UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2004
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
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 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
FOX STRATEGIC HOUSING INCOME PARTNERS
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
September 30, 2004
Assets
Cash and cash equivalents $ 61
Receivables and deposits 188
Other assets 153
Investment property:
Land $ 1,981
Buildings and related personal property 8,844
10,825
Less accumulated depreciation (5,110) 5,715
$ 6,117
Liabilities and Partners' (Deficiency) Capital
Liabilities
Accounts payable $ 21
Due to affiliates (Note B) 397
Tenant security deposits 23
Other liabilities 66
Mortgage note payable 5,152
Partners' (Deficiency) Capital
General partner $ (132)
Limited partners (26,111 units issued and
outstanding) 590 458
$ 6,117
See Accompanying Notes to Consolidated Financial Statements
FOX STRATEGIC HOUSING INCOME PARTNERS
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per unit data)
Three Months Ended Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
(Restated) (Restated)
Revenues:
Rental income $ 311 $ 344 $ 899 $ 977
Other income 46 34 125 99
Total revenues 357 378 1,024 1,076
Expenses:
Operating 159 145 423 445
General and administrative 37 64 124 175
Depreciation 95 93 284 272
Interest 89 91 270 275
Property taxes 16 32 91 96
Total expenses 396 425 1,192 1,263
Loss from continuing operations (39) (47) (168) (187)
Income from discontinued
operations (Note A) -- 15 62 15
Net loss $ (39) $ (32) $ (106) $ (172)
Net loss allocated to general
partner $ (39) $ -- $ (106) $ (114)
Net loss allocated to limited
partners -- (32) -- (58)
$ (39) $ (32) $ (106) $ (172)
Net loss per limited partnership
unit $ -- $ (1.22) $ -- $ (2.22)
Distributions per limited
partnership unit $ 19.76 $ -- $193.10 $ --
See Accompanying Notes to Consolidated Financial Statements
FOX STRATEGIC HOUSING INCOME PARTNERS
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' (DEFICIENCY) 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' capital
at December 31, 2003 26,111 $ 129 $ 5,632 $ 5,761
Distributions to partners -- (155) (5,042) (5,197)
Net loss for the nine months
ended September 30, 2004 -- (106) -- (106)
Partners' (deficiency) capital
at September 30, 2004 26,111 $ (132) $ 590 $ 458
See Accompanying Notes to Consolidated Financial Statements
FOX STRATEGIC HOUSING INCOME PARTNERS
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
2004 2003
Cash flows from operating activities:
Net loss $ (106) $ (172)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Depreciation 284 589
Amortization of loan costs 11 22
Change in accounts:
Receivables and deposits (94) (86)
Other assets (47) (63)
Accounts payable (113) 15
Tenant security deposit liabilities -- 17
Accrued property taxes -- 57
Due to affiliates (29) --
Other liabilities (52) (26)
Net cash (used in) provided by operating
activities (146) 353
Cash flows used in investing activities:
Property improvements and replacements (69) (220)
Cash flows from financing activities:
Advances from affiliates 124 --
Payments on mortgage notes payable (64) (120)
Distribution to partners (5,197) --
Net cash used in financing activities (5,137) (120)
Net (decrease) increase in cash and cash equivalents (5,352) 13
Cash and cash equivalents at beginning of period 5,413 327
Cash and cash equivalents at end of period $ 61 $ 340
Supplemental disclosure of cash flow information:
Cash paid for interest $ 259 $ 522
Supplemental disclosure of non-cash activity:
Property improvements and replacements in accounts
payable $ -- $ 25
See Accompanying Notes to Consolidated Financial Statements
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. Fox Partners VIII is the general partner of the
Partnership. The general partners of Fox Partners VIII are Fox Capital
Management Corporation ("FCMC" or the Managing General Partner), a California
corporation, and Fox Realty Investors ("FRI"), a California general partnership.
The Managing General Partner and the managing general partner of FRI are
affiliates of Apartment Investment and Management Company ("AIMCO"), a publicly
traded real estate investment trust. In the opinion of the Managing General
Partner, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three and nine months ended September 30, 2004, are not necessarily indicative
of the results that may be expected for the fiscal year ending December 31,
2004. 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, 2003.
