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 0-13808
HOUSING PROGRAMS LIMITED
(Exact name of small business issuer 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)
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
HOUSING PROGRAMS LIMITED
(a California limited partnership)
BALANCE SHEET
(in thousands)
SEPTEMBER 30, 2004
(Unaudited)
ASSETS
Investments in local limited partnerships (Note 2) $ --
Cash and cash equivalents 30
Total assets $ 30
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Notes payable in default (Note 3) $ 2,000
Accrued interest payable in default (Note 3) 3,655
Accrued fees due to affiliates (Note 4) 37
Accounts payable 58
Advances due to affiliates (Note 4) 101
5,851
Partners' deficit:
General partners (308)
Limited partners (5,513)
(5,821)
Total liabilities and partners' deficit $ 30
See Accompanying Notes to Financial Statements
HOUSING PROGRAMS LIMITED
(a California limited partnership)
STATEMENTS OF OPERATIONS
(Unaudited) (in thousands, except per interest data)
Three Months Ended Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
INTEREST INCOME $ 1 $ -- $ 1 $ --
operating Expenses:
Management fees - partners (Note 4) 37 50 111 148
General and administrative (Note 4) 4 14 25 34
Legal and accounting 31 18 81 64
Interest 49 48 143 257
Total operating expenses 121 130 360 503
Loss from partnership operations (120) (130) (359) (503)
Distributions from local limited
partnerships recognized as income
(Note 2) 22 -- 22 6,820
Gain on extinguishment of debt (Note 3) -- -- -- 102
Net (loss) income $ (98) $ (130) $ (337) $ 6,419
Net (loss) income to general partners
(1%) $ (1) $ (1) $ (3) $ 64
Net (loss) income to limited partners
(99%) (97) (129) (334) 6,355
$ (98) $ (130) $ (337) $ 6,419
Net (loss) income per limited
partnership interest (Note 1) $ (7.91) $(10.43) $(27.24) $513.83
See Accompanying Notes to Financial Statements
HOUSING PROGRAMS LIMITED
(a California limited partnership)
STATEMENT OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
(in thousands, except interest data)
General Limited
Partners Partners Total
Partners' deficit,
December 31, 2003 $ (305) $ (5,179) $ (5,484)
Net loss for the nine months
ended September 30, 2004 (3) (334) (337)
Partners' deficit,
September 30, 2004 $ (308) $ (5,513) $ (5,821)
Percentage interest at
September 30, 2004 1% 99% 100%
(A)
(A) Consists of 12,250 partnership interests at September 30, 2004 and 12,260
partnership interests at December 31, 2003. During the nine months ended
September 30, 2004, 10 interests were abandoned (Note 5).
See Accompanying Notes to Financial Statements
HOUSING PROGRAMS LIMITED
(a California limited partnership)
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
2004 2003
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (337) $ 6,419
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities:
Distributions from local limited partnerships -- (6,615)
Gain on extinguishment of debt -- (102)
Increase (decrease) in:
Accrued interest payable 143 257
Accounts payable and accrued expenses 48 (91)
Accrued fees due to partners (50) 161
Net cash (used in) provided by operating activities (196) 29
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (196) 29
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 226 5
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 30 $ 34
SUPPLEMENTAL DISCLOSURE OF NON-CASH INFORMATION:
During the nine months ended September 30, 2003, proceeds from a distribution
from a local limited partnership of approximately $6,615,000 were sent directly
to a trustee which, in turn, paid the proceeds directly to the noteholders in
satisfaction of the principal and accrued interest on the notes.
See Accompanying Notes to Financial Statements
HOUSING PROGRAMS LIMITED
(a California limited partnership)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
SEPTEMBER 30, 2004
NOTE 1 - 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, 2003. 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 September 30, 2004 and the results of operations for the three and nine
months ended September 30, 2004 and 2003.
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"), Housing Programs Corporation II and National Partnership Investment
Associates (collectively, the "General Partners"). The General Partners are
subsidiaries of Apartment Investment and Management Company ("AIMCO"), a
publicly traded real estate investment trust.
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.
Basis of Presentation
The accompanying financial statements have been prepared in conformity with
accounting principles generally accepted 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.
Net (Loss) Income Per Limited Partnership Interest
Net (loss) income per limited partnership interest was computed by dividing the
limited partners' share of net (loss) income by the number of limited
partnership interests outstanding at the beginning of the year. The number of
limited partnership interests was 12,260 at December 31, 2003 and 12,368 at
December 31, 2002.
