of the results that may be expected for the
fiscal year ending December 31, 2001. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Partnership's Annual Report on Form 10-KSB for the fiscal year ended December
31, 2000.
Principles of Consolidation: The consolidated financial statements include the
statements of the Partnership and Westlake East Associates, L.P., a limited
partnership in which the partnership owns a 99% interest. The general partner
may be removed by the Registrant; therefore, the consolidated partnership is
controlled and consolidated by the Registrant. All significant inter-partnership
transactions and balances have been eliminated.
Segment Reporting: Statement of Financial Accounting Standards ("SFAS") No. 131,
Disclosure about Segments of an Enterprise and Related Information established
standards for the way that public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. As defined in SFAS
No. 131, the Partnership has only one reportable segment. The Managing General
Partner believes that segment-based disclosures will not result in a more
meaningful presentation than the consolidated financial statements as currently
presented.
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 Partnership Agreement provides for certain payments
to affiliates for services and as reimbursement of certain expenses incurred by
affiliates on behalf of the Partnership. The following transactions with the
Managing General Partner and/or its affiliates were incurred during the three
months ended March 31, 2001 and 2000:
2001 2000
(in thousands)
Property management fees (included in operating expenses) $ 42 $ 39
Reimbursement for services of affiliates (included in
investment properties and general and administrative
expenses) 23 15
Partnership management fee (included in general and
administrative expense) 39 --
Asset management fees (included in general and
administrative expenses) 21 14
During the three months ended March 31, 2001 and 2000, affiliates of the
Managing General Partner were entitled to receive 5% of gross receipts from both
of the Partnership's properties as compensation for providing property
management services. The Partnership paid to such affiliates approximately
$42,000 and $39,000 for the three months ended March 31, 2001 and 2000,
respectively.
An affiliate of the Managing General Partner received reimbursements of
accountable administrative expenses amounting to approximately $23,000 and
$15,000 for each of the three month periods ended March 31, 2001 and 2000,
respectively. This affiliate also received asset management fees of
approximately $21,000 and $14,000 for each of the three months ended March 31,
2001 and 2000, respectively.
In addition, the general partner earned $39,000 in Partnership Management fees
on distributions from operations during the three months ended March 31, 2001,
of which $27,000 is subordinated to the Limited Partner's annual receipt of 8%
of Adjusted Investment Capital as defined in the Partnership Agreement. Such
cumulative subordinated fees owed to the general partner at March 31, 2001
amounted to approximately $230,000.
In addition to its indirect ownership of the general partner interest in the
Partnership, AIMCO and its affiliates currently own 9,897 limited partnership
units in the Partnership representing approximately 37.90% of the outstanding
units. A number of these units were acquired pursuant to tender offers made by
AIMCO or its affiliates. It is possible that AIMCO or its affiliates will make
one or more additional offers to acquire additional limited partnership
interests in the Partnership for cash or in exchange for units in the operating
partnership of AIMCO. Under the Partnership Agreement, unitholders holding a
majority of the Units are entitled to take action with respect to a variety of
matters, which would include without limitation, voting on certain amendments to
the Partnership Agreement and voting to remove the Managing General Partner.
When voting on matters, AIMCO would in all likelihood vote the Units it acquired
in a manner favorable to the interest of the Managing General Partner because of
their affiliation with the Managing General Partner.
Note C - 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, its Managing General Partner and several of their affiliated
partnerships and corporate entities. The action 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, among other things, the acquisition of interests in
certain general partner entities by Insignia Financial Group, Inc. ("Insignia")
and entities which were, at one time, affiliates of Insignia; past tender offers
by the Insignia affiliates to acquire limited partnership units; management of
the partnerships by the Insignia affiliates; and the Insignia Merger. The
plaintiffs seek 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 filed an amended complaint. The Managing General Partner
filed demurrers to the amended complaint which were heard February 1999.
Pending the ruling on such demurrers, settlement negotiations commenced. On
November 2, 1999, the parties executed and filed a Stipulation of Settlement,
settling claims, subject to court approval, on behalf of the Partnership and all
limited partners who owned units as of November 3, 1999. Preliminary approval of
the settlement was obtained on November 3, 1999 from the Court, at which time
the Court set a final approval hearing for December 10, 1999. Prior to the
December 10, 1999 hearing, the Court received various objections to the
settlement, including a challenge to the Court's preliminary approval based upon
the alleged lack of authority of prior lead counsel to enter the settlement. On
December 14, 1999, the Managing General Partner and its affiliates terminated
the proposed settlement. In February 2000, counsel for some of the named
plaintiffs filed a motion to disqualify plaintiff's lead and liaison counsel who
negotiated the settlement. On June 27, 2000, the Court entered an order
disqualifying them from the case and an appeal was taken from the order on
October 5, 2000. On December 4, 2000, the Court appointed the law firm of Lieff
Cabraser Heimann & Bernstein LLP as new lead counsel for plaintiffs and the
putative class. Plaintiffs filed a third amended complaint on January 19, 2001.
