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, 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 ___
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act) Yes __ No X_
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
FOX STRATEGIC HOUSING INCOME PARTNERS
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
September 30, 2005
Assets
Cash and cash equivalents $ 44
Receivables and deposits 164
Other assets 130
Investment property:
Land $ 1,981
Buildings and related personal property 9,268
11,249
Less accumulated depreciation (5,496) 5,753
$ 6,091
Liabilities and Partners' (Deficiency) Capital
Liabilities
Due to affiliates (Note B) $ 814
Tenant security deposits 18
Other liabilities 60
Mortgage note payable 5,059
Partners' (Deficiency) Capital
General partner $ (33)
Limited partners (26,111 units issued and
outstanding) 173 140
$ 6,091
See Accompanying Notes to Consolidated Financial Statements
FOX STRATEGIC HOUSING INCOME PARTNERS
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per unit data)
Three Months Ended Nine Months Ended
September 30, September 30,
2005 2004 2005 2004
Revenues:
Rental income $ 321 $ 311 $ 970 $ 899
Other income 24 46 78 125
Total revenues 345 357 1,048 1,024
Expenses:
Operating 198 159 529 423
General and administrative 27 37 81 124
Depreciation 98 95 291 284
Interest 93 89 272 270
Property taxes 21 16 83 91
Total expenses 437 396 1,256 1,192
Loss from continuing operations (92) (39) (208) (168)
Income from discontinued
operations (Note A) -- -- -- 62
Net loss $ (92) $ (39) $ (208) $ (106)
Net loss allocated to general
partner $ (1) $ (1) $ (3) $ (2)
Net loss allocated to limited
partners (91) (38) (205) (104)
$ (92) $ (39) $ (208) $ (106)
Net loss per limited partnership
unit $ (3.48) $ (1.46) $ (7.85) $ (3.98)
Distributions per limited
partnership unit $ -- $ 19.76 $ -- $193.10
See Accompanying Notes to Consolidated Financial Statements
FOX STRATEGIC HOUSING INCOME PARTNERS
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' (DEFICIENCY) CAPITAL
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partner Partners Total
Original capital contributions 26,111 $ -- $26,111 $26,111
Partners' capital
at December 31, 2004 26,111 $ (30) $ 378 $ 348
Net loss for the nine months
ended September 30, 2005 -- (3) (205) (208)
Partners' (deficiency) capital
at September 30, 2005 26,111 $ (33) $ 173 $ 140
See Accompanying Notes to Consolidated Financial Statements
FOX STRATEGIC HOUSING INCOME PARTNERS
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
2005 2004
Cash flows from operating activities:
Net loss $ (208) $ (106)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation 291 284
Amortization of loan costs 11 11
Bad debt expense, net 30 79
Change in accounts:
Receivables and deposits 16 (173)
Other assets (40) (47)
Accounts payable (47) (113)
Tenant security deposit liabilities (5) --
Due to affiliates 44 (29)
Other liabilities 2 (52)
Net cash provided by (used in) operating
activities 94 (146)
Cash flows used in investing activities:
Property improvements and replacements (393) (69)
Cash flows from financing activities:
Advances from affiliates 483 124
Repayments of advances from affiliates (124) --
Payments on mortgage notes payable (70) (64)
Distribution to partners -- (5,197)
Net cash provided by (used in) financing
activities 289 (5,137)
Net decrease in cash and cash equivalents (10) (5,352)
Cash and cash equivalents at beginning of period 54 5,413
Cash and cash equivalents at end of period $ 44 $ 61
Supplemental disclosure of cash flow information:
Cash paid for interest $ 257 $ 259
Supplemental disclosure of non-cash activity:
Property improvements and replacements in accounts
payable $ 8 $ --
Included in property improvements and replacements for the nine months ended
September 30, 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 and nine months ended September 30, 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 unaudited consolidated statements of operations for the nine
months ended September 30, 2004 reflect the operations of Barrington Place
Apartments as income from discontinued operations due to its sale in December
2003. During the nine months ended September 30, 2004 the Partnership recognized
income from discontinued operations of approximately $62,000 due to a reduction
in the estimated costs related to the sale and a property tax refund.