Recent Accounting Pronouncements
In January 2003 and revised in December 2003, the Financial Accounting Standards
Board ("FASB") issued Interpretation No. 46 ("FIN 46"), Consolidation of
Variable Interest Entities. FIN 46 requires the consolidation of entities in
which an enterprise absorbs a majority of the entity's expected losses, receives
a majority of the entity's expected residual returns, or both, as a result of
ownership, contractual or other financial interests in the entity. Prior to the
issuance of FIN 46, entities were generally consolidated by an enterprise when
it had a controlling financial interest through ownership of a majority voting
interest in the entity. FIN 46 applied immediately to variable interest entities
created after January 31, 2003, and with respect to public entities with
variable interest entities held before February 1, 2003, FIN 46 will apply to
financial statements for periods ending after December 15, 2004.
The Partnership has not entered into any partnership investments subsequent to
January 31, 2003. The Partnership is in the process of evaluating its
investments in unconsolidated local limited partnerships that may be deemed
variable interest entities under the provisions of FIN 46. The Partnership has
not yet determined the anticipated impact of adopting FIN 46 for its investments
in local limited partnerships that existed as of January 31, 2003. However, FIN
46 may require the consolidation of the assets, liabilities and operations of
certain of the Partnership's unconsolidated investments in local limited
partnerships. Although the Partnership does not believe the full adoption of FIN
46 will have an impact on its cash flow, the Partnership cannot make any
definitive conclusion on the impact, if any, on net earnings until it completes
its evaluation, including an evaluation of the Partnership's maximum exposure to
loss.
NOTE 2 - INVESTMENTS IN AND ADVANCES TO LOCAL LIMITED PARTNERSHIPS
As of September 30, 2004, the Partnership holds limited partnership interests in
four local limited partnerships (the "Local Limited Partnerships"). The Local
Limited Partnerships own residential low income rental projects consisting of
736 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 September 30, 2004.
The following are unaudited combined estimated statements of operations for the
three and nine months ended September 30, 2004 and 2003 for the Local Limited
Partnerships in which the Partnership has investments (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
(Restated) (Restated)
Revenues
Rental and other $ 1,311 $ 1,237 $ 3,796 $ 3,407
Expenses
Operating 777 206 2,335 1,602
Interest 355 282 1,065 847
Depreciation 282 277 846 830
1,414 765 4,246 3,279
Net (loss) income $ (103) $ 472 $ (450) $ 128
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 144,
the combined results of operations for the three and nine months ended September
30, 2003 have been restated to exclude the operations of Lancaster Heights, Cape
LaCroix and Cloverleaf as these properties were sold in 2003.
NAPICO, or one of its affiliates, is the general partner and property manager
for one and four of the Local Limited Partnerships discussed above. During the
nine months ended September 30, 2004 and 2003, affiliates of the Corporate
General Partner were paid approximately $24,000 and $75,000, respectively, for
providing property management services.
One of the Local Limited Partnerships, Cloverdale Heights Apartments, Ltd., has
outstanding purchase money notes and accrued interest that matured in December
2000. In addition, a second Local Limited Partnership, Jenny Lind Hall Second
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 the Local
Limited Partnerships were zero at September 30, 2004.
Under recently 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 3 - NOTE PAYABLE
Two of the Partnership's investments, Evergreen and Plaza Village, involved
purchases of partnership interests in the Local Limited Partnerships from
partners who subsequently withdrew from the Local Limited Partnership. The
Partnership issued non-recourse notes payable totaling $4,600,000 to the sellers
of the partnership interests, such notes bearing interest at 9.5% per annum. The
notes matured in 1999. These obligations and related interest are collateralized
by the Partnership's investment in the Local Limited Partnership. Unpaid
interest was due at maturity of the notes.
During the nine months ended September 30, 2003, Evergreen refinanced the
mortgage encumbering its investment property. The distribution from Evergreen
relating to the refinancing of approximately $6,765,000 was recognized as income
in the accompanying statements of operations. Pursuant to the agreement with the
noteholders, approximately $6,615,000 of the proceeds were sent to a trustee in
order to satisfy in full the principal of approximately $2,600,000 and
approximately $4,015,000 of accrued interest. The trustee distributed the funds
directly to the noteholders. The Partnership also recognized a gain on
extinguishment of debt of approximately $102,000 due to the write off of the
remaining accrued interest as it was forgiven by the noteholders.