On March 2, 2001, the Managing General Partner and its affiliates filed a
demurrer to the third amended complaint. The demurrer is scheduled to be heard
on May 14, 2001. The Court has also scheduled a hearing on a motion for class
certification for August 27, 2001. Plaintiffs must file their motion for class
certification no later than June 15, 2001. The Managing General Partner does not
anticipate that costs associated with this case will be material to the
Partnership's overall operations.
The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature arising in the ordinary course of business.
Note D - Distributions
The Partnership declared and paid distributions from cash from operations of
approximately $513,000 (approximately $505,000 to the limited partners or
approximately $19.34 per limited partnership unit) during the three months ended
March 31, 2001. No distributions were made to the partners during the three
months ended March 31, 2000. Subsequent to March 31, 2001, the Partnership
declared and paid a distribution from cash from operations of approximately
$121,000 (approximately $119,000 to the limited partners or $4.56 per limited
partnership unit).
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The matters discussed in this Form 10-QSB contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the
disclosures contained in this Form 10-QSB and the other filings with the
Securities and Exchange Commission made by the Partnership from time to time.
The discussion of the Partnership's business and results of operations,
including forward-looking statements pertaining to such matters, does not take
into account the effects of any changes to the Partnership's business and
results of operation. Accordingly, actual results could differ materially from
those projected in the forward-looking statements as a result of a number of
factors, including those identified herein.
The Partnership's investment properties consist of two apartment complexes. The
following table sets forth the average occupancy of the properties for the three
months ended March 31, 2001 and 2000:
Average Occupancy
Property 2001 2000
Barrington Place Apartments 93% 91%
Westlake, Ohio
Wood View Apartments 91% 97%
Atlanta, Georgia
The Managing General Partner attributes the decrease in occupancy at Wood View
Apartments to the construction of new apartment complexes and the competitive
market of the apartment industry in the Atlanta area.
Results of Operations
The Partnership's net income for the three months ended March 31, 2001 and 2000
was approximately $24,000 and $71,000, respectively. The decrease in net income
is attributable to an increase in total expenses, which was partially offset by
a small increase in total revenues. The increase in total expenses is the result
of an increase in general and administrative expenses and depreciation expense.
The increase in general and administrative expenses is primarily due to an
increase in Partnership management fees on distributions from operations and an
increase in management reimbursements to the Managing General Partner as allowed
under the Partnership Agreement. Depreciation expense increased primarily due to
capital improvements completed and placed in service during the last twelve
months at the Partnership's investment properties.
The increase in total revenues is attributable to an increase in other income.
The increase in other income is primarily due to an increase in interest income
due to higher average cash balances held in interest bearing accounts. Other
income also increased as a result of an increase in tenant reimbursements at
Woodview Apartments, which was partially offset by a decrease in corporate unit
income at Barrington Place Apartments.
Included in general and administrative expenses for the three months ended March
31, 2001 and 2000, are costs associated with the quarterly and annual
communications with investors and regulatory agencies and the annual audit
required by the Partnership Agreement.
As part of the ongoing business plan of the Partnership, the Managing General
Partner monitors the rental market environment of each of its investment
properties to assess the feasibility of increasing rents, maintaining or
increasing occupancy levels and protecting the Partnership from increases in
expenses. 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.
Liquidity and Capital Resources
At March 31, 2001, the Partnership had cash and cash equivalents of
approximately $310,000 as compared to approximately $1,080,000 at March 31,
2000. The net decrease in cash and cash equivalents of approximately $402,000
from the Partnership's year ended December 31, 2000, is due to approximately
$546,000 of cash used in financing activities and approximately $32,000 of cash
used in investing activities which were partially offset by approximately
$176,000 of cash provided by operating activities. Cash used in investing
activities consisted of property improvements and replacements which was
partially offset by net withdrawals from escrow accounts maintained by the
mortgage lender. Cash used in financing activities consisted primarily of
distributions to partners and, to a lesser extent, of payments of principal made
on the mortgages encumbering the Partnership's properties. The Partnership
invests its working capital reserves in interest bearing accounts.
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 properties to adequately maintain the physical
assets and other operating needs of the Partnership and to comply with Federal,
state, and local legal and regulatory requirements. Capital improvements planned
for each of the Partnership's properties are detailed below.
Barrington Place Apartments
During the three months ended March 31, 2001, the Partnership completed
approximately $28,000 of capital improvements at Barrington Place Apartments
consisting primarily of floor covering replacements and other building
improvements. These improvements were funded from Partnership reserves. Capital
improvements budgeted for 2001 are expected to cost approximately $92,000, which
include, but are not limited to, floor covering replacements, a water
submetering project, major landscaping, and other building improvements.
Wood View Apartments
During the three months ended March 31, 2001, the Partnership completed
approximately $54,000 of capital improvements at Wood View Apartments consisting
primarily of plumbing enhancements, floor covering replacements, and other
building improvements. These improvements were funded from operating cash flow.
Capital improvements budgeted for 2001 are expected to cost approximately
$81,000 which include, but are not limited to, floor covering replacements and
other building improvements.
