UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 2002
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
Commission File Number 0-12634
CAMBRIDGE + RELATED HOUSING
PROPERTIES LIMITED PARTNERSHIP
------------------------------
(Exact name of registrant as specified in its charter)
Massachusetts 13-3161322
- ------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
625 Madison Avenue, New York, New York 10022
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212)421-5333
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
============ ============
November 30, February 28,
2002 2002*
------------ ------------
ASSETS
Property and equipment, net of
accumulated depreciation of
$11,136,745 and $10,819,771,
respectively $ 5,624,792 $ 5,941,766
Property and equipment-held for
sale, net of accumulated
depreciation of $11,347,772
and $17,546,742, respectively 10,482,355 16,273,634
Cash and cash equivalents 1,137,072 780,650
Cash - restricted for tenants'
security deposits 182,958 235,380
Mortgage escrow deposits 5,941,586 6,203,393
Rents receivable 56,287 194,567
Prepaid expenses and other assets 495,122 955,391
----------- -----------
Total assets $23,920,172 $30,584,781
=========== ===========
2
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
(continued)
============ ============
November 30, February 28,
2002 2002*
------------ ------------
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Mortgage notes payable $ 12,496,906 $ 16,740,978
Purchase Money Notes payable
(Note 2) 5,778,821 16,067,193
Due to selling partners (Note 2) 9,028,606 24,289,106
Deferred revenue on sale of
properties 16,610,373 0
Accounts payable, accrued
expenses and other liabilities 1,005,148 2,362,862
Tenants' security deposits payable 182,958 235,380
Due to general partners of
subsidiaries and their affiliates 63,423 8,423
Due to general partners and
affiliates 2,659,712 2,447,759
------------ ------------
Total liabilities 47,825,947 62,151,701
------------ ------------
Minority interest (90,482) 153,784
------------ ------------
Commitments and contingencies
(Note 6)
Partners' deficit:
Limited partners (23,128,612) (30,954,969)
General partners (686,681) (765,735)
------------ ------------
Total partners' deficit (23,815,293) (31,720,704)
------------ ------------
Total liabilities and partners' deficit $ 23,920,172 $ 30,584,781
============ ============
* As restated see Note 5.
See Accompanying Notes to Consolidated Financial Statements.
3
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
=========================== ===========================
Three Months Ended Nine Months Ended
November 30, November 30,
--------------------------- ---------------------------
2002 2001* 2002 2001*
--------------------------- ---------------------------
Revenues:
Rentals, net $ 2,067,292 $ 2,965,185 $ 6,873,254 $ 8,973,492
Other 48,133 96,448 371,459 303,201
Gain (loss) on sale
of properties
(Note 4) 5,484,379 (631,165) 5,884,790 (718,787)
------------ ------------ ------------ ------------
Total revenues 7,599,804 2,430,468 13,129,503 8,557,906
------------ ------------ ------------ ------------
Expenses
Administrative and
management 507,457 406,833 1,786,539 1,959,833
Administrative and
management-
related parties
(Note 3) 309,691 355,056 934,793 1,135,329
Operating 400,019 530,360 1,360,236 1,776,656
Repairs and
maintenance 560,668 746,141 1,579,728 2,169,532
Taxes and
insurance 246,841 356,352 833,732 1,047,169
Interest 282,441 554,228 1,077,765 1,701,933
Depreciation 105,657 266,877 316,974 892,621
------------ ------------ ------------ ------------
Total expenses 2,412,774 3,215,847 7,889,767 10,683,073
------------ ------------ ------------ ------------
Income (loss) before
minority interest
and extraordinary
item 5,187,030 (785,379) 5,239,736 (2,125,167)
Minority interest in
loss
of subsidiaries 115,316 5,772 238,183 4,478
------------ ------------ ------------ ------------
Income (loss) before
extraordinary
item 5,302,346 (779,607) 5,477,919 (2,120,689)
Extraordinary item-
forgiveness of
indebtedness
income (Note 4) 0 3,861,270 2,427,492 4,762,489
------------ ------------ ------------ ------------
Net income $ 5,302,346 $ 3,081,663 $ 7,905,411 $ 2,641,800
============ ============ ============ ============
See Accompanying Notes to Consolidated Financial Statements.
4
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
(continued)
========================= =========================
Three Months Ended Nine Months Ended
November 30, November 30,
------------------------- -------------------------
2002 2001* 2002 2001*
------------------------- -------------------------
Income (loss) before
extraordinary
item - limited
partners $ 5,249,323 $ (771,811) $ 5,423,140 $(2,099,482)
Extraordinary item -
limited partners 0 3,822,657 2,403,217 4,714,864
----------- ----------- ----------- -----------
Net income -
limited partners $ 5,249,323 $ 3,050,846 $ 7,826,357 $ 2,615,382
=========== =========== =========== ===========
Number of limited
partnership
units outstanding 10,038 10,038 10,038 10,038
=========== =========== =========== ===========
Income (loss) before
extraordinary
item per limited
partnership unit $ 522.94 $ (76.89) $ 540.26 $ (209.15)
Extraordinary item
per limited
partnership unit 0 380.82 239.41 469.70
----------- ----------- ----------- -----------
Net income
per limited
partnership unit $ 522.94 $ 303.93 $ 779.67 $ 260.55
=========== =========== =========== ===========
* As restated see Note 5.
