UNITED STATES
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, 2003
[ ] 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 0-13808
HOUSING PROGRAMS LIMITED
(Exact name of registrant as specified in its charter)
California 95-3906167
(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)
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HOUSING PROGRAMS LIMITED
(a California limited partnership)
BALANCE SHEET
(in thousands)
MARCH 31, 2003
(Unaudited)
ASSETS
Investments in local limited partnerships (Note 3) $ --
Cash and cash equivalents 2
Total assets $ 2
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Notes payable in default (Note 1) $ 4,600
Accrued interest payable in default (Note 1) 7,433
Accrued fees due to affiliates (Note 4) 1,321
Accounts payable 160
Advances due to affiliates 101
13,615
Commitments and Contingencies
Partners' deficit:
General partners (387)
Limited partners (13,226)
(13,613)
Total liabilities and partners' deficit $ 2
The accompanying notes are an integral part of these financial statements.
HOUSING PROGRAMS LIMITED
(a California limited partnership)
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per unit data)
Three Months Ended
March 31,
2003 2002
OPERATING EXPENSES:
Management fee - partners (Note 4) $ 49 $ 50
General and administrative (Note 4) 6 11
Legal and accounting 14 21
Interest 108 109
Total operating expenses 177 191
Loss from Partnership operations (177) (191)
Equity in loss of limited partnerships
(Note 3) -- (30)
Net loss $ (177) $ (221)
Net loss to general partners (1%) $ (2) $ (2)
Net loss to limited partners (99%) (175) (219)
$ (177) $ (221)
Net loss per limited partnership interest
(Note 2) $(14.15) $(17.71)
The accompanying notes are an integral part of these financial statements.
HOUSING PROGRAMS LIMITED
(a California limited partnership)
STATEMENT OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
(in thousands)
General Limited
Partners Partners Total
Partners' deficit,
December 31, 2002 $ (385) $(13,051) $(13,436)
Net loss for the three months
ended March 31, 2003 (2) (175) (177)
Partners' deficit,
March 31, 2003 $ (387) $(13,226) $(13,613)
The accompanying notes are an integral part of these financial statements.
HOUSING PROGRAMS LIMITED
(a California limited partnership)
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three Months Ended
March 31,
2003 2002
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (177) $ (221)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Equity in loss of limited partnerships -- 30
Increase in:
Accrued interest payable 108 109
Accounts payable and accrued expenses 12 13
Accrued fees due to affiliates 54 91
Net cash (used in) provided by operating activities (3) 22
CASH FLOWS FROM INVESTING ACTIVITIES:
Advances to local limited partnerships -- (31)
NET DECREASE IN CASH AND CASH EQUIVALENTS (3) (9)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 5 9
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2 $ --
The accompanying notes are an integral part of these financial statements.
HOUSING PROGRAMS LIMITED
(a California limited partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2003
NOTE 1 - GOING CONCERN
The accompanying unaudited financial statements have been prepared assuming
Housing Programs Limited ("HPL" or the "Partnership") will continue as a going
concern. The Partnership continues to generate recurring operating losses and
suffers from a lack of cash as well as a partners' deficit. The Corporate
General Partner may approve advances to the Partnership to fund certain
operating expenses; however, it is not required to take such action. Management
is in discussions with the Corporate General Partner to fund the current
shortfall.
Two of the Partnership's investments, Evergreen and Plaza Village, involved
purchases of partnership interests from partners who subsequently withdrew from
the operating partnership. The Partnership is obligated for non-recourse notes
payable of $4,600,000 to the sellers of the partnership interests, bearing
interest at 9.5%. Total outstanding accrued interest at March 31, 2003 is
approximately $7,433,000. The notes matured in 1999. These obligations and
related interest are collateralized by the Partnership's investment in the local
limited partnership, as defined in the notes. Unpaid interest was due at
maturity of the notes. Apartment Investment and Management Company, a Maryland
corporation ("AIMCO"), which indirectly owns the Corporate General Partner of
the Partnership, has a 15% interest in and is the trustee for the Plaza Village
note payable.
The Partnership has not made any payments and is in default under the terms of
the notes. Management is attempting to negotiate extensions of the maturity
dates on the notes payable. If the negotiations are unsuccessful, the
Partnership could lose its investment in these limited partnerships to
foreclosure.