Note 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
$52,000 and $49,000 for the nine months ended September 30, 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
$39,000 and $75,000 for the nine months ended September 30, 2005 and 2004,
respectively, which is included in general and administrative expenses. At
September 30, 2005, approximately $55,000 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 nine months ended September 30, 2004. Interest was charged
at the prime rate plus 2% (8.75% at September 30, 2005) and amounted to less
than $1,000 for the nine months ended September 30, 2004. During the nine months
ended September 30, 2005 this advance and accrued interest was repaid to the
Managing General Partner. During the nine months ended September 30, 2005 the
Managing General Partner advanced the Partnership approximately $483,000 for
operating expenses, real estate taxes and capital improvements at Wood View
Apartments. Interest was charged at the prime rate plus 2% (8.75% at September
30, 2005) and interest expense amounted to approximately $4,000 for the nine
months ended September 30, 2005. At September 30, 2005, the amount of
outstanding loans and accrued interest was approximately $487,000 and is
included in due to affiliates.
In accordance with the Partnership Agreement, the Managing General Partner earns
partnership management fees on distributions from operations. There were no
partnership management fees earned during the nine months ended September 30,
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 September 30, 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, general
liability and vehicle liability. The Partnership insures its property above the
AIMCO limits through insurance policies obtained by AIMCO from insurers
unaffiliated with the Managing General Partner. During the nine months ended
September 30, 2005 and 2004, the Partnership was charged by AIMCO and its
affiliates approximately $21,000 and $20,000, respectively, for insurance
coverage and fees associated with policy claims administration.
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 complaint. Plaintiffs took an appeal from this order.
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. On June 10, 2005, the California Supreme Court
denied Objector's Petition for Review and the Court of Appeals sent the matter
back to the trial court on June 21, 2005. The parties intend to ask the trial
court to make further findings in connection with settlement consistent with the
Court of Appeal's remand order. With respect to the related Heller appeal, on
July 28, 2005, the Court of Appeals reversed the trial court's order striking
the first amended complaint.
On August 18, 2005, Objector and his counsel filed a motion to disqualify the
trial court based on a peremptory challenge and filed a motion to disqualify for
cause on October 17, 2005. On or about October 13, 2005 Objector filed a motion
to intervene and on or about October 19, 2005 filed both a motion to take
discovery relating to the adequacy of plaintiffs as derivative representatives
and a motion to dissolve the anti-suit injunction in connection with settlement.
On October 27, 2005, the Court denied Objector's peremptory challenge and struck
Objector's motion to disqualify for cause. No hearing has been set on Objector's
remaining motions. On November 3, 2005, Objector and his counsel filed a writ of
mandate to the Court of Appeals challenging the court's October 27, 2005 order.
The Managing General Partner does not anticipate that any costs to the
Partnership, whether legal or settlement costs, associated with these cases 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, filed in the United States District Court for the District of
Columbia, 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 excess of 40 hours
in a week. In June 2005 the Court conditionally certified the collective action
on both the on-call and overtime issues, which allows the plaintiffs to provide
notice of the collective action to all non-exempt maintenance workers from
August 7, 2000 through the present. Those employees will have the opportunity to
opt-in to the collective action, and AIMCO Properties, L.P. and NHP Management
Company will have the opportunity to move to decertify the collective action.
Because the court denied plaintiffs' motion to certify state subclasses, on
September 26, 2005, the plaintiffs filed a class action with the same
allegations in the Superior Court of California (Contra Costa County). 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
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.
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, and potential fines or
penalties imposed by such agencies in connection therewith, 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, operation and management 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 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") continues its 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 have included 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, tax credit transactions, and
tender offers for limited partnership interests. 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 nine
months ended September 30, 2005 and 2004:
Average Occupancy
Property 2005 2004
Wood View Apartments 94% 92%
Atlanta, Georgia
The Partnership's financial results depend upon a number of factors including
the ability to attract and maintain tenants at the investment property, interest
rates on 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 net losses for the three and nine months ended
September 30, 2005 of approximately $92,000 and $208,000 compared to net losses
of approximately $39,000 and $106,000 for the three and nine months ended
September 30, 2004. The increase in the net loss for the nine months ended
September 30, 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 nine months ended September 30, 2004, the Partnership
recognized income from discontinued operations of approximately $62,000 due to a
reduction in the estimated costs related to the sale and a property tax refund.
