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 March 31, 2005
[ ] 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)
March 31, 2005
Assets
Cash and cash equivalents $ 59
Receivables and deposits 126
Other assets 106
Investment property:
Land $ 1,981
Buildings and related personal property 8,919
10,900
Less accumulated depreciation (5,302) 5,598
$ 5,889
Liabilities and Partners' (Deficiency) Capital
Liabilities
Accounts payable $ 70
Due to affiliates (Note B) 301
Tenant security deposit liabilities 21
Accrued property taxes 34
Other liabilities 49
Mortgage note payable 5,106
Partners' (Deficiency) Capital
General partner $ (31)
Limited partners (26,111 units issued and
outstanding) 339 308
$ 5,889
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
March 31,
2005 2004
Revenues:
Rental income $ 330 $ 283
Other income 27 43
Total revenues 357 326
Expenses:
Operating 162 121
General and administrative 20 42
Depreciation 97 95
Interest 90 90
Property taxes 28 38
Total expenses 397 386
Loss from continuing operations (40) (60)
Income from discontinued operations (Note A) -- 36
Net loss $ (40) $ (24)
Net loss allocated to general partners $ (1) $ --
Net loss allocated to limited partners (39) (24)
Net loss $ (40) $ (24)
Net loss per limited partnership unit $ (1.49) $ (0.92)
Distributions per limited partnership unit $ -- $173.34
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' (deficiency) capital
at December 31, 2004 26,111 $ (30) $ 378 $ 348
Net loss for the three months
ended March 31, 2005 -- (1) (39) (40)
Partners' (deficiency) capital
at March 31, 2005 26,111 $ (31) $ 339 $ 308
See Accompanying Notes to Consolidated Financial Statements
FOX STRATEGIC HOUSING INCOME PARTNERS
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three Months Ended
March 31,
2005 2004
Cash flows from operating activities:
Net loss $ (40) $ (24)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation 97 95
Amortization of loan costs 4 4
Bad debt expense, net 11 29
Change in accounts:
Receivables and deposits 73 (19)
Other assets (9) (61)
Accounts payable 17 (16)
Tenant security deposit liabilities (2) (1)
Accrued property taxes 34 37
Due to affiliate 14 --
Other liabilities (9) (48)
Net cash provided by (used in) operating
activities 190 (4)
Cash flows used in investing activities:
Property improvements and replacements (38) (18)
Cash flows from financing activities:
Payments on mortgage notes payable (23) (21)
Repayment of advances from affiliates (124) --
Distribution to partners -- (4,666)
Net cash used in financing activities (147) (4,687)
Net increase (decrease) in cash and cash equivalents 5
(4,709)
Cash and cash equivalents at beginning of period 54 5,413
Cash and cash equivalents at end of period $ 59 $ 704
Supplemental disclosure of cash flow information:
Cash paid for interest $ 88 $ 87
Supplemental disclosure of non-cash activity:
Property improvements and replacements in accounts
payable $ 14 $ --
Included in property improvements and replacements for the three months ended
March 31, 2005 are approximately $13,000 of improvements which were included in
accounts payable at December 31, 2004.
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 month period ended March 31, 2005, are not necessarily indicative of the
results that may be expected for the fiscal year ending December 31, 2005. 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, 2004.
Certain 2004 balances have been reclassified to conform with the 2005
presentation.
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 144,
the accompanying consolidated statement of operations for the three months ended
March 31, 2004 reflects the operations of Barrington Place Apartments as income
from discontinued operations due to its sale in December 2003. The Partnership
recognized income from discontinued operations of approximately $36,000 due to a
property tax refund.
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 receive 5% of gross receipts from the
Partnership's investment property as compensation for providing property
management services. The Partnership paid to such affiliates approximately
$18,000 and $16,000 for the three months ended March 31, 2005 and 2004,
respectively, which is included in operating expenses.