See Accompanying Notes to Consolidated Financial Statements.
5
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Consolidated Statement of Partners' Deficit
(Unaudited)
=============================================
Limited General
Total Partners Partners
---------------------------------------------
Balance-
March 1, 2002 - as
restated see Note 5 $(31,720,704) $(30,954,969) $ (765,735)
Net income -
nine months ended
November 30, 2002 7,905,411 7,826,357 79,054
------------ ------------ ------------
Balance-
November 30, 2002 $(23,815,293) $(23,128,612) $ (686,681)
============ ============ ============
See Accompanying Notes to Consolidated Financial Statements.
6
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Consolidated Statement of Cash Flows
Increase (decrease) in Cash and Cash Equivalents
(Unaudited)
==========================
Nine Months Ended
November 30,
--------------------------
2002 2001*
--------------------------
Cash flows from operating activities:
Net income $ 7,905,411 $ 2,641,800
----------- -----------
Adjustments to reconcile net income
to net cash provided by
operating activities:
(Gain) loss on sale of properties
(Note 4) (5,884,790) 718,787
Extraordinary item - forgiveness
of indebtedness income (Note 4) (2,427,492) (4,762,489)
Depreciation 316,974 892,621
Minority interest in loss
of subsidiaries (238,183) (4,478)
Increase in cash-restricted
for tenants' security deposits (17,389) (2,450)
Decrease (increase) in mortgage
escrow deposits 269,301 (123,047)
Decrease in rents receivable 68,975 95,171
Decrease (increase) in prepaid
expenses and other assets 152,943 (173,259)
Increase in due to selling partners 840,846 1,316,569
Decrease in accounts payable, accrued
expenses and other liabilities (315,593) (554,129)
Increase (decrease) in tenants' security
deposits payable 2,324 (1,057)
Increase in due to general partners
of subsidiaries and their affiliates 55,000 130,155
Decrease in due to general partners of
subsidiaries and their affiliates 0 (114,292)
Increase in due to general partners
and affiliates 211,954 327,041
----------- -----------
Total adjustments (6,965,130) (2,254,857)
----------- -----------
Net cash provided by
operating activities 940,281 386,943
----------- -----------
7
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Consolidated Statement of Cash Flows
Increase (decrease) in Cash and Cash Equivalents
(Unaudited)
(continued)
==========================
Nine Months Ended
November 30,
--------------------------
2002 2001*
--------------------------
Cash flows from investing activities:
Proceeds from sale of properties 7,965,180 2,525,000
Acquisitions of property and
equipment (139,046) (387,026)
Increase in mortgage escrow deposits (344,480) (527,985)
----------- -----------
Net cash provided by investing
activities 7,481,654 1,609,989
----------- -----------
Cash flows from financing activities:
Principal payments of mortgage
notes payable (1,809,104) (2,561,561)
Decrease in minority interest (6,083) (1,179)
Distributions paid to partners 0 (516,300)
Payments of Purchase Money
Notes payable (2,640,000) (153,162)
Payments to selling partners (3,610,326) (457,412)
----------- -----------
Net cash used in financing activities (8,065,513) (3,689,614)
----------- -----------
Net increase (decrease) in cash and
cash equivalents 356,422 (1,692,682)
Cash and cash equivalents at
beginning of period 780,650 2,477,459
----------- -----------
Cash and cash equivalents at
end of period $ 1,137,072 $ 784,777
=========== ===========
8
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Consolidated Statement of Cash Flows
Increase (decrease) in Cash and Cash Equivalents
(Unaudited)
(continued)
==========================
Nine Months Ended
November 30,
--------------------------
2002 2001*
--------------------------
Supplemental disclosures of
noncash activities:
Increase in property and equipment-
held for sale reclassified from
property and equipment $ 0 $ 4,955,919
Increase in deferred revenue on
sale of properties reclassified from
Purchase Money Notes payable and
due to selling partners 16,610,373 5,092,137
Increase in Purchase Money Notes
payable due to the capitalization of
prepaid expenses and other assets 177,053 380,153
Summarized below are the components
of forgiveness of indebtedness:
Decrease in Purchase Money
Notes payable (720,000) (1,844,438)
Decrease in due to selling partners (1,685,795) (2,787,896)
Decrease in due to general partners
and affiliates 0 (130,155)
Decrease in accounts payable,
accrued expenses and other liabilities (21,697) 0
9
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Consolidated Statement of Cash Flows
Increase (decrease) in Cash and Cash Equivalents
(Unaudited)
(continued)
==========================
Nine Months Ended
November 30,
--------------------------
2002 2001*
--------------------------
Summarized below are the
components of the gain on sale
of properties:
Decrease in property and
equipment held for sale, net
of accumulated depreciation $ 5,930,325 $ 2,221,125
Decrease in property and equipment,
net of accumulated depreciation 0 650,345
Decrease in cash-restricted for
tenants' security deposits 69,811 21,064
Decrease in mortgage escrow deposits 336,986 153,371
Decrease (increase) in prepaid
expenses and other assets 484,379 (1,262)
(Decrease) increase in accounts
payable, accrued expenses and
other liabilities (1,020,422) 70,446
Decrease in tenants' security deposits
payable (54,746) (17,557)
Decrease in due to selling partners (764,540) 0
Decrease in Purchase Money Notes
payable (455,800) 0
Decrease in mortgage notes payable (2,434,968) 0
Decrease in due to general partner
and their affiliates 0 (40,208)
Decrease in rents receivable 69,305 61,443
* As restated see Note 5.