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets", the
accompanying consolidated statements of operations for the three and nine months
ended September 30, 2003 have been restated as of January 1, 2003 to reflect the
operations of Barrington Place Apartments of approximately $15,000 for both the
three and nine month periods September 30, 2003 as income from discontinued
operations, including revenues of approximately $378,000 and $1,102,000 for the
three and nine months ended September 30, 2003, respectively, as a result of its
sale to a third party on December 16, 2003.
Note B - Transactions with Affiliated Parties
The Partnership has no employees and depends on the Managing General Partner and
its affiliates for the management and administration of all partnership
activities. The Partnership Agreement provides for (i) certain payments to
affiliates for services and (ii) reimbursement of certain expenses incurred by
affiliates on behalf of the Partnership.
Affiliates of the Managing General Partner are entitled to receive 5% of gross
receipts from the Partnership's investment properties as compensation for
providing property management services. The Partnership paid to such affiliates
approximately $49,000 and $102,000 for the nine months ended September 30, 2004
and 2003, respectively, which is included in operating expenses and income from
discontinued operations.
An affiliate of the Managing General Partner charged reimbursements of
accountable administrative expenses amounting to approximately $75,000 and
$110,000 for the nine months ended September 30, 2004 and 2003, respectively,
which is included in general and administrative expenses. At September 30, 2004,
approximately $1,000 of these expenses are payable to the Managing General
Partner and are included in due to affiliates.
In accordance with the Partnership Agreement, the Managing General Partner earns
partnership management fees on distributions from operations. There were no
partnership management fees earned during the nine months ended September 30,
2004 and 2003 because there were no operating distributions. The Partnership
Agreement requires that 62.5% of the fees earned be subordinated to the Limited
Partners' annual receipt of 8% of adjusted invested capital as defined in the
Partnership Agreement. The cumulative subordinated fees owed to the Managing
General Partner at September 30, 2004 amounted to approximately $272,000 and are
included in due to affiliates.
In accordance with the Partnership Agreement, the Managing General Partner
advanced the Partnership approximately $124,000 for property taxes at Wood View
Apartments during the nine months ended September 30, 2004. Interest accrues at
the prime rate plus 2% (6.75% at September 30, 2004) and amounted to less than
$1,000 for the nine months ended September 30, 2004. At September 30, 2004, no
payments have been made on the outstanding loans and this advance is included in
due to affiliates. There were no loans from the General Partner or associated
interest expense during the nine months ended September 30, 2003.
The Partnership insures its property up to certain limits through coverage
provided by AIMCO which is generally self-insured for a portion of losses and
liabilities related to workers compensation, property casualty and vehicle
liability. The Partnership insures its property above the AIMCO limits through
insurance policies obtained by AIMCO from insurers unaffiliated with the
Managing General Partner. During the nine months ended September 30, 2004 and
2003, the Partnership was charged by AIMCO and its affiliates approximately
$21,000 and $38,000, respectively, for insurance coverage and fees associated
with policy claims administration.
Note C - Sale of Investment Property
On December 16, 2003, Barrington Place Apartments was sold to a third party. The
Partnership realized a gain on the sale of investment property during the fourth
quarter of 2003. During the nine months ended September 30, 2004, the
Partnership recognized income from discontinued operations of approximately
$62,000 due to a reduction in the estimated costs related to the sale and a
property tax refund.
Note D - Distributions
During the nine months ended September 30, 2004 the Partnership distributed
approximately $5,197,000 (approximately $5,042,000 to the limited partners or
$193.10 per limited partnership unit) of sale proceeds from the sale of
Barrington Place Apartments in December 2003.
Note E - Contingencies
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. (the "Nuanes action") 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
purported to assert claims on behalf of a class of limited partners and
derivatively on behalf of a number of limited partnerships (including the
Partnership) that are named as nominal defendants, challenging, among other
things, the acquisition of interests in certain Managing General Partner
entities by Insignia Financial Group, Inc. ("Insignia") and entities that 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 series of transactions which closed on
October 1, 1998 and February 26, 1999 whereby Insignia and Insignia Properties
Trust, respectively, were merged into AIMCO. The plaintiffs sought monetary
damages and equitable relief, including judicial dissolution of the Partnership.
In addition, during the third quarter of 2001, a complaint captioned Heller v.
Insignia Financial Group (the "Heller action") was filed against the same
defendants that are named in the Nuanes action. On or about August 6, 2001,
plaintiffs filed a first amended complaint. The Heller action was brought as a
purported derivative action, and asserted claims for, among other things, breach
of fiduciary duty, unfair competition, conversion, unjust enrichment, and
judicial dissolution.