Affiliates of the Managing General Partner charged the Partnership for
reimbursement of accountable administrative expenses amounting to approximately
$12,000 and $26,000 for the three months ended March 31, 2005 and 2004,
respectively, which is included in general and administrative expenses. At March
31, 2005, approximately $29,000 of these accountable administrative expenses
remain unpaid 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 year ended December 31, 2004. Interest accrues at the
prime rate plus 2% (7.75% at March 31, 2005) and amounted to less than $1,000
for the three months ended March 31, 2005. During the three months ended March
31, 2005 this advance and accrued interest was repaid to the Managing General
Partner. There were no loans from the Managing General Partner or associated
interest expense during the three months ended March 31, 2004.
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 three months ended March 31, 2005
and 2004 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 March 31, 2005 amounted to approximately $272,000 and are
included in due to affiliates.
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 three months ended March 31, 2005, the
Partnership was charged by AIMCO and its affiliates approximately $14,000 for
hazard insurance coverage and fees associated with policy claims administration.
Additional charges will be incurred by the Partnership during 2005 as other
insurance policies renew later in the year. The Partnership was charged by AIMCO
and its affiliates approximately $20,000 for insurance coverage and fees
associated with policy claims administration during the year ended December 31,
2004.
Note C - 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 28, 2002, the trial court granted defendants
motion to strike the compliant.
On January 8, 2003, the parties filed a Stipulation of Settlement in proposed
settlement of the Nuanes action and the Heller action.
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 May 4, 2004,
the Objector filed a second appeal challenging the court's use of a referee and
its order requiring Objector to pay those fees.
On March 21, 2005, the Court of Appeals issued opinions in both pending appeals.
With regard to the settlement and judgment entered thereto, the Court of Appeals
vacated the trial court's order and remanded to the trial court for further
findings on the basis that the "state of the record is insufficient to permit
meaningful appellate review". With regard to the second appeal, the Court of
Appeals reversed the order requiring the Objector to pay referee fees. On April
26, 2005, the Court of Appeals lifted the stay of a pending appeal related to
the Heller action and the trial court's order striking the complaint. On April
28, 2005, the Objector filed a Petition for Review with the California Supreme
Court in connection with the opinion vacating the order approving settlement and
remanding for further findings. The Managing General Partner and its affiliates
are currently scheduled to file an answer to Objector's petition on May 18,
2005.
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.
AIMCO Properties L.P. and NHP Management Company, both affiliates of the
Managing General Partner, are defendants in a lawsuit alleging that they
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.
The complaint attempts to bring 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. and NHP
Management Company failed to compensate maintenance workers for time that they
were required to be "on-call." Additionally, the complaint alleges AIMCO
Properties L.P. and NHP Management Company 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. Oral argument relating to the
certification of the collective action took place on May 12, 2005 and the
parties await a ruling from the Court. 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
consolidated financial condition or results of operations.
The Partnership is unaware of any other pending or outstanding litigation
matters involving it or its investment property that are not of a routine nature
arising in the ordinary course of business.
Environmental
Various Federal, state and local laws subject property owners or operators to
liability for management, and the costs of removal or remediation, of certain
hazardous substances present on a property. Such laws often impose liability
without regard to whether the owner or operator knew of, or was responsible for,
the release or presence of the hazardous substances. The presence of, or the
failure to manage or remedy properly, hazardous substances may adversely affect
occupancy at affected apartment communities and the ability to sell or finance
affected properties. In addition to the costs associated with investigation and
remediation actions brought by government agencies, the presence of hazardous
substances on a property could result in claims by private plaintiffs for
personal injury, disease, disability or other infirmities. Various laws also
impose liability for the cost of removal, remediation or disposal of hazardous
substances through a licensed disposal or treatment facility. Anyone who
arranges for the disposal or treatment of hazardous substances is potentially
liable under such laws. These laws often impose liability whether or not the
person arranging for the disposal ever owned or operated the disposal facility.
In connection with the ownership and operation of its property, the Partnership
could potentially be liable for environmental liabilities or costs associated
with its property.