The Partnership recognized losses from continuing operations for the three and
nine months ended September 30, 2005 of approximately $92,000 and $208,000
compared to losses from continuing operations of approximately $39,000 and
$168,000 for the three and nine months ended September 30, 2004. The increase in
loss from continuing operations for the nine months ended September 30, 2005 is
attributable to an increase in total expenses partially offset by an increase in
total revenues. The increase in loss from continuing operations for the three
months ended September 30, 2005 is attributable to an increase in total expenses
and a decrease in total revenues.
Total expenses increased for the three and nine months ended September 30, 2005
due to an increase in operating expenses partially offset by a decrease in
general and administrative expenses. The increase in total expenses for the
three months ended September 30, 2005 is also due to an increase in property tax
expenses. The increase in operating expenses for the three and nine months ended
September 30, 2005 is primarily due to increases in property and maintenance
expenses. The increase in operating expenses for the nine months ended September
30, 2005 is also due to an increase in insurance expense. The increase in
property expense for the three and nine months ended September 30, 2005 is
primarily due to an increase in salaries and other related benefits and utility
expenses. The increase in maintenance expense for the three and nine months
ended September 30, 2005 is primarily due to an increase in contract services
partially offset by an increase of capitalization of certain payroll costs. The
increase in insurance expense for the nine months ended September 30, 2005 is
primarily due to a termite bond paid during the nine months ended September 30,
2005. The increase in property tax expense for the three months ended September
30, 2005 is primarily due to the timing of the receipt of the tax bills, which
affected the recording of the true up between the estimated property tax expense
and the actual expense at both September 30, 2005 and 2004.
The decrease in general and administrative expense during the three and nine
months ended September 30, 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 and nine months ended September 30, 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.
Total revenues increased for the nine months ended September 30, 2005 due to an
increase in rental income partially offset by a decrease in other income. The
decrease in total revenues for the three months ended September 30, 2005 is due
to a decrease in other income partially offset by an increase in rental income.
The increase in rental income for the nine months ended September 30, 2005 is
due to an increase in occupancy and a decrease in bad debt expense. The increase
in rental income for the three months ended September 30, 2005 is due to an
increase in average rental rates and a decrease in bad debt expense.
Additionally, there was an increase in occupancy at the Partnership's property
during the three months ended September 30, 2004 and no such increase during the
three months ended September 30, 2005, which partially offset the increase in
rental income for the three months ended September 30, 2005. Other income
decreased during the three and nine months ended September 30, 2005 primarily
due to a decrease in lease cancellation fees, late charges and cleaning and
damage fees partially offset by an increase in utility reimbursements.
Liquidity and Capital Resources
At September 30, 2005, the Partnership had cash and cash equivalents of
approximately $44,000 compared to approximately $61,000 at September 30, 2004.
The decrease in cash and cash equivalents of approximately $10,000 since
December 31, 2004 is due to approximately $393,000 of cash used in investing
activities partially offset by approximately $289,000 and $94,000 of cash
provided by financing and operating activities, respectively. Cash used in
investing activities consisted of property improvements and replacements. Cash
provided by financing activities consisted of advances from an affiliate of the
Managing General Partner partially offset by 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. The Partnership
invests its working capital reserves in interest bearing accounts.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the property to adequately maintain the physical assets
and other operating needs of the Partnership and to comply with Federal, state,
and local legal and regulatory requirements. The Managing General Partner
monitors developments in the area of legal and regulatory compliance. For
example, the Sarbanes-Oxley Act of 2002 mandates or suggests additional
compliance measures with regard to governance, disclosure, audit and other
areas. In light of these changes, the Partnership expects that it will incur
higher expenses related to compliance. Capital improvements planned for the
Partnership's property are detailed below.
During the nine months ended September 30, 2005, the Partnership completed
approximately $388,000 of capital expenditures at Wood View Apartments
consisting primarily of floor covering and appliance replacements, major
landscaping, wall covering replacements and other building improvements. These
improvements were funded from operating cash flow and advances from the Managing
General Partner. 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 the remainder of 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.