On January 8, 2003, the parties filed a Stipulation of Settlement in proposed
settlement of the Nuanes action and the Heller action.
In general terms, the proposed settlement provides for certification for
settlement purposes of a settlement class consisting of all limited partners in
this Partnership and others (the "Partnerships") as of December 20, 2002, the
dismissal with prejudice and release of claims in the Nuanes and Heller
litigation, payment by AIMCO of $9.9 million (which shall be distributed to
settlement class members after deduction of attorney fees and costs of class
counsel and certain costs of settlement) and up to $1 million toward the cost of
independent appraisals of the Partnerships' properties by a court appointed
appraiser. An affiliate of the Managing General Partner has also agreed to make
at least one round of tender offers to purchase all of the partnership interests
in the Partnerships within one year of final approval, if it is granted, and to
provide partners with the independent appraisals at the time of these tenders.
The proposed settlement also provided for the limitation of the allowable costs
which the Managing General Partner or its affiliates will charge the
Partnerships in connection with this litigation and imposes limits on the class
counsel fees and costs in this litigation. On April 11, 2003, notice was
distributed to limited partners providing the details of the proposed
settlement.
On June 13, 2003, the court granted final approval of the settlement and entered
judgment in both the Nuanes and Heller actions. On August 12, 2003, an objector
("Objector") filed an appeal (the "Appeal") seeking to vacate and/or reverse the
order approving the settlement and entering judgment thereto. On November 24,
2003, the Objector filed an application requesting the court order AIMCO to
withdraw settlement tender offers it had commenced, refrain from making further
offers pending the appeal and auction any units tendered to third parties,
contending that the offers did not conform with the terms of the settlement.
Counsel for the Objector (on behalf of another investor) had alternatively
requested the court take certain action purportedly to enforce the terms of the
settlement agreement. On December 18, 2003, the court heard oral argument on the
motions and denied them both in their entirety. The Objector filed a second
appeal challenging the court's use of a referee and its order requiring Objector
to pay those fees.
On January 28, 2004, the Objector filed his opening brief in the Appeal. On
April 23, 2004, the Managing General Partner and its affiliates filed a response
brief in support of the settlement and the judgment thereto. The plaintiffs have
also filed a brief in support of the settlement. On June 4, 2004, Objector filed
a reply to the briefs submitted by the Managing General Partner and Plaintiffs.
In addition both the Objector and plaintiffs filed briefs in connection with the
second appeal. The Court of Appeals heard oral argument on both appeals on
September 22, 2004 and took the matters under submission.
The Managing General Partner does not anticipate that any costs to the
Partnership, whether legal or settlement costs, associated with this case will
be material to the Partnership's overall operations.
On August 8, 2003 AIMCO Properties L.P., an affiliate of the Managing General
Partner, was served with a complaint in the United States District Court,
District of Columbia alleging that AIMCO Properties L.P. willfully violated the
Fair Labor Standards Act ("FLSA") by failing to pay maintenance workers overtime
for all hours worked in excess of forty per week. On March 5, 2004, the
plaintiffs filed an amended complaint also naming NHP Management Company, which
is also an affiliate of the Managing General Partner. The complaint is styled as
a Collective Action under the FLSA and seeks to certify state subclasses in
California, Maryland, and the District of Columbia. Specifically, the plaintiffs
contend that AIMCO Properties L.P. failed to compensate maintenance workers for
time that they were required to be "on-call". Additionally, the complaint
alleges AIMCO Properties L.P. failed to comply with the FLSA in compensating
maintenance workers for time that they worked in responding to a call while
"on-call". The defendants have filed an answer to the amended complaint denying
the substantive allegations. Some discovery has taken place and settlement
negotiations continue. Although the outcome of any litigation is uncertain,
AIMCO Properties, L.P. does not believe that the ultimate outcome will have a
material adverse effect on its financial condition or results of operations.
Similarly, the Managing General Partner does not believe that the ultimate
outcome will have a material adverse effect on the Partnership's financial
condition or results of operations.
The Partnership is unaware of any other pending or outstanding litigation
matters involving it or its investment properties that are not of a routine
nature arising in the ordinary course of business.