See Accompanying Notes to Consolidated Financial Statements.
10
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
November 30, 2002
(Unaudited)
Note 1 - General
The consolidated financial statements for the nine months ended November 30,
2002 and 2001, include the accounts of Cambridge + Related Housing Properties
Limited Partnership, a Massachusetts limited partnership (the "Partnership"),
and fourteen and nineteen Subsidiary Partnerships ("Subsidiaries", "Subsidiary
Partnerships" or "Local Partnerships"), respectively. The Partnership is a
limited partner, with an ownership interest of 98.99% in each of the Subsidiary
Partnerships. Through the rights of the Partnership and/or one of its general
partners (a "General Partner"), which General Partner has a contractual
obligation to act on behalf of the Partnership, the right to remove the local
general partner of the Subsidiary Partnerships and to approve certain major
operating and financial decisions, the Partnership has a controlling financial
interest in the Subsidiary Partnerships.
For financial reporting purposes, the Partnership's fiscal quarter ends on
November 30. All Subsidiaries have fiscal quarters ending September 30. Accounts
of Subsidiaries have been adjusted for intercompany transactions from October 1
through November 30. The Partnership's fiscal quarter ends on November 30 in
order to allow adequate time for the Subsidiaries' financial statements to be
prepared and consolidated. The books and records of the Partnership are
maintained on the accrual basis of accounting, in accordance with generally
accepted accounting principles ("GAAP").
All intercompany accounts and transactions have been eliminated in
consolidation.
Increases (decreases) in the capitalization of consolidated Subsidiaries
attributable to minority interest arise from cash contributions from and cash
distributions to the minority interest partners.
Losses attributable to minority interests which exceed the minority interests'
investment in a Subsidiary have been charged to the Partnership. Such losses
aggregated approximately $0 for both the three and nine months ended November
30, 2002 and 2001, respectively. The Partnership's investment in each Subsidiary
is equal to the respective Subsidiary's partners' equity less minority interest
capital, if any.
11
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
November 30, 2002
(Unaudited)
These unaudited financial statements have been prepared on the same basis as the
audited financial statements included in the Partnership's Form 10-K for the
year ended February 28, 2002. In the opinion of the General Partners, the
accompanying unaudited financial statements contain all adjustments (consisting
only of normal recurring adjustments) necessary to present fairly the financial
position of the Partnership as of November 30, 2002, the results of operations
for the three and nine months ended November 30, 2002 and 2001 and cash flows
for the nine months ended November 30, 2002 and 2001. However, the operating
results for the nine months ended November 30, 2002 may not be indicative of the
results for the year.
Certain information and note disclosures normally included in financial
statements prepared in accordance with GAAP have been omitted. It is suggested
that these consolidated financial statements should be read in conjunction with
the financial statements and notes thereto included in the Partnership's
February 28, 2002 Annual Report on Form 10-K.
Note 2 - Purchase Money Notes Payable
Nonrecourse Purchase Money Notes (the "Purchase Money Notes") were issued to the
selling partners of the Subsidiary Partnerships as part of the purchase price,
and are secured only by the Partnership's interest in the Subsidiary Partnership
to which the Purchase Money Note relates.
The Purchase Money Notes, which provide for simple interest, will not be in
default if not less than 60% of the cash flow actually distributed to the
Partnership by the corresponding Subsidiary Partnership (generated by the
operations, as defined) is applied first to accrued interest and then to current
interest thereon. As of November 30, 2002, the maturity dates of the Purchase
Money Notes associated with the remaining properties owned by the Subsidiary
Partnerships were extended for the fifth year (see below and Note 6). These are
the final extensions for these Purchase Money Notes. Any interest not paid
currently accrues, without further interest thereon, through the extended due
date of each of the Purchase Money Notes, respectively. Continued accrual of
12
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
November 30, 2002
(Unaudited)
such interest without payment would impact the effective rate of the Purchase
Money Notes, specifically by reducing the current effective interest rate of 9%.