At September 30, 2004, the obligation relating to the Plaza Village note was
$2,000,000 and accrued interest was approximately $3,655,000. 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 on the Plaza Village note and is in
default under the terms of the note. Management is attempting to negotiate
extensions of the maturity date on the note payable. If the negotiations are
unsuccessful, the Partnership could lose its investment in the Local Limited
Partnership, Plaza Village Group, to foreclosure. The investment in Plaza
Village was zero at September 30, 2004.
NOTE 4 - TRANSACTIONS WITH AFFILIATED PARTIES
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 nine months ended September 30,
2004 and 2003, approximately $111,000 and $148,000, respectively, has been
expensed. At September 30, 2004, approximately $37,000 in accrued fees is due to
affiliates.
The Partnership reimburses NAPICO for certain expenses. The reimbursement to
NAPICO was approximately $14,000 for both the nine months ended September 30,
2004 and 2003 and is included in general and administrative expenses.
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 September 30, 2004, the
Corporate General Partner had advanced approximately $101,000 for such purposes.
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 - ABANDONMENT OF LIMITED PARTNERSHIP INTERESTS
During the nine months ended September 30, 2004, the number of Limited
Partnership Interests decreased by 10 interests due to limited partners
abandoning their units. In abandoning his or her Limited Partnership
Interest(s), a limited partner relinquishes all right, title, and interest in
the Partnership as of the date of abandonment. However, the limited partner is
allocated his or her share of net income or loss for that year. The income or
loss per Limited Partnership Interest in the accompanying statements of
operations is calculated based on the number of interests outstanding at the
beginning of the year.
NOTE 6 - CONTINGENCIES
The Corporate General Partner is involved in various lawsuits arising from
transactions in the ordinary course of business. In the opinion of management
and the Corporate General Partner, the claims will not result in any material
liability to the Partnership.
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 Corporate 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 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 Corporate 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.
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.
At September 30, 2004, the Partnership had cash and cash equivalents of
approximately $30,000 which was invested in interest bearing accounts. The
amount of interest income varies with market rates available on deposits and
with the amount of funds available for investment. Interest earned was
approximately $1,000 for the nine months ended September 30, 2004. It was less
than $1,000 in 2003. The Partnership intends to continue investing available
funds in this manner.
Two of the Partnership's investments, Evergreen and Plaza Village, involved
purchases of partnership interests in the Local Limited Partnerships from
partners who subsequently withdrew from the Local Limited Partnership. The
Partnership issued non-recourse notes payable totaling $4,600,000 to the sellers
of the partnership interests, such notes bearing interest at 9.5% per annum. The
notes matured in 1999. These obligations and related interest are collateralized
by the Partnership's investment in the Local Limited Partnership. Unpaid
interest was due at maturity of the notes.
During the nine months ended September 30, 2003, Evergreen refinanced the
mortgage encumbering its investment property. The distribution from Evergreen
relating to the refinancing of approximately $6,765,000 was recognized as income
in the accompanying statements of operations. Pursuant to the agreement with the
noteholders, approximately $6,615,000 of the proceeds were sent to a trustee in
order to satisfy in full the principal of approximately $2,600,000 and
approximately $4,015,000 of accrued interest. The trustee distributed the funds
directly to the noteholders. The Partnership also recognized a gain on
extinguishment of debt of approximately $102,000 due to the write off of the
remaining accrued interest as it was forgiven by the noteholders.
The Partnership has not made any payments on the Plaza Village note and is in
default under the terms of the note. Management is attempting to negotiate
extensions of the maturity date on the note payable. If the negotiations are
unsuccessful, the Partnership could lose its investment in the Local Limited
Partnership, Plaza Village Group, to foreclosure. The investment in Plaza
Village is zero at September 30, 2004.
One of the Local Limited Partnerships, Cloverdale Heights Apartments, Ltd., has
outstanding purchase money notes and accrued interest that matured in December
2000. In addition, a second Local Limited Partnership, Jenny Lind Hall Second
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 September 30, 2004.
Results of Operations
Except for investing cash in money market funds, the Partnership's investments
consist entirely of interests in 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. 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 $111,000 and $148,000 for the nine months ended
September 30, 2004 and 2003, respectively. These fees decreased for 2004 due to
the sales of Lancaster Heights, Cape LaCroix and Cloverleaf in 2003.