As a result of the above, there is substantial doubt about the Partnership's
ability to continue as a going concern. The financial statements do not include
any adjustments to reflect the possible future effects of the recoverability and
classification of assets or amounts and classification of liabilities that may
result from these uncertainties.
NOTE 2 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
The information contained in the following notes to the unaudited financial
statements is condensed from that which would appear in the annual audited
financial statements; accordingly, the financial statements included herein
should be reviewed in conjunction with the financial statements and related
notes thereto contained in the Partnership's annual report for the year ended
December 31, 2002. Accounting measurements at interim dates inherently involve
greater reliance on estimates than at year end. The results of operations for
the interim period presented are not necessarily indicative of the results for
the entire year.
In the opinion of the Partnership, the accompanying unaudited financial
statements contain all adjustments (consisting primarily of normal recurring
accruals) necessary to present fairly the financial position of the Partnership
at March 31, 2003 and the results of operations and changes in cash flows for
the three months ended March 31, 2003 and 2002.
Organization
The Partnership was organized under the California Uniform Limited Partnership
Act on May 15, 1984. The Partnership was formed to invest primarily in other
limited partnerships which own or lease and operate federal, state or local
government-assisted housing projects. The general partners of the Partnership
are National Partnership Investments Corp. ("NAPICO" or the "Corporate General
Partner"), Coast Housing Investment Associates (CHIA), a limited partnership,
and Housing Programs Corporation II (collectively, the "General Partners").
The general partners have a one percent interest in profits and losses of the
Partnership. The limited partners have the remaining 99 percent interest which
is allocated in proportion to their respective individual investments. NAPICO is
the corporate general partner of the Partnership.
On December 3, 2001, Casden Properties Inc., entered into a merger agreement and
certain other transaction documents with AIMCO and certain of its subsidiaries,
pursuant to which, on March 11, 2002, AIMCO acquired Casden Properties Inc. and
its subsidiaries, including 100% of the stock of NAPICO. Prior to March 11,
2002, Casden Properties Inc. owned a 95.25% economic interest in NAPICO, with
the balance owned by Casden Investment Corporation ("CIC"). CIC, which is wholly
owned by Alan I. Casden, owned 95% of the voting common stock of NAPICO prior to
March 11, 2002. As a result of this transaction, the Corporate General Partner
became a subsidiary of AIMCO, a publicly traded real estate investment trust.
Basis of Presentation
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles in the United States.
Method of Accounting for Investment in Limited Partnerships
The investments in local limited partnerships are accounted for on the equity
method. Acquisition, selection fees and other costs related to the acquisition
of the projects have been capitalized to the investment account and are being
amortized by the straight line method over the estimated lives of the underlying
assets, which is generally 30 years.
Net Loss Per Limited Partnership Interest
Net loss per limited partnership interest was computed by dividing the limited
partners' share of net loss by the number of limited partnership interests
outstanding during the period. The number of limited partnership interests was
12,368 for both periods presented.
Recent Accounting Pronouncements
In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN46"),
"Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51."
FIN46 requires certain variable interest entities to be consolidated by the
primary beneficiary of the entity if the equity investors in the entity do not
have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. FIN46 is effective
for all new variable interest entities created or acquired after January 31,
2003. For variable interest entities created or acquired prior to February 1,
2003, the provisions of FIN46 must be applied for the first interim or annual
period beginning after June 15, 2003. The Partnership is currently evaluating
the effect, if any, that the adoption of FIN46 will have on its results of
operations and financial condition.
NOTE 3 - INVESTMENTS IN LIMITED PARTNERSHIPS
As of March 31, 2003, the Partnership holds limited partnership interests in
seven local limited partnerships (the "Local Limited Partnerships"). As of March
31, 2003, the seven Local Limited Partnerships owned residential low income
rental projects consisting of 1,153 apartment units. The mortgage loans of these
projects are payable to or insured by various governmental agencies.
The Partnership, as a limited partner, does not exercise control over the
activities and operations, including refinancing or selling decisions, of the
Local Limited Partnerships. Accordingly, the Partnership accounts for its
investments in the Local Limited Partnerships using the equity method. The
Partnership is allocated profits and losses of the Local Limited Partnerships
based upon its respective ownership percentage of 99%. Distributions of surplus
cash from operations from most of the Local Limited Partnerships are restricted
by the Local Limited Partnerships' Regulatory Agreements with the United States
Department of Housing and Urban Development ("HUD"). These restrictions limit
the distribution to a portion, generally less than 10%, of the initial invested
capital. The excess surplus cash is deposited into a residual receipts reserve,
of which the ultimate realization by the Partnership is uncertain as HUD
frequently retains it upon sale or dissolution of the Local Limited Partnership.