The exact effect is not determinable inasmuch as it is dependent on the actual
future interest payments and ultimate repayment dates of the Purchase Money
Notes. Unpaid interest of $9,012,606 and $24,682,606 at November 30, 2002 and
February 28, 2002, respectively, has been accrued and is included in the caption
due to selling partners. In general, the interest on and the principal of each
Purchase Money Note is also payable to the extent of the Partnership's actual
receipt of proceeds from the sale or refinancing of the apartment complex, or in
some cases the Local Partnerships interest ("Local Partnership Interest") to
which the Purchase Money Note relates.
The Partnership was permitted to extend the term of the Purchase Money Notes for
up to five additional years. In connection with such extensions, the Partnership
incurred an extension fee of 1 and 1/2% per annum of the outstanding principal
balance of the Purchase Money Notes. The Partnership sent an extension notice to
each Purchase Money Note holder that pursuant to the Purchase Money Note, it was
extending the maturity. However in certain cases, the Partnership did not pay
the extension fee at that time, deferring such payment to the future. Extension
fees in the amount of $405,640 were incurred by the Partnership through November
30, 2002. All Purchase Money Notes are now extended with maturity dates ranging
from August 2003 to October 2003. These are the final extensions for the
Purchase Money Notes. Extension fees of $312,103 were accrued and added to the
Purchase Money Note balance.
The Partnership expects that upon final maturity it will be required to
refinance or sell its investments in the Local Partnerships in order to pay the
Purchase Money Notes and accrued interest thereon. Based on the historical
operating results of the Local Partnerships and the current economic conditions
including changes in tax laws, it is unlikely that the proceeds from such sales
will be sufficient to meet the outstanding balances. Management is working with
the Purchase Money Note holders to restructure and/or refinance the Purchase
Money Notes. No assurance can be given that management's efforts will be
successful. The Purchase Money Notes are without personal recourse to either the
Partnership or any of its partners and the sellers' recourse, in the event of
13
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
November 30, 2002
(Unaudited)
non-payment, would be to foreclose on the Partnership's interests in the
respective Local Partnerships.
During the nine months ended November 30, 2002 and 2001, the Partnership
received cash flow distributions aggregating $207,440 and $66,320, respectively,
of which $169,833 and $22,083 was used to pay interest on the Purchase Money
Notes. In addition, the Partnership received distributions of proceeds from the
sales of Local Partnerships aggregating $7,656,110 and $163,493 of which
$6,080,492 and $110,742 was used to pay principal and interest on the Purchase
Money Notes during the nine months ended November 30, 2002 and 2001,
respectively.
Note 3 - Related Party Transactions
The costs incurred to related parties for the three and nine months ended
November 30, 2002 and 2001 were as follows:
======================= =======================
Three Months Ended Nine Months Ended
November 30, November 30,
----------------------- -----------------------
2002 2001 2002 2001
----------------------- -----------------------
Partnership management
fees (a) $ 242,778 $ 241,953 $ 728,335 $ 725,860
Expense reimbursement (b) 27,121 21,000 97,812 99,026
Local administrative fee (d) 3,125 4,000 9,375 12,000
---------- ---------- ---------- ----------
Total general and admini-
strative-General Partners 273,024 266,953 835,522 836,886
---------- ---------- ---------- ----------
Property management fees
incurred to affiliates of the
Subsidiary Partnerships'
general partners (c) 36,667 88,103 99,271 298,443
---------- ---------- ---------- ----------
Total general and
administrative-related
parties $ 309,691 $ 355,056 $ 934,793 $1,135,329
========== ========== ========== ==========
(a) After all other expenses of the Partnership are paid, an annual Partnership
management fee of up to .5% of invested assets is payable to the Partnership's
General Partners and affiliates. Partnership management fees owed to the General
Partners amounting to approximately $1,925,000 and $1,759,000 were accrued and
14
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
November 30, 2002
(Unaudited)
unpaid as of November 30, 2002 and February 28, 2002, respectively. The General
Partners' fees are being paid currently, other than the Partnership management
fees that were accrued and continue to be deferred.
(b) The Partnership reimburses the General Partners and their affiliates for
actual Partnership operating expenses incurred by the General Partners and their
affiliates on the Partnership's behalf. The amount of reimbursement from the
Partnership is limited by the provisions of the partnership agreement. Another
affiliate of the General Partners performs asset monitoring for the Partnership.
These services include site visits and evaluations of the Subsidiary
Partnerships' performance.
(c) Property management fees incurred by Local Partnerships to affiliates of the
Local Partnerships amounted to $36,667 and $88,103 and $99,271 and $298,443, for
the three and nine months ended November 30, 2002 and 2001, respectively.
(d) Cambridge/Related Housing Associates Limited Partnership, the special
limited partner of each of the Subsidiary Partnerships, owning .01%, is entitled
to receive a local administrative fee of up to $2,500 per year from each
Subsidiary Partnership.