Mold
The Partnership is aware of lawsuits against owners and managers of multifamily
properties asserting claims of personal injury and property damage caused by the
presence of mold, some of which have resulted in substantial monetary judgments
or settlements. The Partnership has only limited insurance coverage for property
damage loss claims arising from the presence of mold and for personal injury
claims related to mold exposure. Affiliates of the Managing General Partner have
implemented a national policy and procedures to prevent or eliminate mold from
its properties and the Managing General Partner believes that these measures
will eliminate, or at least minimize, the effects that mold could have on
residents. To date, the Partnership has not incurred any material costs or
liabilities relating to claims of mold exposure or to abate mold conditions.
Because the law regarding mold is unsettled and subject to change the Managing
General Partner can make no assurance that liabilities resulting from the
presence of or exposure to mold will not have a material adverse effect on the
Partnership's consolidated financial condition or results of operations.
SEC Investigation
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.
At the end of the first quarter of 2005, the SEC added certain tender offers for
limited partnership interests as an area of investigation. AIMCO is cooperating
fully. AIMCO is not able to predict when the investigation 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 three
months ended March 31, 2005 and 2004:
Average Occupancy
Property 2005 2004
Wood View Apartments 95% 85%
Atlanta, Georgia
The Managing General Partner attributes the increase in occupancy at Wood View
Apartments to an increase in marketing outreach and promotions and improved
market conditions in the property's location.
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 mortgage loans, 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 months ended March 31, 2005
of approximately $40,000 compared to a net loss of approximately $24,000 for the
three months ended March 31, 2004. The increase in the net loss for the three
months ended March 31, 2005 is largely due to income from discontinued
operations in 2004. On December 16, 2003, Barrington Place Apartments was sold
to a third party. During the three months ended March 31, 2004, the Partnership
recognized income from discontinued operations of approximately $36,000 due to a
property tax refund.
The Partnership recognized a loss from continuing operations for the three
months ended March 31, 2005 of approximately $40,000 compared to a loss from
continuing operations of approximately $60,000 for the three months ended March
31, 2004. The decrease in loss from continuing operations for the three months
ended March 31, 2005 is attributable to an increase in total revenues partially
offset by an increase in total expenses.
Total revenues increased for the three months ended March 31, 2005 due to an
increase in rental income partially offset by a decrease in other income. Rental
income increased due to an increase in occupancy and a decrease in bad debt
expense partially offset by a decrease in the average rental rates at the
Partnership's remaining property, Wood View Apartments. Other income decreased
during the three months ended March 31, 2005 primarily due to a decrease in
lease cancellation fees.
Total expenses increased for the three months ended March 31, 2005 due to an
increase in operating expenses partially offset by a decrease in general and
administrative and property tax expenses. Operating expenses increased primarily
due to increases in property, maintenance and administrative expenses. Property
expense increased primarily due to an increase in salaries and other related
benefits and referral fees partially offset by a decrease in administrative
units. Maintenance expense increased primarily due to an increase in contract
services. Administrative expense increased primarily due to a fee related to an
appeal of the property taxes at Wood View Apartments. Property tax expense
decreased primarily due to the appeal of the property tax assessment at Wood
View Apartments.
The decrease in general and administrative expense during the three months ended
March 31, 2005 is primarily due to a decrease in asset management fees, due to
the termination of a third party asset management contract at the end of 2004.
Included in general and administrative expense for the three months ended March
31, 2005 and 2004 are the costs of services included in the management
reimbursements to the Managing General Partner as allowed under the Partnership
Agreement, costs associated with the quarterly and annual communications with
investors and regulatory agencies and the annual audit required by the
Partnership Agreement.