As previously disclosed, the Central Regional Office of the United States
Securities and Exchange Commission (the "SEC") is conducting a formal
investigation relating to certain matters. Although the staff of the SEC is not
limited in the areas that it may investigate, AIMCO believes the areas of
investigation include AIMCO's miscalculated monthly net rental income figures in
third quarter 2003, forecasted guidance, accounts payable, rent concessions,
vendor rebates, capitalization of payroll and certain other costs, and tax
credit transactions. AIMCO is cooperating fully. AIMCO is not able to predict
when the matter will be resolved. AIMCO does not believe that the ultimate
outcome will have a material adverse effect on its consolidated financial
condition or results of operations. Similarly, the Managing General Partner does
not believe that the ultimate outcome will have a material adverse effect on the
Partnership's consolidated financial condition or results of operations.
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. 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; litigation, including costs associated with prosecuting and
defending claims and any adverse outcomes, 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 Partnership's investment property consists of one apartment complex. The
following table sets forth the average occupancy of the property for the nine
months ended September 30, 2004 and 2003:
Average Occupancy
Property 2004 2003
Wood View Apartments 92% 92%
Atlanta, Georgia
The Partnership's financial results depend upon a number of factors including
the ability to attract and maintain tenants at the investment property, interest
rates on the mortgage loan, costs incurred to operate the investment property,
general economic conditions and weather. As part of the ongoing business plan of
the Partnership, the Managing General Partner monitors the rental market
environment of its investment property 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, the Managing General Partner may use rental
concessions and rental rate reductions to offset softening market conditions,
accordingly, there is no guarantee that the Managing General Partner will be
able to sustain such a plan. Further, a number of factors that are outside the
control of the Partnership, such as the local economic climate and weather, can
adversely or positively affect the Partnership's financial results.
Results of Operations
The Partnership recognized a net loss for the three and nine months ended
September 30, 2004 of approximately $39,000 and $106,000 compared to a net loss
of approximately $32,000 and $172,000 for the three and nine months ended
September 30, 2003. The increase in net loss for the three months ended
September 30, 2004 and the decrease in net loss for the nine months ended
September 30, 2004 is largely due to activity related to the sale of Barrington
Place Apartments in December 2003 as discussed below.
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets", the
accompanying consolidated statement of operations for the three and nine months
ended September 30, 2003 have been restated as of January 1, 2003 to reflect the
operations of Barrington Place Apartments of approximately $15,000 for both the
three and nine month periods ended September 30, 2003 as income from
discontinued operations including revenues of approximately $378,000 and
$1,102,000 for the three and nine months ended September 30, 2003, respectively,
as a result of its sale to a third party on December 16, 2003.
On December 16, 2003, Barrington Place Apartments was sold to a third party. The
Partnership realized a gain on the sale of investment property during the fourth
quarter of 2003. During the nine months ended September 30, 2004, the
Partnership recognized income from discontinued operations of approximately
$62,000 due to a reduction in the estimated costs related to the sale and a
property tax refund.
The Partnership recognized a loss from continuing operations for the three and
nine months ended September 30, 2004 of approximately $39,000 and $168,000
compared to a loss from continuing operations of approximately $47,000 and
$187,000 for the three and nine months ended September 30, 2003, respectively.
The decrease in loss from continuing operations for the three and nine months
ended September 30, 2004 is attributable to a decrease in total expenses
partially offset by a decrease in total revenues.
The decrease in total revenues for the three and nine months ended September 30,
2004 is due to a decrease in rental income partially offset by an increase in
other income. The decrease in rental income for the three and nine months ended
September 30, 2004 is due to a decrease in the average rental rate and an
increase in bad debt expense at the Partnership's remaining property, Wood View
Apartments. The increase in other income for the three and nine months ended
September 30, 2004 is primarily due to an increase in lease cancellation fees
and utility reimbursements at Wood View Apartments.
The decrease in total expenses for the nine months ended September 30, 2004 is
the result of decreases in operating and general and administrative expenses.
The decrease in total expenses for the three months ended September 30, 2004 is
the result of a decrease in property tax and general and administrative expenses
partially offset by an increase in operating expenses. Operating expenses
decreased for the nine months ended September 30, 2004 due to decreases in
maintenance and advertising expenses. Operating expenses increased for the three
months ended September 30, 2004 primarily due to an increase in property and
administrative expenses partially offset by a decrease in maintenance expense.