The Partnership is allocated profits and losses and receives distributions from
refinancings and sales in accordance with the Local Limited Partnerships'
partnership agreements. These agreements usually limit the Partnership's
distributions to an amount substantially less than its ownership percentage in
the Local Limited Partnership.
The individual investments are carried at cost plus the Partnership's share of
the Local Limited Partnership's profits less the Partnership's share of the
Local Limited Partnership's losses, distributions and impairment charges. The
Partnership is not legally liable for the obligations of the Local Limited
Partnerships and is not otherwise committed to provide additional support to
them. Therefore, it does not recognize losses once its investment in each of the
Local Limited Partnerships reaches zero. Distributions from the Local Limited
Partnerships are accounted for as a reduction of the investment balance until
the investment balance is reduced to zero. When the investment balance has been
reduced to zero, subsequent distributions received are recognized as income in
the accompanying statements of operations.
For those investments where the Partnership has determined that the carrying
value of its investments approximates the estimated fair value of those
investments, the Partnership's policy is to recognize equity in income of the
Local Limited Partnerships only to the extent of distributions received and
amortization of acquisition costs from those Local Limited Partnerships.
Therefore, the Partnership limits its recognition of equity earnings to the
amount it expects to ultimately realize.
The Partnership has no carrying value in investments in the Local Limited
Partnerships as of March 31, 2003.
The following are unaudited combined estimated statements of operations for the
three months ended March 31, 2003 and 2002 for the Local Limited Partnerships in
which the Partnership has investments (in thousands):
Three Months Ended
March 31,
2003 2002
Revenues
Rental and other $ 1,811 $ 1,885
Expenses
Operating 1,341 1,402
Interest 244 242
Depreciation 366 374
1,951 2,018
Net loss $ (140) $ (133)
NAPICO, or one of its affiliates, is the general partner and property manager
for certain of the Local Limited Partnerships included above. During the three
months ended March 31, 2003 and 2002, affiliates of the Corporate General
Partner were paid approximately $25,000 and $22,000, respectively, for providing
property management services.
Four of the Local Limited Partnerships have outstanding purchase money notes and
accrued interest that matured in December 2000. In addition, a fifth Local
Limited Partnership has a subordinated note and accrued interest that matured in
December 1999. Each of these Local Limited Partnerships is in default on these
obligations. The Partnership risks losing its investments in these Local Limited
Partnerships through foreclosure. All of the investments in these Local Limited
Partnerships were zero at March 31, 2003.
Under recent adopted law and policy, the United States Department of Housing and
Urban Development ("HUD") has determined not to renew the Housing Assistance
Payment ("HAP") Contracts on a long term basis on the existing terms. In
connection with renewals of the HAP Contracts under such new law and policy, the
amount of rental assistance payments under renewed HAP Contracts will be based
on market rentals instead of above market rentals, which may be the case under
existing HAP Contracts. The payments under the renewed HAP Contracts may not be
in an amount that would provide sufficient cash flow to permit owners of
properties subject to HAP Contracts to meet the debt service requirements of
existing loans insured by the Federal Housing Administration of HUD ("FHA")
unless such mortgage loans are restructured. In order to address the reduction
in payments under HAP Contracts as a result of this new policy, the Multi-family
Assisted Housing Reform and Affordability Act of 1997 ("MAHRAA") provides for
the restructuring of mortgage loans insured by the FHA with respect to
properties subject to the Section 8 program. Under MAHRAA, an FHA-insured
mortgage loan can be restructured into a first mortgage loan which will be
amortized on a current basis and a low interest second mortgage loan payable to
FHA which will only be payable on maturity of the first mortgage loan. This
restructuring results in a reduction in annual debt service payable by the owner
of the FHA-insured mortgage loan and is expected to result in an insurance
payment from FHA to the holder of the FHA-insured loan due to the reduction in
the principal amount. MAHRAA also phases out project-based subsidies on selected
properties serving families not located in rental markets with limited supply,
converting such subsidies to a tenant-based subsidy.
When the HAP Contracts are subject to renewal, there can be no assurance that
the local limited partnerships in which the Partnership has an investment will
be permitted to restructure its mortgage indebtedness under MAHRAA. In addition,
the economic impact on the Partnership of the combination of the reduced
payments under the HAP Contracts and the restructuring of the existing
FHA-insured mortgage loans under MAHRAA is uncertain.