Liquidity and Capital Resources
At March 31, 2005, the Partnership had cash and cash equivalents of
approximately $59,000 compared to approximately $704,000 at March 31, 2004. The
increase in cash and cash equivalents of approximately $5,000 since December 31,
2004 is due to approximately $190,000 of cash provided by operating activities
partially offset by approximately $147,000 of cash used in financing activities
and approximately $38,000 of cash used in investing activities. Cash used in
financing activities consisted of the repayment of an advance from an affiliate
of the Managing General Partner and payments of principal made on the mortgage
encumbering the Partnership's investment property. 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 three months ended March 31, 2005, the Partnership completed
approximately $39,000 of capital improvements at Wood View Apartments consisting
primarily of floor covering and appliance replacements. These improvements were
funded from operating cash flow. The Partnership regularly evaluates the capital
improvement needs of the property. While the Partnership has no material
commitments for property improvements and replacements, certain routine capital
expenditures are anticipated during 2005. Additional improvements may be
considered and will depend on the physical condition of the property as well as
anticipated cash flow generated by the property.
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 $5,106,000
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 three months ended
March 31, 2005 and 2004 (in thousands except per unit data):
Three Months Three Months
Ended Per Limited Ended Per Limited
March 31, Partnership March 31, Partnership
2005 Unit 2004 Unit
Sale (1) $ -- $ -- $4,666 $173.34
(1) From the sale proceeds of Barrington Place Apartments which sold in December
2003.
Future cash distributions will depend on the levels of cash generated from
operations, and the timing of the debt maturity, refinancing and/or property
sale. The Partnership's cash available for distribution is reviewed on a monthly
basis. There can be no assurance, however, that the Partnership will generate
sufficient funds from operations after required capital expenditures to permit
distributions to its partners during the remainder of 2005 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
March 31, 2005. 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. In this
regard, on February 16, 2005, an affiliate of AIMCO commenced a tender offer to
purchase any and all of the remaining partnership interests for a purchase price
of $161.34 per unit. The offer expires May 31, 2005. 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.
The Partnership will offer rental concessions during particularly slow months or
in response to heavy competition from other similar complexes in the area.
Rental income attributable to leases, net of any concessions, is recognized on a
straight-line basis over the term of the lease. 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.
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 28, 2002, the trial court granted defendants
motion to strike the complaint.
On January 8, 2003, the parties filed a Stipulation of Settlement in proposed
settlement of the Nuanes action and the Heller action.
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 May 4, 2004 the
Objector filed a second appeal challenging the court's use of a referee and its
order requiring Objector to pay those fees.
On March 21, 2005, the Court of Appeals issued opinions in both pending appeals.
With regard to the settlement and judgment entered thereto, the Court of Appeals
vacated the trial court's order and remanded to the trial court for further
findings on the basis that the "state of the record is insufficient to permit
meaningful appellate review". With regard to the second appeal, the Court of
Appeals reversed the order requiring the Objector to pay referee fees. On April
26, 2005, the Court of Appeals lifted the stay of a pending appeal related to
the Heller action and the trial court's order striking the complaint. On April
28, 2005, the Objector filed a Petition for Review with the California Supreme
Court in connection with the opinion vacating the order approving settlement and
remanding for further findings. The Managing General Partner and its affiliates
are currently scheduled to file an answer to Objector's petition on May 18,
2005.
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.
AIMCO Properties L.P. and NHP Management Company, both affiliates of the
Managing General Partner, are defendants in a lawsuit alleging that they
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.
The complaint attempts to bring 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. and NHP
Management Company failed to compensate maintenance workers for time that they
were required to be "on-call." Additionally, the complaint alleges AIMCO
Properties L.P. and NHP Management Company 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. Oral argument relating to the
certification of the collective action took place on May 12, 2005 and the
parties await a ruling from the Court. 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
consolidated financial condition or results of operations.
ITEM 5. OTHER INFORMATION
None.
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: May 16, 2005
EXHIBIT INDEX
Exhibit
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 of the equivalent of the Chief Executive Officer and
Chief Financial Officer 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: May 16, 2005
/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: May 16, 2005
/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 March 31,
2005 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: May 16, 2005
/s/Stephen B. Waters
Name: Stephen B. Waters
Date: May 16, 2005
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.