Maintenance expense decreased for both periods primarily due to a decrease in
contract services at Wood View Apartments. Advertising expenses decreased for
the nine month period primarily due to decreases in referral fees and periodical
expenses. The increase in property expenses for the three month period is
primarily due to increases in utility expenses and salaries and other related
benefits at Wood View Apartments. The increase in administrative expenses for
the three month period is primarily due to a fee related to an appeal of the
county taxes at Wood View Apartments. Depreciation and interest expenses
remained relatively constant during the three and nine months ended September
30, 2004. Property tax expenses decreased for the three months ended September
30, 2004 due to the timing of the receipt of the tax bills, which affected the
recording of the associated expense at both September 30, 2004 and 2003.
The decrease in general and administrative expenses during the three and nine
months ended September 30, 2004 is primarily due to a decrease in asset
management fees, due to the sale of Barrington Place Apartments in December
2003, a decrease in the costs of services included in the management
reimbursements to the Managing General Partner as allowed under the Partnership
Agreement and a decrease in professional fees associated with managing the
Partnership. Costs associated with the quarterly and annual communications with
investors and regulatory agencies and the annual audit required by the
Partnership Agreement are also included in general and administrative expenses
for both periods.
Liquidity and Capital Resources
At September 30, 2004, the Partnership had cash and cash equivalents of
approximately $61,000 compared to approximately $340,000 at September 30, 2003.
The decrease in cash and cash equivalents of approximately $5,352,000 since
December 31, 2003 is primarily due to approximately $5,137,000 of cash used in
financing activities, and to a lesser extent due to approximately $69,000 of
cash used in investing activities and approximately $146,000 of cash used in
operating activities. Cash used in financing activities consisted of
distributions paid to the partners and payments of principal made on the
mortgage encumbering the Partnership's property partially offset by advances
from an affiliate of the Managing General Partner. Cash used in investing
activities consisted of property improvements and replacements. 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 property 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. The Managing General Partner
monitors developments in the area of legal and regulatory compliance. For
example, 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. Capital improvements planned for the
Partnership's property are detailed below.
During the nine months ended September 30, 2004, the Partnership completed
approximately $69,000 of capital improvements at Wood View Apartments consisting
primarily of floor covering and appliance replacements, wallcovering upgrades
and parking lot resurfacing. These improvements were funded from operating cash
flow. The Partnership evaluates the capital improvement needs of the property
during the year and currently expects to complete an additional $30,000 in
capital improvements during the remainder of 2004. Additional improvements may
be considered and will depend on the physical condition of the property as well
as the anticipated cash flow generated by the property.
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 assets are thought to be sufficient for any near-term needs
(exclusive of capital improvements) of the Partnership. The mortgage
indebtedness encumbering the Partnership's property of approximately $5,152,000
is amortized over 360 months with a balloon payment of approximately $4,774,000
due on August 1, 2008. The Managing General Partner will attempt to refinance
such indebtedness and/or sell the property prior to such maturity date. If the
property cannot be refinanced and/or sold for a sufficient amount, the
Partnership will risk losing such property through foreclosure.
The Partnership distributed the following amounts during the nine months ended
September 30, 2004 and 2003 (in thousands except per unit data):
Nine Months Ended Per Limited Nine Months Ended Per Limited
September 30, Partnership September 30, Partnership
2004 Unit 2003 Unit
Sale (1) $ 5,197 $ 193.10 $ -- $ --
(1) From the sale proceeds of Barrington Place Apartments which sold in December
2003.
The Partnership's cash available for distribution is reviewed on a monthly
basis. Future cash distributions will depend on the levels of net cash generated
from operations, the availability of cash reserves, and the timing of the debt
maturity, refinancing and/or property sale. 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 the remainder of 2004 or subsequent periods.
Other
In addition to its indirect ownership of the general partner interests in the
Partnership, AIMCO and its affiliates owned 11,669 limited partnership units
(the "Units") in the Partnership representing 44.69% of the outstanding Units at
September 30, 2004. 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 acquire additional Units in the Partnership in exchange for cash
or a combination of cash and units in AIMCO Properties, L.P., the operating
partnership of AIMCO, either through private purchases or tender offers.
Pursuant to the Partnership Agreement, unitholders holding a majority of the
Units are entitled to take action with respect to a variety of matters that
include, but are not limited to, voting on certain amendments to the Partnership
Agreement and voting to remove the Managing General Partner. As a result of its
ownership of 44.69% of the outstanding Units, AIMCO and its affiliates are in a
position to influence all such voting decisions with respect to the Partnership.