Note 4 - Sale of Properties
General
- -------
The Partnership is currently in the process of winding up its operations and
disposing of its investments. As of November 30, 2002, the Partnership has
disposed of forty of its forty-four original investments. Subsequently on
December 19, 2002, the property and the related assets and liabilities of one
investment was sold and on January 2, 2003, the Partnership interest of a second
investment was transferred to the Local General Partner. The remaining two
investments are under contract to be sold within the next several months. There
may be no assurance that the Partnership will dispose of its last remaining
investments during this time frame or the amount of proceeds which may be
received. However, based on the historical operating results of the Local
Partnerships and the current economic conditions including changes in tax laws,
15
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
November 30, 2002
(Unaudited)
it is unlikely that the proceeds from such sales received by the Partnership
will be sufficient to return to the limited partners their original investment.
On October 31, 2002, the Partnership's limited partnership interest in
Grandview-Blue Ridge Manor, Ltd. ("Blue Ridge"), Breckenridge-Chaparral
Apartments II, Ltd. ("Chaparral"), Albuquerque-Lafayette Square Apts., Ltd.
("Lafayette"), Fort Worth-Northwood Apartments, Ltd. ("Northwood"), Corpus
Christi-Oso Bay Apartments, Ltd. ("Oso Bay"), Ardmore-Rolling Meadows of
Ardmore, Ltd. ("Ardmore") and Stephenville-Tarleton Arms Apartments, Ltd.
("Tarleton") were sold back to the Local General Partner for approximately $100
each resulting in losses of approximately $444,000, $659,000, $1,707,000,
$1,428,000, $1,055,000, $874,000 and $1,382,000, respectively, which will be
recognized in the February 28, 2003 10-K. No proceeds were used to settle the
associated Purchase Money Notes and accrued interest thereon, which had total
outstanding balances of approximately $1,525,000, $1,999,000, $3,592,000,
$2,050,000, $2,364,000, $2,229,000 and $2,851,000, respectively, resulting in
gains on sale of properties in amounts equal to the interest and principal due
on such Purchase Money Notes.
On July 12, 2002, the property and the related assets and liabilities of San
Diego-Logan Square Gardens Company ("Logan") were sold to the Local General
Partners for approximately $9,241,000 resulting in a gain in the amount of
approximately $5,484,000. The Partnership used approximately $5,740,000 to fully
settle the associated Purchase Money Note and accrued interest thereon.
On March 27, 2002, the property and the related assets and liabilities of
Ziegler Boulevard, Ltd. ("Ziegler") were sold to an unaffiliated third party
purchaser for approximately $2,379,000 resulting in a loss in the amount of
approximately $483,000. The Partnership used approximately $340,000 to settle
the associated Purchase Money Note and accrued interest thereon, which had a
total outstanding balance of approximately $2,746,000 resulting in forgiveness
of indebtedness income of approximately $2,406,000.
On March 27, 2002, the Partnership's limited partnership interest in Eastwyck
III, Ltd. Limited Partnership ("Eastwyck") was sold to the Local General
16
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
November 30, 2002
(Unaudited)
Partners for approximately $5,000 resulting in a loss of approximately $337,000.
No proceeds were used to settle the associated Purchase Money Note and accrued
interest thereon, which had a total outstanding balance of approximately
$1,220,000 resulting in a gain on sale of approximately $1,220,000.
On November 26, 2001, the Partnership's Limited Partnership Interest in Buena
Vista Manor Apartments, Ltd. ("Buena Vista") was sold to the Local General
Partners for $125,000 resulting in a loss in the amount of approximately
$596,000. No proceeds were used to settle the associated Purchase Money Note and
accrued interest thereon, which had a total outstanding balance of approximately
$5,092,000 resulting in a gain on sale of approximately $5,092,000.
On August 31, 2001, the property and the related assets and liabilities of
Rolling Meadows Apartments, Ltd. ("Rolling Meadows") were sold to an
unaffiliated third party purchaser for $1,925,000 resulting in a loss in the
amount of approximately $485,000. The Partnership used approximately $201,000 to
settle the associated Purchase Money Note and accrued interest thereon, which
had a total outstanding balance of approximately $3,757,000 resulting in
forgiveness of indebtedness income of approximately $3,556,000.
On March 16, 2001, the property and the related assets and liabilities of
Char-Mur Apartments ("Char-Mur") were sold to an affiliate of the Local General
Partner for $475,000, resulting in a loss in the amount of approximately
$193,000. The Partnership used approximately $85,000 to settle the associated
Purchase Money Note and accrued interest thereon, which had a total outstanding
balance of approximately $986,000, resulting in forgiveness of indebtedness
income of $901,000. In addition, approximately $21,000 of accounts payable to an
unrelated party were forgiven in the current year.
Note 5 - Prior Period Adjustment
During the quarter ended November 30, 2001, extension fees in connection with
the Purchase Money Notes were overaccrued by $671,850. Such extension fees were
capitalized and amortized over the period of extension, and during the fiscal
17
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
November 30, 2002
(Unaudited)
year end February 28, 2002 the Partnership amortized $335,925 of such extension
fees resulting in net income being understated for that year. To correct the
misstatement, Partners' deficit has been increased by $335,925.