NOTE 4 - FEES AND EXPENSES DUE TO GENERAL PARTNERS
Under the terms of the Restated Certificate and Agreement of the Limited
Partnership, the Partnership is obligated to pay to the general partners an
annual management fee equal to 0.5 percent of the original invested assets of
the Local Limited Partnerships. Invested assets is defined as the costs of
acquiring project interests including the proportionate amount of the mortgage
loans related to the Partnership's interests in the capital accounts of the
respective Local Limited Partnerships. For the three months ended March 31, 2003
and 2002, approximately $49,000 and $50,000, respectively, has been expensed.
The unpaid balance at March 31, 2003 is approximately $1,297,000.
The Partnership reimburses NAPICO for certain expenses. The reimbursement to
NAPICO was approximately $5,000 for the three months ended March 31, 2002 and is
included in general and administrative expenses. No such payments were made for
the three months ended March 31, 2003. The unpaid balance at March 31, 2003 is
approximately $24,000.
In accordance with the Partnership Agreement, the Corporate General Partner has
advanced the Partnership funds to assist in paying for normal operating
expenses. These advances do not accrue interest. As of March 31, 2003, the
Corporate General Partner had advanced approximately $101,000 for such purposes.
As of March 31, 2003, the fees and expenses due the general partners exceeded
the Partnership's cash. The general partners, during the forthcoming year, are
not expected to demand payment of amounts due in excess of such cash or such
that the Partnership would not have sufficient operating cash; however, the
Partnership will remain liable for all such amounts.
AIMCO, which indirectly owns the Corporate General Partner of the Partnership,
has a 15% interest in and is the trustee for the Plaza Village note payable.
NOTE 5 - CONTINGENCIES
On August 27, 1998, two investors holding an aggregate of eight units of limited
partnership interests in Real Estate Associates Limited III (an affiliated
partnership in which NAPICO is the corporate general partner) and two investors
holding an aggregate of five units of limited partnership interests in Real
Estate Limited Associates VI (another affiliated partnership in which NAPICO is
the corporate general partner) commenced an action in the United States District
Court for the Central District of California against NAPICO and certain other
defendants. The complaint alleged that the defendants breached their fiduciary
duty to the limited partners of certain NAPICO managed partnerships and violated
securities laws by making materially false and misleading statements in the
consent solicitation statements sent to the limited partners of such
partnerships relating to approval of the transfer of partnership interests in
limited partnerships, owning certain of the properties, to affiliates of Casden
Properties Inc., organized by an affiliate of NAPICO. The plaintiffs sought
equitable relief, as well as compensatory damages and litigation related costs.
On August 4, 1999, one investor holding one unit of limited partnership interest
in the Partnership commenced a virtually identical action in the United States
District Court for the Central District of California against the Partnership,
NAPICO and certain other entities. The second action was subsumed in the first
action, and was certified as a class action. On August 21, 2001, plaintiffs
filed a supplemental complaint, which added new claims, including a rescission
of the transfer of partnership interests and an accounting. In November 2002,
the jury returned special verdicts against NAPICO and certain other defendants
in the amount of approximately $25.2 million for violations of securities laws
and against NAPICO for approximately $67.3 million for breaches of fiduciary
duty. In addition, the jury awarded the plaintiffs punitive damages against
NAPICO of approximately $92.5 million. On April 29, 2003, the Court entered
judgment against NAPICO and certain other defendants in the amount of $25.2
million for violations of securities laws and against NAPICO for $67.3 million
for breaches of fiduciary duty, both amounts plus interest of $25.6 million, and
for punitive damages against NAPICO in the amount of $2.6 million. NAPICO has
appealed the judgment. Since the amount of the judgment substantially exceeds
NAPICO's net worth, NAPICO cannot post a bond for the full amount of the
judgment in order to stay execution of the judgment during the appeal process.