Although the Managing General Partner owes fiduciary duties to the limited
partners of the Partnership, the Managing General Partner also owes fiduciary
duties to AIMCO as its sole stockholder. As a result, the duties of the Managing
General Partner, as managing general partner, to the Partnership and its limited
partners may come into conflict with the duties of the Managing General Partner
to AIMCO as its sole stockholder.
Critical Accounting Policies and Estimates
The consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States, which require the
Partnership to make estimates and assumptions. The Partnership believes that of
its significant accounting policies, the following may involve a higher degree
of judgment and complexity.
Impairment of Long-Lived Assets
The investment property is recorded at cost, less accumulated depreciation,
unless considered impaired. If events or circumstances indicate that the
carrying amount of the property may be impaired, the Partnership will make an
assessment of its recoverability by estimating the undiscounted future cash
flows, excluding interest charges, of the property. If the carrying amount
exceeds the aggregate future cash flows, the Partnership would recognize an
impairment loss to the extent the carrying amount exceeds the fair value of the
property.
Real property investments are subject to varying degrees of risk. Several
factors may adversely affect the economic performance and value of the
Partnership's investment property. These factors include, but are not limited
to, changes in the national, regional and local economic climate; local
conditions, such as an oversupply of multifamily properties; competition from
other available multifamily property owners and changes in market rental rates.
Any adverse changes in these factors could cause impairment of the Partnership's
assets.
Revenue Recognition
The Partnership generally leases apartment units for twelve-month terms or less.
Rental income attributable to leases is recognized monthly as it is earned. The
Partnership evaluates all accounts receivable from residents and establishes an
allowance, after the application of security deposits, for accounts greater than
30 days past due on current tenants and all receivables due from former tenants.
The Partnership will offer rental concessions during particularly slow months or
in response to heavy competition from other similar complexes in the area. Any
concessions given at the inception of the lease are amortized over the life of
the lease.
ITEM 3. Controls and Procedures
(a) Disclosure Controls and Procedures. The Partnership's management, with the
participation of the principal executive officer and principal financial officer
of the Managing General Partner, who are the equivalent of the Partnership's
principal executive officer and principal financial officer, respectively, has
evaluated the effectiveness of the Partnership's disclosure controls and
procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end
of the period covered by this report. Based on such evaluation, the principal
executive officer and principal financial officer of the Managing General
Partner, who are the equivalent of the Partnership's principal executive officer
and principal financial officer, respectively, have concluded that, as of the
end of such period, the Partnership's disclosure controls and procedures are
effective.
(b) Internal Control Over Financial Reporting. There have not been any changes
in the Partnership's internal control over financial reporting (as such term is
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the
fiscal quarter to which this report relates that have materially affected, or
are reasonably likely to materially affect, the Partnership's internal control
over financial reporting.
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. (the "Nuanes action") 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
purported to assert claims on behalf of a class of limited partners and
derivatively on behalf of a number of limited partnerships (including the
Partnership) that are named as nominal defendants, challenging, among other
things, the acquisition of interests in certain Managing General Partner
entities by Insignia Financial Group, Inc. ("Insignia") and entities that 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 series of transactions which closed on
October 1, 1998 and February 26, 1999 whereby Insignia and Insignia Properties
Trust, respectively, were merged into AIMCO. The plaintiffs sought monetary
damages and equitable relief, including judicial dissolution of the Partnership.
In addition, during the third quarter of 2001, a complaint captioned Heller v.
Insignia Financial Group (the "Heller action") was filed against the same
defendants that are named in the Nuanes action. On or about August 6, 2001,
plaintiffs filed a first amended complaint. The Heller action was brought as a
purported derivative action, and asserted claims for, among other things, breach
of fiduciary duty, unfair competition, conversion, unjust enrichment, and
judicial dissolution.
On January 8, 2003, the parties filed a Stipulation of Settlement in proposed
settlement of the Nuanes action and the Heller action.
In general terms, the proposed settlement provides for certification for
settlement purposes of a settlement class consisting of all limited partners in
this Partnership and others (the "Partnerships") as of December 20, 2002, the
dismissal with prejudice and release of claims in the Nuanes and Heller
litigation, payment by AIMCO of $9.9 million (which shall be distributed to
settlement class members after deduction of attorney fees and costs of class
counsel and certain costs of settlement) and up to $1 million toward the cost of
independent appraisals of the Partnerships' properties by a court appointed
appraiser. An affiliate of the Managing General Partner has also agreed to make
at least one round of tender offers to purchase all of the partnership interests
in the Partnerships within one year of final approval, if it is granted, and to
provide partners with the independent appraisals at the time of these tenders.