Note 6 - Commitments and Contingencies
The following disclosure includes changes and/or additions to disclosures
regarding the Subsidiary Partnership which were included in the Partnership's
Annual Report on Form 10-K for the period ended February 28, 2002.
a) Purchase Money Notes
As part of the purchase price of its investment in the Local Partnerships, the
Partnership issued approximately $61,029,000 of Purchase Money Notes. As of
November 30, 2002, unpaid accrued interest on the Purchase Money Notes amounted
to approximately $9,013,000. The principal of and all accrued interest on the
Purchase Money Notes is due at maturity. The Partnership was permitted to extend
the term of the Purchase Money Notes for up to five additional years. In
connection with such extensions, the Partnership incurred an extension fee of 1
and 1/2% per annum of the outstanding principal balance of the assets. The
Partnership sent an extension notice to each Purchase Money Note holder that
pursuant to the note, it was extending the maturity. However in certain cases,
the Partnership did not pay the extension fee at that time, deferring such
payment to the future. The holders of the Note could argue that until the fee is
paid the Note has not been properly extended.
Note 7 - Subsequent Events
On December 19, 2002, the property and the related assets and liabilities of
Wingate Associates Limited ("Wingate") were sold to an unaffiliated third party
purchaser for $2,600,000 resulting in a loss of approximately $197,000. The
Partnership used approximately $267,000 of the net proceeds to settle the
associated Purchase Money Note and accrued interest thereon, which had an
18
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
November 30, 2002
(Unaudited)
outstanding balance of approximately $1,447,000, resulting in forgiveness of
indebtedness income of approximately $1,180,000.
On January 2, 2003, the Partnership's limited partnership interest in Caddo
Parish-Villa South, Ltd. ("Villa South") was transferred to the Local General
Partner resulting in a gain of approximately $2,900,000. No proceeds were used
to settle the associated Purchase Money Note and accrued interest thereon, which
had a total outstanding balance of $7,337,000 resulting in additional gain on
sale.
19
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Liquidity and Capital Resources
- -------------------------------
The Partnership's primary sources of funds are (i) cash distributions from
operations (ii) cash distributions from sales of the Local Partnerships in which
the Partnership has invested, (iii) interest earned on funds and (iv) cash in
working capital reserves. All of these sources of funds are available to meet
the obligations of the Partnership.
During the nine months ended November 30, 2002 and 2001, the Partnership
received cash flow distributions aggregating $207,440 and $66,320, respectively,
of which $169,833 and $22,083, respectively, was used to pay interest on the
Purchase Money Notes. In addition, the Partnership received distributions of
proceeds from the sales of Local Partnerships aggregating $7,656,110 and
$163,493, of which $6,080,492 and $110,742 was used to pay principal and
interest on the Purchase Money Notes during the nine months ended November 30,
2002 and 2001, respectively.
During the nine months ended November 30, 2002, cash and cash equivalents of the
Partnership and its consolidated Local Partnerships increased approximately
($356,000). This increase was due to cash provided by operations ($940,000) and
proceeds from sale of properties ($7,965,000) which exceeded principal payments
of mortgage notes payable of ($1,809,000), an increase in mortgage escrow
deposits relating to investing activities ($344,000), payments to selling
partners ($3,610,000), acquisitions of property and equipment ($139,000), a
decrease in minority interest relating to financing activities ($6,000) and
principal payments of Purchase Money Notes payable ($2,640,000). Included in the
adjustments to reconcile the net income to cash provided by operating activities
is gain on sale of properties ($5,885,000), forgiveness of indebtedness income
($2,427,000) and depreciation ($317,000).
The Partnership has a working capital reserve of approximately $721,000 at
November 30, 2002. The working capital reserve is temporarily invested in money
market accounts which can be easily liquidated to meet obligations as they
arise. The General Partners believe that the Partnership's reserves, net
proceeds from future sales and future cash flow distributions will be adequate
for its operating needs, and plan to continue investing available reserves in
short term investments. In March 2001, a distribution of approximately $511,000
and $5,000 was paid to the limited partners and General Partners, respectively,
20
from net proceeds from the sale of properties. None of the total distributions
of approximately $516,000 for the nine months ended November 30, 2001, were
deemed to be a return of capital in accordance with GAAP.
Partnership management fees owed to the General Partners amounting to
approximately $1,925,000 and $1,759,000 were accrued and unpaid as of November
30, 2002 and February 28, 2002, respectively. The General Partners' fees are
being paid currently, other than the Partnership management fees that were
accrued and continue to be deferred.
The Local Partnerships that receive government assistance are subject to
low-income use restrictions which limit the owners' ability to sell or refinance
the properties. In order to maintain the existing inventory of affordable
housing, Congress passed a series of related acts including the Emergency Low
Income Preservation Act of 1987, the Low-Income Housing Preservation and
Resident Homeownership Act of 1990 (together the "Preservation Acts") and the
Housing Opportunity Program Extension Act of 1996 (the "1996 Act"). In exchange
for maintaining the aforementioned use restrictions, the Preservation Acts
provided financial incentives for owners of government assisted properties. The
1996 Act provided financial assistance by funding the sale of such properties to
not-for-profit owners and also restored the owners ability to prepay their U.S.