NAPICO has asserted its right to indemnification from the prior shareholders of
Casden Properties Inc. pursuant to documents, including the Master
Indemnification Agreement dated as of December 3, 2001, related to the NAPICO
acquisition, which was completed in March 2002. On May 13, 2003, NAPICO
commenced an action in New York against the former shareholders of Casden
Properties Inc. for damages relating to the litigation. In connection with the
judgment, the plaintiffs issued a press release indicating their intention to
file a motion to seek to have a court-appointed receiver take possession of all
of NAPICO's assets, liquidate or operate NAPICO's assets, recover assets that
allegedly may have been conveyed by NAPICO for improper or inadequate
consideration prior to the receivership, and enforce NAPICO's rights under the
Master Indemnification Agreement. NAPICO will vigorously oppose the motion. The
Corporate General Partner cannot predict the outcome of these matters, what
other actions that may be pursued by the plaintiffs to satisfy the judgment, or
the impact, if any, on the Partnership.
The holder of a purchase money promissory note issued by Cloverleaf limited
partnership, one of the Partnership's investments, in the amount of $845,000
plus accrued interest payable of $1,197,000 as of March 31, 2003, filed a
foreclosure action against the Cloverleaf limited partnership. The Partnership
and other defendants have answered the complaint and intend to vigorously defend
this action. The Partnership has no investment balance related to this Local
Limited Partnership.
The holders of three cash flow notes, with an aggregate principal balance of
$3,825,000, issued by Oshtemo Limited Dividend Housing Association, one of the
Partnership's investments, filed a suit on June 18, 2002 to reduce the notes to
judgment and foreclosure on the Partnership's interest in this Local Limited
Partnership. As of March 31, 2003, the parties had reached a settlement which
requires the Local Limited Partnership to refinance the property by May 31,
2003. The proceeds from the refinancing will be used to settle the outstanding
notes. The suit has been stayed until May 31, 2003, pending consummation of the
settlement. The Partnership has no investment balance related to this Local
Limited Partnership.
NAPICO is a plaintiff in various lawsuits and has also been named as defendant
in other lawsuits arising from transactions in the ordinary course of business.
In the opinion of NAPICO, the claims will not result in any material liability
to the Partnership.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The matters discussed in this report contain certain forward-looking statements,
including, without limitation, statements regarding future financial performance
and the effect of government regulations. The discussions of the Registrant's
business and results of operations, including forward-looking statements
pertaining to such matters, do not take into account the effects of any changes
to the Registrant's business and results of operations. Actual results may
differ materially from those described in the forward-looking statements and
will be affected by a variety of risks and factors including, without
limitation: national and local economic conditions; the terms of governmental
regulations that affect the Registrant and interpretations of those regulations;
the competitive environment in which the Registrant operates; financing risks,
including the risk that cash flows from operations may be insufficient to meet
required payments of principal and interest; real estate risks, including
variations of real estate values and the general economic climate in local
markets and competition for tenants in such markets; and possible environmental
liabilities. Readers should carefully review the Registrant's financial
statements and the notes thereto, as well as the risk factors described in the
documents the Registrant files from time to time with the Securities and
Exchange Commission.
The Corporate General Partner monitors developments in the area of legal and
regulatory compliance and is studying new federal laws, including the
Sarbanes-Oxley Act of 2002. The Sarbanes-Oxley Act of 2002 mandates or suggests
additional compliance measures with regard to governance, disclosure, audit and
other areas. In light of these changes, the Partnership expects that it will
incur higher expenses related to compliance, including increased legal and audit
fees.
Liquidity and Capital Resources
The Properties in which the Partnership has invested, through its investments in
the Local Limited Partnerships, receive one or more forms of assistance from the
Federal Government. As a result, the Local Limited Partnerships' ability to
transfer funds either to the Partnership or among themselves in the form of cash
distributions, loans or advances is generally restricted by those government
assistance programs.
The Partnership's primary sources of funds include interest income earned from
investing available cash and distributions from Local Limited Partnerships in
which the Partnership has invested. It is not expected that any of the Local
Limited Partnerships in which the Partnership has invested will generate cash
flow sufficient to provide for distributions to the Partnership's limited
partners in any material amount.
The accompanying financial statements have been prepared assuming the
Partnership will continue as a going concern. The Partnership continues to
generate recurring operating losses and suffers from a lack of cash as well as a
partners' deficit. The Corporate General Partner may approve advances to the
Partnership to fund certain operating expenses; however, it is not required to
take such action. In addition, the Partnership is in default on notes payable
and related accrued interest payable that matured in December 1999.