The proposed settlement also provided for the limitation of the allowable costs
which the Managing General Partner or its affiliates will charge the
Partnerships in connection with this litigation and imposes limits on the class
counsel fees and costs in this litigation. On April 11, 2003, notice was
distributed to limited partners providing the details of the proposed
settlement.
On June 13, 2003, the court granted final approval of the settlement and entered
judgment in both the Nuanes and Heller actions. On August 12, 2003, an objector
("Objector") filed an appeal (the "Appeal") seeking to vacate and/or reverse the
order approving the settlement and entering judgment thereto. On November 24,
2003, the Objector filed an application requesting the court order AIMCO to
withdraw settlement tender offers it had commenced, refrain from making further
offers pending the appeal and auction any units tendered to third parties,
contending that the offers did not conform with the terms of the settlement.
Counsel for the Objector (on behalf of another investor) had alternatively
requested the court take certain action purportedly to enforce the terms of the
settlement agreement. On December 18, 2003, the court heard oral argument on the
motions and denied them both in their entirety. The Objector filed a second
appeal challenging the court's use of a referee and its order requiring Objector
to pay those fees.
On January 28, 2004, the Objector filed his opening brief in the Appeal. On
April 23, 2004, the Managing General Partner and its affiliates filed a response
brief in support of the settlement and the judgment thereto. The plaintiffs have
also filed a brief in support of the settlement. On June 4, 2004, Objector filed
a reply to the briefs submitted by the Managing General Partner and Plaintiffs.
In addition both the Objector and plaintiffs filed briefs in connection with the
second appeal. The Court of Appeals heard oral argument on both appeals on
September 22, 2004 and took the matters under submission.
The Managing General Partner does not anticipate that any costs to the
Partnership, whether legal or settlement costs, associated with this case will
be material to the Partnership's overall operations.
On August 8, 2003 AIMCO Properties L.P., an affiliate of the Managing General
Partner, was served with a complaint in the United States District court,
District of Columbia alleging that AIMCO Properties L.P. willfully violated the
Fair Labor Standards Act ("FLSA") by failing to pay maintenance workers overtime
for all hours worked in excess of forty per week. On March 5, 2004 the
plaintiffs filed an amended complaint also naming NHP Management Company, which
is also an affiliate of the Managing General Partner. The complaint is styled as
a Collective Action under the FLSA and seeks to certify state subclasses in
California, Maryland, and the District of Columbia. Specifically, the plaintiffs
contend that AIMCO Properties L.P. failed to compensate maintenance workers for
time that they were required to be "on-call". Additionally, the complaint
alleges AIMCO Properties L.P. failed to comply with the FLSA in compensating
maintenance workers for time that they worked in responding to a call while
"on-call". The defendants have filed an answer to the amended complaint denying
the substantive allegations. Some discovery has taken place and settlement
negotiations continue. Although the outcome of any litigation is uncertain,
AIMCO Properties, L.P. does not believe that the ultimate outcome will have a
material adverse effect on its financial condition or results of operations.
Similarly, the Managing General Partner does not believe that the ultimate
outcome will have a material adverse effect on the Partnership's financial
condition or results of operations.
ITEM 6. EXHIBITS
See Exhibit Index Attached.
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/Martha L. Long
Martha L. Long
Senior Vice President
By: /s/Stephen B. Waters
Stephen B. Waters
Vice President
Date: November 11, 2004
EXHIBIT INDEX
2.1 Agreement and Plan of Merger dated as of October 1, 1998, by and
between AIMCO and IPT; incorporated by reference to Registrant's
Current Report on Form 8-K dated October 1, 1998.
3.1 Agreement of Limited Partnership, incorporated by reference to
Exhibit A to the Prospectus of the Partnership dated March 24, 1987,
and thereafter supplemented, included in the Registrant's
Registration Statement on Form S-11 (Reg. No. 33-8481).
10.1* Repair Escrow Agreement dated July 30, 1998, between Fox Strategic
Housing Income Partners, a California limited partnership, and
Newport Mortgage Company, L.P., a Texas limited partnership, related
to the refinancing of debt on Wood View Apartments.