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 September 30, 2004, 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
$81,000 and $64,000 for the nine months ended September 30, 2004 and 2003,
respectively. The increase in legal and accounting fees is due to increased
legal expenses associated with the preparation of consent solicitations. General
and administrative expenses were approximately $25,000 and $34,000 for the nine
months ended September 30, 2004 and 2003, respectively. Interest expense was
approximately $143,000 and $257,000 for the nine months ended September 30, 2004
and 2003, respectively. The decrease in interest expense was due to the payoff
of the note for Evergreen in 2003.
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, 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. The
Partnership received approximately $6,820,000 in distributions that were
recognized as income during the nine months ended September 30, 2003. No
distributions were recognized as income during the nine months ended September
30, 2004. 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 nine months ended September 30, 2004 and 2003, there was no equity in losses
in Local Limited Partnerships. The Partnership did not make any advances during
the nine months ended September 30, 2004 or 2003.
Under recently 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.
Other
AIMCO and its affiliates owned 580.5 limited partnership units (the "Units") or
1,161.0 limited partnership interests in the Partnership representing 9.48% of
the outstanding Units at September 30, 2004. A Unit consists of two limited
partnership interests. It is possible that AIMCO or its affiliates will acquire
additional Units in exchange for cash or a combination of cash and units in
AIMCO Properties, L.P., the operating partnership of AIMCO. 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 Corporate General Partner. Although the Corporate General Partner
owes fiduciary duties to the limited partners of the Partnership, the Corporate
General partner also owes fiduciary duties to AIMCO as its sole stockholder. As
a result, the duties of the Corporate General Partner, as corporate general
partner, to the Partnership and its limited partners may come into conflict with
the duties of the Corporate General Partner to AIMCO as its sole stockholder.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires 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.
Method of Accounting for Investments in Local Limited Partnerships
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.
Recent Accounting Pronouncements
In January 2003 and revised in December 2003, the Financial Accounting Standards
Board ("FASB") issued Interpretation No. 46 ("FIN 46"), Consolidation of
Variable Interest Entities. FIN 46 requires the consolidation of entities in
which an enterprise absorbs a majority of the entity's expected losses, receives
a majority of the entity's expected residual returns, or both, as a result of
ownership, contractual or other financial interests in the entity. Prior to the
issuance of FIN 46, entities were generally consolidated by an enterprise when
it had a controlling financial interest through ownership of a majority voting
interest in the entity. FIN 46 applied immediately to variable interest entities
created after January 31, 2003, and with respect to public entities with
variable interest entities held before February 1, 2003, FIN 46 will apply to
financial statements for periods ending after December 15, 2004.
The Partnership has not entered into any partnership investments subsequent to
January 31, 2003. The Partnership is in the process of evaluating its
investments in unconsolidated local limited partnerships that may be deemed
variable interest entities under the provisions of FIN 46. The Partnership has
not yet determined the anticipated impact of adopting FIN 46 for its investments
in local limited partnerships that existed as of January 31, 2003. However, FIN
46 may require the consolidation of the assets, liabilities and operations of
certain of the Partnership's unconsolidated investments in local limited
partnerships. Although the Partnership does not believe the full adoption of FIN
46 will have an impact on its cash flow, the Partnership cannot make any
definitive conclusion on the impact, if any, on net earnings until it completes
its evaluation, including an evaluation of the Partnership's maximum exposure to
loss.
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 Corporate 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 Corporate 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 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.
HOUSING PROGRAMS LIMITED
(a California limited partnership)
By: National Partnership Investments Corp.
Corporate General Partner
By: /s/David R. Robertson
David R. Robertson
President and Chief Executive
Officer
By: /s/Brian H. Shuman
Brian H. Shuman
Senior Vice President and Chief
Financial Officer
Date: November 12, 2004
HOUSING PROGRAM LIMITED
EXHIBIT INDEX
Exhibit Description of 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.
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.
Exhibit 31.1
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 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 quarterly
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 12, 2004
/s/David R. Robertson
David R. Robertson
President and Chief Executive Officer of
National Partnership Investments
Corporation, equivalent of the chief
executive officer of the Partnership
Exhibit 31.2
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 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 quarterly
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 12, 2004
/s/Brian H. Shuman
Brian H. Shuman
Senior Vice President and Chief Financial
Officer of National Partnership
Investments 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 Housing Programs
Limited (the "Partnership"), for the quarterly period ended September 30, 2004
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: November 12, 2004
/s/Brian H. Shuman
Name: Brian H. Shuman
Date: November 12, 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.