Two of the Partnership's investments, Evergreen and Plaza Village, involved
purchases of partnership interests from partners who subsequently withdrew from
the operating partnership. The Partnership is obligated for non-recourse notes
payable of $4,600,000 to the sellers of the partnership interests, bearing
interest at 9.5 percent. Total outstanding accrued interest at March 31, 2003 is
approximately $7,433,000. The notes matured in December 1999. These obligations
and the related interest are collateralized by the Partnership's investment in
the local limited partnerships and are payable only out of cash distributions
from the local limited partnerships, as defined in the notes. Unpaid interest
was due at maturity of the notes. The Partnership has not made any payments and
is in default under the terms of the notes. Management is attempting to
negotiate extensions of the maturity dates on the notes payable. If the
negotiations are unsuccessful, the Partnership could lose its investment in
these Local Limited Partnerships to foreclosure. AIMCO, which indirectly owns
the Corporate General Partner of the Partnership, has a 15% interest in and is
the trustee for the Plaza Village note payable.
As a result of the above, there is substantial doubt about the Partnership's
ability to continue as a going concern. The financial statements do not include
any adjustments to reflect the possible future effects of the recoverability and
classification of assets or amounts and classifications of liabilities that may
result from these uncertainties.
Four of the Local Limited Partnerships have outstanding purchase money notes and
accrued interest that matured in December 2000. In addition, a fifth Local
Limited Partnership has a subordinated note and accrued interest that matured in
December 1999. Each of these Local Limited Partnerships is in default on these
obligations. The Partnership risks losing its investments in these Local Limited
Partnerships through foreclosure. All of the investments in these Local Limited
Partnerships were zero at March 31, 2003.
Results of Operations
Partnership revenues consist primarily of interest income earned on investment
of funds. The Partnership also receives distributions from the Local Limited
Partnerships in which it has invested.
Except for investing cash in money market funds, the Partnership's investments
consist entirely of interests in other Local Limited Partnerships owning
government-assisted housing projects. Available cash not invested in local
limited partnerships is invested in these money market funds to provide interest
income as reflected in the statements of operations. These funds can be
converted to cash to meet obligations as they arise. The Partnership intends to
continue investing available funds in this manner.
An annual management fee is payable to the general partners of the Partnership
and is calculated at 0.5 percent of the Partnership's invested assets. The
management fee is paid to the general partners for their continuing management
of partnership affairs. The fee is payable beginning with the month following
the Partnership's initial investment in a local limited partnership. Management
fees were approximately $49,000 and $50,000 for the three months ended March 31,
2003 and 2002, respectively.
In accordance with the Partnership Agreement, the Corporate General Partner has
advanced the Partnership funds to assist in paying for normal operating
expenses. These advances do not accrue interest. As of March 31, 2003, the
Corporate General Partner had advanced approximately $101,000 for such purposes.
Operating expenses, other than management fees and interest expense, consist of
legal and accounting fees for services rendered to the Partnership and general
and administrative expenses. Legal and accounting fees were approximately
$14,000 and $21,000 for the three months ended March 31, 2003 and 2002,
respectively. General and administrative expenses were approximately $6,000 and
$11,000 for the periods ended March 31, 2003 and 2002, respectively.
The Partnership, as a limited partner, does not exercise control over the
activities and operations, including refinancing or selling decisions of the
Local Limited Partnerships. Accordingly, the Partnership accounts for its
investment in the Local Limited Partnerships using the equity method. Thus the
individual investments are carried at cost plus the Partnership's share of the
Local Limited Partnership's profits less the Partnership's share of the Local
Limited Partnership's losses and distributions and impairment charges. However,
since the Partnership is not legally liable for the obligations of the Local
Limited Partnerships, or is not otherwise committed to provide additional
support to them, it does not recognize losses once its investment in each of the
Local Limited Partnerships reaches zero. Distributions from the Local Limited
Partnerships are accounted for as a reduction of the investment balance until
the investment balance is reduced to zero. Subsequent distributions received are
recognized as income in the accompanying statements of operations. For those
investments where the Partnership has determined that the carrying value of its
investments approximates the estimated fair value of those investments, the
Partnership's policy is to recognize equity in income of the Local Limited
Partnerships only to the extent of distributions received and amortization of
acquisition costs from those Local Limited Partnerships. During the three months
ended March 31, 2002 the Partnership recognized equity in loss of approximately
$30,000 resulting from advances made to Local Limited Partnerships. Management
believed that repayment of these advances was doubtful and fully reserved them
in 2002. The Partnership did not make any advances in the same period in 2003.