Department of Housing and Urban Development ("HUD") mortgage and convert the
property to condominiums or market-rate rental housing. Local general partners
had filed for incentives under the Preservation Acts or the 1996 Act for the
following local partnerships: San Diego - Logan Square Gardens Company,
Albuquerque - Lafayette Square Apts. Ltd., Westgate Associates Limited,
Riverside Gardens Limited Partnership, Pacific Palms, Canton Commons Associates,
Rosewood Manor Associates, Bethany Glen Associates and South Munjoy Associates,
Limited. As of November 30, 2002, all of these Local Partnerships were sold. The
Preservation Acts have subsequently been repealed or revoked.
For a discussion of Purchase Money Notes payable see Note 2 to the financial
statements.
For a discussion of the Partnership's sale of properties see Note 4 to the
financial statements.
21
For a discussion of contingencies affecting certain Local Partnerships, see Note
6 to the financial statements and Part II, Item 1 of this report. Since the
maximum loss the Partnership would be liable for is its net investment in the
respective Local Partnerships, the resolution of the existing contingencies is
not anticipated to impact future results of operations, liquidity or financial
condition in a material way although the Partnership would lose its entire
investment in the property and any ability for future appreciation.
Management is not aware of any trends or events, commitments or uncertainties
which have not otherwise been disclosed that will or are likely to impact
liquidity in a material way. Management believes the only impact would be from
laws that have not yet been adopted. Due to the sale of properties, the
portfolio is not diversified by the location of the properties around the United
States. The Partnership has four properties remaining and therefore the
Partnership may not be protected against a general downturn in the national
economy.
Results of Operations
- ---------------------
During the periods ended November 30, 2002 and 2001, Char-Mur Apartments, Ltd.,
Rolling Meadows Apartments, Ltd., Zeigler Boulevard Ltd. and Logan Square
Gardens Company sold their properties and the related assets and liabilities and
the Partnership's Limited Partnership Interest in Buena Vista Manor Apartments
Ltd., Cedar Hill Apartments Ltd., Crosset Apartments Ltd. and Eastwyck III,
Ltd., was sold (collectively the "Sold Assets"). Excluding the Sold Assets, the
results of operations of the Partnership, as well as the Local Partnerships,
remained fairly consistent during the three and nine months ended November 30,
2002 and 2001, other than other income, administrative and management,
operating, repairs and maintenance, interest, gain on sale of properties and
forgiveness of indebtedness income. The majority of Local Partnership income
continues to be in the form of rental income with the corresponding expenses
being divided among operations, depreciation, and mortgage interest. In
addition, the Partnership incurred interest expense relating to the Purchase
Money Notes issued when the Local Partnership Interests were acquired.
Rental income decreased approximately 30% and 23% for the three and nine months
ended November 30, 2002, as compared to 2001. Excluding the Sold Assets, rental
income increased approximately 5% for both the three and nine months ended
22
November 30, 2002 as compared to 2001, primarily due to rental rate increases
and decreases in vacancies at several Local Partnerships.
Other income (decreased) increased approximately $(48,000) and $68,000 for the
three and nine months ended November 30, 2002, as compared to 2001. Excluding
the Sold Assets, other income decreased approximately $61,000 and $134,000,
primarily due to a decrease of interest income due to a reduction in interest
rates on reserve accounts at several Local Partnerships as well as the
Partnership level.
Total expenses, excluding the Sold Assets, administrative and management,
operating, repairs and maintenance and interest, remained fairly consistent with
an increase of less than 1% for both the three and nine months ended November
30, 2002, as compared to 2001.
Administrative and management increased (decreased) approximately $101,000 and
$(173,000) for the three and nine months ended November 30, 2002, as compared to
2001. Excluding the Sold Assets, administrative and management increased
approximately $259,000 and $197,000 primarily due to an increase in amortization
expense on the Purchase Money Note extension fees paid by the Partnership.
Operating decreased approximately $130,000 and $416,000 for the three and nine
months ended November 30, 2002, as compared to 2001. Excluding the Sold Assets,
operating decreased approximately $24,000 and $138,000 primarily due to a
decrease in utility cost at several Local Partnerships.
Repairs and maintenance decreased approximately $185,000 and $590,000 for the
three and nine months ended November 30, 2002, as compared to 2001. Excluding
the Sold Assets, repairs and maintenance increased approximately $85,000 and
$131,000 primarily due to increases in personnel at two Local Partnerships,
interior painting and carpet replacement at a third and fourth Local
Partnerships and a cooling tower replaced at a fifth Local Partnership.