10.2* Replacement Reserve Agreement dated July 30, 1998, between Fox
Strategic Housing Income Partners, a California limited partnership,
and Newport Mortgage Company, L.P., a Texas limited partnership,
related to the refinancing of debt on Wood View Apartments.
10.6* Multi-Family Note dated July 30, 1998, between Fox Strategic Housing
Income Partners, a California limited partnership, and Newport
Mortgage Company, L.P., a Texas limited partnership, related to the
refinancing of debt on Wood View Apartments.
10.7 Purchase and Sale Contract between Westlake East Associates,
L.P., an Ohio limited partnership, and Prominent Realty Group of
Georgia, Inc., a Georgia corporation, dated November 3, 2003.**
10.8 Amendment to Contract to Purchase between Westlake East
Associates, L.P. and Prominent Realty Group of Georgia, Inc.,
dated November 13, 2003.**
10.9 Reinstatement and Second Amendment to Purchase and Sale Contract
between Westlake East Associates, L.P., and Prominent Realty
Group of Georgia, Inc., dated December 10, 2003.**
10.10 Assignment of Contract between Prominent Realty Group of Georgia,
Inc., and Barrington Place Apartments, LLC, a Delaware limited
liability company, dated December 16, 2003.**
31.1 Certification of equivalent of Chief Executive Officer pursuant to
Securities Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of equivalent of Chief Financial Officer pursuant to
Securities Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*Filed as Exhibits 10.1, 10.2 and 10.6, respectively, to Form 10-QSB
- Quarterly or Transitional Report filed on November 12, 1998 and
incorporated herein by reference.
**Filed as Exhibits 10.7 through 10.10, respectively, to Current
Report on 8-K filed on December 29, 2003 and incorporated herein by
reference.
Exhibit 31.1
CERTIFICATION
I, Martha L. Long, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Fox Strategic
Housing Income Partners;
2. Based on my knowledge, this 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
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the small business issuer as of, and for, the periods presented in this
report;
4. The small business issuer's other certifying officer(s) and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for
the small business issuer and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
small business issuer, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly
during the period in which this report is being prepared;
(b) Evaluated the effectiveness of the small business issuer's
disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based
on such evaluation; and
(c) Disclosed in this report any change in the small business issuer's
internal control over financial reporting that occurred during the
small business issuer's most recent fiscal quarter (the small
business issuer's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to
materially affect, the small business issuer's internal control over
financial reporting; and
5. The small business issuer's other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal control over
financial reporting, to the small business issuer's auditors and the
audit committee of the small business issuer's board of directors (or
persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the small business issuer's
ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the small business
issuer's internal control over financial reporting.
Date: November 11, 2004
/s/Martha L. Long
Martha L. Long
Senior Vice President of Fox
Capital Management
Corporation, equivalent of
the chief executive officer
of the Partnership
Exhibit 31.2
CERTIFICATION
I, Stephen B. Waters, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Fox Strategic
Housing Income Partners;
2. Based on my knowledge, this 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
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the small business issuer as of, and for, the periods presented in this
report;
4. The small business issuer's other certifying officer(s) and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for
the small business issuer and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
small business issuer, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly
during the period in which this report is being prepared;
(b) Evaluated the effectiveness of the small business issuer's
disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based
on such evaluation; and
(c) Disclosed in this report any change in the small business issuer's
internal control over financial reporting that occurred during the
small business issuer's most recent fiscal quarter (the small
business issuer's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to
materially affect, the small business issuer's internal control over
financial reporting; and
5. The small business issuer's other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal control over
financial reporting, to the small business issuer's auditors and the audit
committee of the small business issuer's board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the small business issuer's
ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the small business
issuer's internal control over financial reporting.
Date: November 11, 2004
/s/Stephen B. Waters
Stephen B. Waters
Vice President of Fox Capital
Management Corporation, equivalent
of the chief financial officer of
the Partnership
Exhibit 32.1
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 Fox Strategic Housing
Income Partners (the "Partnership"), for the quarterly period ended September
30, 2004 as filed with the Securities and Exchange Commission on the date hereof
(the "Report"), Martha L. Long, as the equivalent of the chief executive officer
of the Partnership, and Stephen B. Waters, 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/Martha L. Long
Name: Martha L. Long
Date: November 11, 2004
/s/Stephen B. Waters
Name: Stephen B. Waters
Date: November 11, 2004
This certification is furnished with this Report pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Partnership for
purposes of Section 18 of the Securities Exchange Act of 1934, as amended.