In accordance with the Partnership Agreement, the Managing General Partner
advanced the Partnership approximately $124,000 for property taxes at Wood View
Apartments during the nine months ended September 30, 2004. Interest was charged
at the prime rate plus 2% (8.75% at September 30, 2005) and amounted to less
than $1,000 for the nine months ended September 30, 2004. During the nine months
ended September 30, 2005 this advance and accrued interest was repaid to the
Managing General Partner. During the nine months ended September 30, 2005 the
Managing General Partner advanced the Partnership approximately $483,000 for
operating expenses, real estate taxes and capital improvements at Wood View
Apartments. Interest was charged at the prime rate plus 2% (8.75% at September
30, 2005) and interest expense amounted to approximately $4,000 for the nine
months ended September 30, 2005. At September 30, 2005, the amount of
outstanding loans and accrued interest was approximately $487,000 and is
included in due to affiliates.
Other than the advances discussed above, 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 $5,059,000 is amortized over 360 months with a balloon payment of
approximately $4,774,000 due on August 1, 2008. The Managing General Partner
will attempt to refinance such indebtedness and/or sell the property prior to
such maturity date. If the property cannot be refinanced and/or sold for a
sufficient amount, the Partnership will risk losing such property through
foreclosure.
The Partnership distributed the following amounts during the nine months ended
September 30, 2005 and 2004 (in thousands except per unit data):
Nine Months Nine Months
Ended Per Limited Ended Per Limited
September 30, Partnership September 30, Partnership
2005 Unit 2004 Unit
Sale (1) $ -- $ -- $5,197 $193.10
(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 13,111 limited partnership units
(the "Units") in the Partnership representing 50.21% of the outstanding Units at
September 30, 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.
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 50.21% 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
asset.
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. Plaintiffs took an appeal from this order.
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. On June 10, 2005, the California Supreme Court
denied Objector's Petition for Review and the Court of Appeals sent the matter
back to the trial court on June 21, 2005. The parties intend to ask the trial
court to make further findings in connection with settlement consistent with the
Court of Appeal's remand order. With respect to the related Heller appeal, on
July 28, 2005, the Court of Appeals reversed the trial court's order striking
the first amended complaint.
On August 18, 2005, Objector and his counsel filed a motion to disqualify the
trial court based on a peremptory challenge and filed a motion to disqualify for
cause on October 17, 2005. On or about October 13, 2005 Objector filed a motion
to intervene and on or about October 19, 2005 filed both a motion to take
discovery relating to the adequacy of plaintiffs as derivative representatives
and a motion to dissolve the anti-suit injunction in connection with settlement.
On October 27, 2005, the Court denied Objector's peremptory challenge and struck
Objector's motion to disqualify for cause. No hearing has been set on Objector's
remaining motions. On November 3, 2005, Objector and his counsel filed a writ of
mandate to the Court of Appeals challenging the court's October 27, 2005 order.
The Managing General Partner does not anticipate that any costs to the
Partnership, whether legal or settlement costs, associated with these cases 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, filed in the United States District Court for the District of
Columbia, 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 excess of 40 hours
in a week. In June 2005 the Court conditionally certified the collective action
on both the on-call and overtime issues, which allows the plaintiffs to provide
notice of the collective action to all non-exempt maintenance workers from
August 7, 2000 through the present. Those employees will have the opportunity to
opt-in to the collective action, and AIMCO Properties, L.P. and NHP Management
Company will have the opportunity to move to decertify the collective action.
Because the court denied plaintiffs' motion to certify state subclasses, on
September 26, 2005, the plaintiffs filed a class action with the same
allegations in the Superior Court of California (Contra Costa County). 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
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 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: November 14, 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.
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.
Exhibit 31.1
CERTIFICATION
I, Martha L. Long, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Fox Strategic
Housing Income Partners;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the small business issuer as of, and for, the periods presented in this
report;
4. The small business issuer's other certifying officer(s) and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for
the small business issuer and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
small business issuer, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly
during the period in which this report is being prepared;
(b) Evaluated the effectiveness of the small business issuer's
disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based
on such evaluation; and
(c) Disclosed in this report any change in the small business issuer's
internal control over financial reporting that occurred during the
small business issuer's most recent fiscal quarter (the small
business issuer's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to
materially affect, the small business issuer's internal control over
financial reporting; and
5. The small business issuer's other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal control over
financial reporting, to the small business issuer's auditors and the audit
committee of the small business issuer's board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the small business issuer's
ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the small business
issuer's internal control over financial reporting.
Date: November 14, 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: November 14, 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 September
30, 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: November 14, 2005
/s/Stephen B. Waters
Name: Stephen B. Waters
Date: November 14, 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.