Under recent adopted law and policy, the United States Department of Housing and
Urban Development ("HUD") has determined not to renew the Housing Assistance
Payment ("HAP") Contracts on a long term basis on the existing terms. In
connection with renewals of the HAP Contracts under such new law and policy, the
amount of rental assistance payments under renewed HAP Contracts will be based
on market rentals instead of above market rentals, which may be the case under
existing HAP Contracts. The payments under the renewed HAP Contracts may not be
in an amount that would provide sufficient cash flow to permit owners of
properties subject to HAP Contracts to meet the debt service requirements of
existing loans insured by the Federal Housing Administration of HUD ("FHA")
unless such mortgage loans are restructured. In order to address the reduction
in payments under HAP Contracts as a result of this new policy, the Multi-family
Assisted Housing Reform and Affordability Act of 1997 ("MAHRAA") provides for
the restructuring of mortgage loans insured by the FHA with respect to
properties subject to the Section 8 program. Under MAHRAA, an FHA-insured
mortgage loan can be restructured into a first mortgage loan which will be
amortized on a current basis and a low interest second mortgage loan payable to
FHA which will only be payable on maturity of the first mortgage loan. This
restructuring results in a reduction in annual debt service payable by the owner
of the FHA-insured mortgage loan and is expected to result in an insurance
payment from FHA to the holder of the FHA-insured loan due to the reduction in
the principal amount. MAHRAA also phases out project-based subsidies on selected
properties serving families not located in rental markets with limited supply,
converting such subsidies to a tenant-based subsidy.
When the HAP Contracts are subject to renewal, there can be no assurance that
the local limited partnerships in which the Partnership has an investment will
be permitted to restructure its mortgage indebtedness under MAHRAA. In addition,
the economic impact on the Partnership of the combination of the reduced
payments under the HAP Contracts and the restructuring of the existing
FHA-insured mortgage loans under MAHRAA is uncertain.
ITEM 3. CONTROLS AND PROCEDURES
The principal executive officer and principal financial officer of the Corporate
General Partner, who are the equivalent of the Partnership's principal executive
officer and principal financial officer, respectively, have, within 90 days of
the filing date of this quarterly report, evaluated the effectiveness of the
Partnership's disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14(c) and 15d-14(c)) and have determined that such disclosure controls
and procedures are adequate. There have been no significant changes in the
Partnership's internal controls or in other factors that could significantly
affect the Partnership's internal controls since the date of evaluation. The
Partnership does not believe any significant deficiencies or material weaknesses
exist in the Partnership's internal controls. Accordingly, no corrective actions
have been taken.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On August 27, 1998, two investors holding an aggregate of eight units of limited
partnership interests in Real Estate Associates Limited III (an affiliated
partnership in which NAPICO is the corporate general partner) and two investors
holding an aggregate of five units of limited partnership interests in Real
Estate Limited Associates VI (another affiliated partnership in which NAPICO is
the corporate general partner) commenced an action in the United States District
Court for the Central District of California against NAPICO and certain other
defendants. The complaint alleged that the defendants breached their fiduciary
duty to the limited partners of certain NAPICO managed partnerships and violated
securities laws by making materially false and misleading statements in the
consent solicitation statements sent to the limited partners of such
partnerships relating to approval of the transfer of partnership interests in
limited partnerships, owning certain of the properties, to affiliates of Casden
Properties Inc., organized by an affiliate of NAPICO. The plaintiffs sought
equitable relief, as well as compensatory damages and litigation related costs.
On August 4, 1999, one investor holding one unit of limited partnership interest
in the Partnership commenced a virtually identical action in the United States
District Court for the Central District of California against the Partnership,
NAPICO and certain other entities. The second action was subsumed in the first
action, and was certified as a class action. On August 21, 2001, plaintiffs
filed a supplemental complaint, which added new claims, including a rescission
of the transfer of partnership interests and an accounting. In November 2002,
the jury returned special verdicts against NAPICO and certain other defendants
in the amount of approximately $25.2 million for violations of securities laws
and against NAPICO for approximately $67.3 million for breaches of fiduciary
duty. In addition, the jury awarded the plaintiffs punitive damages against
NAPICO of approximately $92.5 million. On April 29, 2003, the Court entered
judgment against NAPICO and certain other defendants in the amount of $25.2
million for violations of securities laws and against NAPICO for $67.3 million
for breaches of fiduciary duty, both amounts plus interest of $25.6 million, and
for punitive damages against NAPICO in the amount of $2.6 million. NAPICO has
appealed the judgment. Since the amount of the judgment substantially exceeds
NAPICO's net worth, NAPICO cannot post a bond for the full amount of the
judgment in order to stay execution of the judgment during the appeal process.