Interest decreased approximately $272,000 and $624,000 for the three and nine
months ended November 30, 2002, as compared to 2001. Excluding the Sold Assets,
interest decreased approximately $64,000 and $63,000 primarily due to a decrease
in interest expense incurred on the principal balance of Purchase Money Notes
related to the properties sold on October 31, 2002 (See Note 4).
23
Administrative and management-related parties, taxes and insurance and
depreciation expense decreased approximately $45,000 and $201,000, $110,000 and
$213,000 and $161,000 and $576,000 for the three and nine months ended November
30, 2002, as compared to 2001, primarily due to decreases relating to the Sold
Assets. Wingate Associates, Limited, Albuquerque - Lafayette Square Apartments,
Ltd., El Paso - Gateway East Ltd., Bay Village Co. and Fort Worth - Northwood
Apartments Ltd. are not depreciated during the period ended November 30, 2002
because they are classified as assets held for sale.
Losses and gains on sales of properties and forgiveness of indebtedness income
will continue to fluctuate as a result of the disposition of properties (see
Note 4 to the financial statements).
Item 3. Quantitative and Qualitative Disclosures about Market Risk
None
Item 4. Controls and Procedures
The Chief Executive Officer and Chief Financial Officer of Government Assisted
Properties, Inc. and Related Housing Programs Corporation, each of which is a
general partner of Cambridge + Related Housing Properties L.P. (the
"Partnership"), has evaluated the Partnership's disclosure controls and
procedures relating to the Partnership's quarterly report on Form 10-Q for the
period ending November 30, 2002 as filed with the Securities and Exchange
Commission and has judged such controls and procedures to be effective as of
November 30, 2002 (the "Evaluation Date").
There have been no significant changes in the internal controls or in other
factors that could significantly affect internal controls relating to the
Partnership since the Evaluation Date.
24
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - This information is incorporated by reference in
Note 6 to the Financial Statements.
Item 2. Changes in Securities and Use of Proceeds - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other information - None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
99.1 Certification Pursuant to 18 U.S.C. section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K - No reports on Form 8-K were filed during the
quarter.
25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CAMBRIDGE + RELATED HOUSING
PROPERTIES LIMITED PARTNERSHIP
(Registrant)
By: GOVERNMENT ASSISTED PROPERTIES,
INC., a General Partner
Date: January 7, 2003
By: /s/ Alan P. Hirmes
------------------
Alan P. Hirmes,
President and Principal
Executive and Financial Officer
Date: January 7, 2003
By: /s/ Glenn F. Hopps
------------------
Glenn F. Hopps,
Treasurer and
Principal Accounting Officer
By: RELATED HOUSING PROGRAMS
CORPORATION, a General Partner
Date: January 7, 2003
By: /s/ Alan P. Hirmes
------------------
Alan P. Hirmes,
President and Principal
Executive and Financial Officer
Date: January 7, 2003
By: /s/ Glenn F. Hopps
------------------
Glenn F. Hopps,
Treasurer and
Principal Accounting Officer
CERTIFICATION
I, Alan P. Hirmes, Chief Executive Officer and Chief Financial Officer of
Government Assisted Properties, Inc. and Related Housing Programs Corporation
(the "General Partners"), each of which is a general partner of Cambridge +
Related Housing Properties L.P. (the "Partnership"), hereby certify that:
1. I have reviewed this quarterly report on Form 10-Q for the period
ending November 30, 2002 of the Partnership;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the Partnership as of, and for, the periods presented in
this quarterly report;
4. I am responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-14 and 15-d-14)
for the Partnership and I have:
a) designed such disclosure controls and procedures to ensure the
material information relating to the Partnership is made known to me,
particularly during the period in which this quarterly report was
being prepared;
b) evaluated the effectiveness of the Partnership's disclosure
controls and procedures as of November 30, 2002 (the "Evaluation
Date"); and
c) presented in this quarterly report my conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. I have disclosed, based on my most recent evaluation, to the
Partnership's auditors and to the boards of directors of the General
Partners:
d) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Partnership's ability to
record, process, summarize and report financial data and have
identified for the Partnership's auditors any material weaknesses in
internal controls; and
e) any fraud, whether or not material, that involves management or
other employees who have a significant role in the Partnership's
internal controls; and
6. I have indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that
could significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
By: /s/ Alan P. Hirmes
------------------
Alan P. Hirmes
Chief Executive Officer and
Chief Financial Officer
January 7, 2003
Exhibit 99.1
CERTIFICATION 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 of Cambridge + Related Housing
Properties Limited Partnership (the "Partnership") on Form 10-Q for the period
ending November 30, 2002 as filed with the Securities and Exchange Commission on
the date hereof (the "Report"), I, Alan P. Hirmes, Chief Executive Officer and
Chief Financial Officer of Government Assisted Properties, Inc. and Related
Housing Programs Corporation, each of which is a general partner of the
Partnership, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that:
(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 result of operations of the
Partnership.
By: /s/Alan P. Hirmes
-----------------
Alan P. Hirmes
Chief Executive Officer and Chief Financial Officer
January 7, 2003