The additional capital expenditures will be incurred only if cash is available
from operations or from Partnership reserves. To the extent that such budgeted
capital improvements are completed, the Partnership's distributable cash flow,
if any, may be adversely affected at least in the short term.
The Partnership's current assets are thought to be sufficient for any near-term
needs (exclusive of capital improvements) of the Partnership. At March 31, 2001
mortgage indebtedness was approximately $10,189,000. The loan on the Wood View
Apartments in the amount of approximately $5,434,000, bears interest at a rate
of 6.64% per annum. The mortgage encumbering Barrington Place Apartments in the
amount of $4,755,000, bears interest at a rate of 6.65%. Both mortgage loans
mature on August 1, 2008, with balloon payments due, at which time the
properties will need to be refinanced or sold. If the properties cannot be
refinanced and/or sold for a sufficient amount, the Partnership will risk losing
such properties through foreclosure.
The Partnership declared and paid distributions from cash from operations of
approximately $513,000 (approximately $505,000 to the limited partners or
approximately $19.34 per limited partnership unit) during the three months ended
March 31, 2001. No distributions were made to the partners during the three
months ended March 31, 2000. Subsequent to March 31, 2001, the Partnership
declared and paid a distribution from cash from operations of approximately
$121,000 (approximately $119,000 to the limited partners or $4.56 per limited
partnership unit). Future cash distributions will depend on the levels of net
cash generated from operations, the availability of cash reserves, and the
timing of debt maturities, refinancings and/or property sales. The Partnership's
distribution policy is reviewed on a monthly basis. There can be no assurance,
however, that the Partnership will generate sufficient funds from operations
after required capital expenditures to permit further distributions to its
partners during 2001 or subsequent periods.
In addition to its indirect ownership of the general partner interest in the
Partnership, AIMCO and its affiliates currently own 9,897 limited partnership
units in the Partnership representing approximately 37.90% of the outstanding
units. A number of these units were acquired pursuant to tender offers made by
AIMCO or its affiliates. It is possible that AIMCO or its affiliates will make
one or more additional offers to acquire additional limited partnership
interests in the Partnership for cash or in exchange for units in the operating
partnership of AIMCO. Under the Partnership Agreement, unitholders holding a
majority of the Units are entitled to take action with respect to a variety of
matters, which would include without limitation, voting on certain amendments to
the Partnership Agreement and voting to remove the Managing General Partner.
When voting on matters, AIMCO would in all likelihood vote the Units it acquired
in a manner favorable to the interest of the Managing General Partner because of
their affiliation with the Managing General Partner.
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, its Managing General Partner and several of their affiliated
partnerships and corporate entities. The action 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, among other things, the acquisition of interests in
certain general partner entities by Insignia Financial Group, Inc. ("Insignia")
and entities which were, at one time, affiliates of Insignia; past tender offers
by the Insignia affiliates to acquire limited partnership units; management of
the partnerships by the Insignia affiliates; and the Insignia Merger. The
plaintiffs seek 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 filed an amended complaint. The Managing General Partner
filed demurrers to the amended complaint which were heard February 1999.
Pending the ruling on such demurrers, settlement negotiations commenced. On
November 2, 1999, the parties executed and filed a Stipulation of Settlement,
settling claims, subject to court approval, on behalf of the Partnership and all
limited partners who owned units as of November 3, 1999. Preliminary approval of
the settlement was obtained on November 3, 1999 from the Court, at which time
the Court set a final approval hearing for December 10, 1999. Prior to the
December 10, 1999 hearing, the Court received various objections to the
settlement, including a challenge to the Court's preliminary approval based upon
the alleged lack of authority of prior lead counsel to enter the settlement. On
December 14, 1999, the Managing General Partner and its affiliates terminated
the proposed settlement. In February 2000, counsel for some of the named
plaintiffs filed a motion to disqualify plaintiff's lead and liaison counsel who
negotiated the settlement. On June 27, 2000, the Court entered an order
disqualifying them from the case and an appeal was taken from the order on
October 5, 2000. On December 4, 2000, the Court appointed the law firm of Lieff
Cabraser Heimann & Bernstein LLP as new lead counsel for plaintiffs and the
putative class. Plaintiffs filed a third amended complaint on January 19, 2001.
On March 2, 2001, the Managing General Partner and its affiliates filed a
demurrer to the third amended complaint. The demurrer is scheduled to be heard
on May 14, 2001. The Court has also scheduled a hearing on a motion for class
certification for August 27, 2001. Plaintiffs must file their motion for class
certification no later than June 15, 2001. The Managing General Partner does not
anticipate that costs associated with this case will be material to the
Partnership's overall operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
None.
b) Reports on Form 8-K:
None filed during the quarter ended March 31, 2001.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
FOX STRATEGIC HOUSING INCOME PARTNERS
(a California Limited Partnership)
By: FOX PARTNERS VIII
Its General Partner
By: Fox Capital Management Corporation
Its Managing General Partner
By: /s/Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/Martha L. Long
Martha L. Long
Senior Vice President and
Controller
Date: May 4, 2001