NAPICO has asserted its right to indemnification from the prior shareholders of
Casden Properties Inc. pursuant to documents, including the Master
Indemnification Agreement dated as of December 3, 2001, related to the NAPICO
acquisition, which was completed in March 2002. On May 13, 2003, NAPICO
commenced an action in New York against the former shareholders of Casden
Properties Inc. for damages relating to the litigation. In connection with the
judgment, the plaintiffs issued a press release indicating their intention to
file a motion to seek to have a court-appointed receiver take possession of all
of NAPICO's assets, liquidate or operate NAPICO's assets, recover assets that
allegedly may have been conveyed by NAPICO for improper or inadequate
consideration prior to the receivership, and enforce NAPICO's rights under the
Master Indemnification Agreement. NAPICO will vigorously oppose the motion. The
Corporate General Partner cannot predict the outcome of these matters, what
other actions that may be pursued by the plaintiffs to satisfy the judgment, or
the impact, if any, on the Partnership.
The holder of a purchase money promissory note issued by Cloverleaf limited
partnership, one of the Partnership's investments, in the amount of $845,000
plus accrued interest payable of $1,197,000 as of March 31, 2003, filed a
foreclosure action against the Cloverleaf limited partnership. The Partnership
and other defendants have answered the complaint and intend to vigorously defend
this action. The Partnership has no investment balance related to this Local
Limited Partnership.
The holders of three cash flow notes, with an aggregate principal balance of
$3,825,000, issued by Oshtemo Limited Dividend Housing Association, one of the
Partnership's investments, filed a suit on June 18, 2002 to reduce the notes to
judgment and foreclosure on the Partnership's interest in this Local Limited
Partnership. As of December 31, 2002, the parties had reached a settlement which
requires the Local Limited Partnership to refinance the property by May 31,
2003. The proceeds from the refinancing will be used to settle the outstanding
notes. The suit has been stayed until May 31, 2003, pending consummation of the
settlement. The Partnership has no investment balance related to this Local
Limited Partnership.
NAPICO is a plaintiff in various lawsuits and has also been named as defendant
in other lawsuits arising from transactions in the ordinary course of business.
In the opinion of NAPICO, the claims will not result in any material liability
to the Partnership.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibit 3, Restated Certificate and Agreement of Limited
Partnership dated May 15, 1984 filed with the Securities and
Exchange Commission Form S-11 No. 2-92352, which is hereby
incorporated by reference.
Exhibit 99, Certification Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
b) Reports on Form 8-K:
None filed during the quarter ended March 31, 2003.
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.
HOUSING PROGRAMS LIMITED
(a California limited partnership)
By: National Partnership Investments Corp.
Corporate General Partner
By: /s/David R. Robertson
David R. Robertson
President, Chief Executive Officer
and Director
By: /s/Brian H. Shuman
Brian H. Shuman
Senior Vice President and
Chief Financial Officer
Date: May 15, 2003
CERTIFICATION
I, David R. Robertson, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Housing Programs
Limited;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 15, 2003
/s/David R. Robertson
David R. Robertson
President and Chief Executive Officer of
National Partnership Investments Corp.,
equivalent of the chief executive officer of
the Partnership
CERTIFICATION
I, Brian H. Shuman, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Housing Programs
Limited;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 15, 2003
/s/Brian H. Shuman
Brian H. Shuman
Senior Vice President and Chief Financial
Officer of National Partnership Investments
Corp., equivalent of the chief financial
officer of the Partnership
Exhibit 99
Certification of CEO and CFO
Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report on Form 10-QSB of Housing Programs Ltd.
(the "Partnership"), for the quarterly period ended March 31, 2003 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), David
R. Robertson, as the equivalent of the chief executive officer of the
Partnership, and Brian H. Shuman, as the equivalent of the chief financial
officer of the Partnership, each hereby certifies, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that, to the best of his knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Partnership.
/s/ David R. Robertson
Name: David R. Robertson
Date: May 15, 2003
/s/ Brian H. Shuman
Name: Brian H. Shuman
Date: May 15, 2003
This certification accompanies the Report pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the
Sarbanes-Oxley Act of 2002, be deemed filed by the Partnership for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended.