FORM 10-QSB--QUARTERLY OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
QUARTERLY OR TRANSITIONAL REPORT
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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.)
One Insignia Financial Plaza
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X . No .
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a) FOX STRATEGIC HOUSING INCOME PARTNERS
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
September 30, 1997
Assets
Cash and cash equivalents $ 4,547
Receivables and deposits 89
Other assets 76
Investment properties:
Land $ 3,119
Buildings and related personal property 18,196
21,315
Less accumulated depreciation (6,258) 15,057
$ 19,769
Liabilities and Partners' Capital (Deficit)
Liabilities
Accounts payable $ 9
Tenant security deposits 60
Accrued taxes 111
Accrued interest 142
Other liabilities 54
Mortgage notes payable 7,836
Partners' Capital (Deficit):
General partner's $ (206)
Limited partners' (26,111 units outstanding) 11,763 11,557
$ 19,769
See Accompanying Notes to Consolidated Financial Statements
b) FOX STRATEGIC HOUSING INCOME PARTNERS
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
Revenues:
Rental income $ 736 $ 742 $ 2,208 $ 2,163
Other income 85 91 260 242
Total revenues 821 833 2,468 2,405
Expenses:
Operating 342 443 1,046 1,239
Interest 228 228 698 685
Depreciation 156 152 467 453
General and administrative 45 84 148 253
Total expenses 771 907 2,359 2,630
Net income (loss) $ 50 $ (74) $ 109 $ (225)
Net income (loss) allocated
to general partner $ 10 $ -- $ 22 $ (47)
Net income (loss) allocated
to limited partners 40 (74) 87 (178)
$ 50 $ (74) $ 109 $ (225)
Net income (loss) per limited
partnership unit $ 1.53 $ (2.83) $ 3.33 $ (6.82)
<FN>
See Accompanying Notes to Consolidated Financial Statements
</FN>
c) FOX STRATEGIC HOUSING INCOME PARTNERS
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partner's Partners' Total
Original capital contributions 26,111 $ -- $ 26,111 $ 26,111
Partners' (deficit) capital
at December 31, 1996 26,111 $ (228) $ 11,676 $ 11,448
Net income for the nine months
ended September 30, 1997 -- 22 87 109
Partners' (deficit) capital
at September 30, 1997 26,111 $ (206) $ 11,763 $ 11,557
<FN>
See Accompanying Notes to Consolidated Financial Statements
</FN>
d) FOX STRATEGIC HOUSING INCOME PARTNERS
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
1997 1996
Cash flows from operating activities:
Net income (loss) $ 109 $ (225)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation 467 453
Amortization of loan costs 30 25
Interest added to note payable principal 525 517
Change in accounts:
Receivables and deposits 117 (257)
Other assets (39) 17
Accounts payable (20) (4)
Tenant security deposit liabilities (8) 3
Accrued taxes (49) 125
Accrued interest payable 142 143
Other liabilities 9 60
Net cash provided by operating activities 1,283 857
Cash flows from investing activities:
Property improvements and replacements (113) (144)
Proceeds from cash investments -- 2,630
Net cash (used in) provided by investing
activities (113) 2,486
Cash flows from financing activities:
Repayment of note payable principal (938) (782)
Net cash used in financing activities (938) (782)
Net increase in cash and cash equivalents 232 2,561
Cash and cash equivalents at beginning of period 4,315 1,409
Cash and cash equivalents at end of period $ 4,547 $ 3,970
Supplemental disclosure of non cash investing and
financing activities:
Beginning accrued interest added to note payable
principal $ 358 $ 356
<FN>
See Accompanying Notes to Consolidated Financial Statements
</FN>
e) 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") 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 consolidated financial
statements. In the opinion of Fox Capital Management Corporation ("FCMC" or the
"Managing General Partner"), a California Corporation, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three and nine month
periods ended September 30, 1997, are not necessarily indicative of the results
that may be expected for the fiscal year ending December 31, 1997. 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 year
ended December 31, 1996.
Certain reclassifications have been made to the 1996 information to conform to
the 1997 presentation.
NOTE B - TRANSACTIONS WITH AFFILIATED PARTIES
The Partnership has no employees and is dependent on the Managing General
Partner and its affiliates for the management and administration of all
partnership activities. The Partnership Agreement provides for payments to
affiliates for services and as reimbursement of certain expenses incurred by
affiliates on behalf of the Partnership.
Fox Partners VIII, a California general partnership, is the general partner.
The general partners of Fox Partners VIII are FCMC and Fox Realty Investors
("FRI"), a California general partnership.
Pursuant to a series of transactions which closed during the first half of 1996,
affiliates of Insignia Financial Group, Inc. ("Insignia") acquired all of the
issued and outstanding shares of stock of FCMC, NPI Equity Investments II, Inc.
("NPI Equity"), the Managing General Partner of FRI, and National Property
Investors, Inc. ("NPI"), the sole stockholder of NPI Equity. In connection with
these transactions, affiliates of Insignia appointed new officers and directors
of NPI Equity and FCMC.
The following transactions with affiliates of Insignia, NPI, and affiliates of
NPI were incurred during the nine month periods ended September 30, 1997 and
1996 (in thousands):
1997 1996
Property management fees (included in operating
expenses) $ 115 $ 112
Reimbursement for services of affiliates (included
in general and administrative and operating
expenses) 49 138
For the period from January 19, 1996, to August 31, 1997, the Partnership
insured its properties under a master policy through an agency and insurer
unaffiliated with the Managing General Partner. An affiliate of the Managing
General Partner acquired, in the acquisition of a business, certain financial
obligations from an insurance agency which was later acquired by the agent who
placed the master policy. The agent assumed the financial obligations to the
affiliate of the Managing General Partner who received payments on these
obligations from the agent. The amount of the Partnership's insurance premiums
accruing to the benefit of the affiliate of the Managing General Partner by
virtue of the agent's obligations is not significant.
On August 28, 1997, an Insignia affiliate (the "Purchaser") commenced tender
offers for limited partnership interests in six real estate limited partnerships
(including the Partnership) in which various Insignia affiliates act as general
partner. The Purchaser offered to purchase up to 11,750 of the outstanding
units of limited partnership interest in the Partnership at $260.00 per Unit,
net to the seller in cash, upon the terms and subject to the conditions set
forth in the Offer to Purchase dated August 28, 1997 (the "Offer to Purchase")
and the related Assignment of Partnership Interest attached as Exhibits (a)(1)
and (a)(2), respectively, to the Tender Offer Statement on Schedule 14D-1
originally filed with the Securities and Exchange Commission on August 28, 1997.
Because of the existing and potential future conflicts of interest (described in
the Partnership's Statements on Schedule 14D-9 filed with the Securities and
Exchange Commission), neither the Partnership nor the General Partner expressed
any opinion as to the Offer to Purchase and made no recommendation as to whether
unit holders should tender their units in response to the Offer to Purchase. As
a result of the tender offer, an Insignia affiliate purchased 3,919 of the
outstanding limited partner units of the Partnership.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The Partnership's investment properties consist of two apartment complexes. The
following table sets forth the average occupancy of the properties for each of
the nine months ended September 30, 1997 and 1996:
Average
Occupancy
Property 1997 1996
Barrington Place Apartments
Westlake, Ohio 95% 96%
Wood View Apartments
Atlanta, Georgia 93% 95%
The Partnership realized net income for the nine months ended September 30, 1997
of approximately $109,000 compared to a net loss of approximately $225,000 for
the nine months ended September 30, 1996. The Partnership's net income for the
three months ended September 30, 1997 was approximately $50,000 compared to a
net loss of approximately $74,000 for the three months ended September 30, 1996.
The increase in net income for the three and nine months ended September 30,
1997 is primarily attributable to decreased operating expenses. Included in
operating expense for the nine months ended September 30, 1997, is approximately
$39,000 of major repairs and maintenance comprised primarily of landscaping.
Included in operating expenses for the nine months ended September 30, 1996, is
approximately $196,000 of major repairs and maintenance comprised primarily of
an exterior painting project of approximately $122,000 at Woodview. In addition
to the decrease in operating expense was a decrease in general and
administrative expenses due to a reduction in expense reimbursements paid to
affiliates of the Managing General Partners. This decrease is directly related
to the costs incurred in connection with the transition and relocation of the
administration offices during 1996. Increased other income also contributed to
the increased net income for the nine month period, primarily due to increased
interest income. Interest income increased due to higher average cash balances
in the nine months ended September 30, 1997, compared to the corresponding
period in 1996.
As part of the ongoing business plan of the Partnership, the Managing General
Partner monitors the rental market environment of its investment properties to
assess the feasibility of increasing rents, maintaining or increasing occupancy
levels and protecting the Partnership from increases in expense. 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, due to changing market
conditions, which can result in the use of rental concessions and rental
reductions to offset softening market conditions, there is no guarantee that the
Managing General Partner will be able to sustain such a plan.
At September 30, 1997, the Partnership held cash and cash equivalents of
approximately $4,547,000, compared to approximately $3,970,000 at September 30,
1996. Net cash provided by operations increased primarily due to the decreases
in operating and general and administrative expenses as discussed above. The
decrease in net cash provided by investing activities is the result of proceeds
from a maturing cash investment in 1996. Net cash used in financing activities
increased due to the increase in mortgage payments required in 1997 compared to
1996.
The Partnership's properties are cross-collateralized by a zero coupon first
mortgage which secures the entire amount of the note payable. Interest accrues
on the amount borrowed at a contract rate of 10.9 percent per annum, with the
interest accrued added to principal each January and July. As of September 30,
1997, approximately $5,646,000 in accrued interest has been added to the
principal of this note. The Partnership was required to repay a specified
percentage of the then outstanding original principal amount of the loan as
follows: 20 percent in August 1995, 20 percent in August 1996, and 30 percent
in August 1997. In addition, provided that the Partnership generated income in
an amount as defined in the note agreement, it was required to repay a specified
percentage of the then outstanding accrued interest added to principal as
follows: 20 percent in August 1995, 20 percent in August 1996, and 30 percent
in August 1997. The remaining principal balance plus all accrued and unpaid
interest is due in August 1998. In August 1995, the Partnership paid
approximately $1,947,000 (which included $970,000 of accrued interest added to
principal). In August 1996, the Partnership paid $782,000, which is 20 percent
of the then outstanding original principal balance (no additional payment of
accrued interest was required). In August 1997, the Partnership paid
approximately $938,000 of principal, resulting in principal plus accrued
interest due in August 1998 of approximately $7,978,000.
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 various properties to adequately maintain the
physical assets and other operating needs of the Partnership. Such assets are
currently thought to be sufficient for any near-term needs of the Partnership.
The mortgage indebtedness and accrued interest mature August 1, 1998, at which
time the properties will either be refinanced or sold. Future cash
distributions will depend on the levels of net cash generated from operations,
capital expenditure requirements, property sales, refinancings, and the
availability of cash reserves. In addition, distributions may be limited by the
debt repayments discussed above. No cash distributions were paid during the
nine months ended September 30, 1997 or 1996. Cash distributions are expected
to remain suspended as a result of the pending debt maturity which is discussed
above.
On August 28, 1997, an Insignia affiliate (the "Purchaser") commenced tender
offers for limited partnership interests in six real estate limited partnerships
(including the Partnership) in which various Insignia affiliates act as general
partner. The Purchaser offered to purchase up to 11,750 of the outstanding
units of limited partnership interest in the Partnership at $260.00 per Unit,
net to the seller in cash, upon the terms and subject to the conditions set
forth in the Offer to Purchase dated August 28, 1997 (the "Offer to Purchase")
and the related Assignment of Partnership Interest attached as Exhibits (a)(1)
and (a)(2), respectively, to the Tender Offer Statement on Schedule 14D-1
originally filed with the Securities and Exchange Commission on August 28, 1997.
Because of the existing and potential future conflicts of interest (described in
the Partnership's Statements on Schedule 14D-9 filed with the Securities and
Exchange Commission), neither the Partnership nor the General Partner expressed
any opinion as to the Offer to Purchase and made no recommendation as to whether
unit holders should tender their units in response to the Offer to Purchase. As
a result of the tender offer, an Insignia affiliate purchased 3,919 of the
outstanding limited partner units of the Partnership.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In August 1997, an Insignia affiliate (the "Purchaser") commenced tender offers
for limited partner interests in six real estate limited partnerships including
the Partnership (collectively, the "Tender Partnerships"), in which various
affiliates of Insignia Financial Group, Inc. ("Insignia") act as general
partner. On September 5, 1997, a partnership claiming to be a holder of limited
partnership units in one of the Tender Partnerships, filed a complaint with
respect to a putative class action in the Court of Chancery in the State of
Delaware in and for New Castle County (the "City Partnerships complaint")
challenging the actions of the defendants (including Insignia, certain Insignia
affiliates) in connection with the tender offers. Neither the Partnership nor
the Managing General Partner were named as defendants in the action. The City
Partnerships complaint alleges that, among other things, the defendants have
intentionally mismanaged the Tender Partnerships and coerced the limited
partners into selling their units pursuant to the tender offers for
substantially lower prices than the units are worth. The plaintiffs also allege
that the defendants breached an alleged duty to provide an independent analysis
of the fair market value of the limited partnership units, failed to appoint a
disinterested committee to review the tender offer and did not adequately
consider other alternatives available to the limited partners.
On September 8, 1997, persons claiming to be holders of limited partnership
units in the Tender Partnerships filed a complaint with respect to a putative
class action and derivative suit in the Superior Court for the State of
California for the County of San Mateo (the "Kline complaint") challenging the
actions of the defendants (including Insignia, certain Insignia affiliates and
the Tender Partnerships) in connection with the tender offers. The Kline
complaint alleges that, among other things, the defendants have intentionally
mismanaged the Tender Partnerships and that, as a result of the tender offers,
the Purchaser will acquire effective voting control over the Tender Partnerships
at substantially lower prices, than the units are worth. On September 24, 1997,
the court denied the plaintiffs' application for a temporary restraining order
and their request for preliminary injunctive relief preventing the completion of
the tender offers.
On September 10, 1997, persons claiming to be holders of limited partnership
units in the Tender Partnerships filed a complaint with respect to a putative
class action and derivative suit in the Superior Court for the State of
California for the County of Alameda (the "Heller complaint") challenging the
actions of the defendants (including Insignia, certain Insignia affiliates and
the Tender Partnerships) in connection with the tender offers. The Heller
complaint alleges that, among other things, the defendants have intentionally
mismanaged the Tender Partnerships and that, as a result of the tender offers,
the Purchaser will acquire effective voting control of the Tender Partnerships
at substantially lower prices than the units are worth. The Plaintiffs also
allege that the defendants breached an alleged duty to retain an independent
advisor to consider alternatives to the tender offers.
The Managing General Partner believes that the allegations contained in the City
Partnerships, Kline and Heller complaints are without merit and intends to
vigorously contest each of those complaints to which it and the Partnership have
been named as defendants.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibit 27, Financial Data Schedule, is filed as an exhibit to this
report.
b) Reports on Form 8-K: None filed during the quarter ended September 30,
1997.
SIGNATURES
In accordance with 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.
FOX STRATEGIC HOUSING INCOME PARTNERS
By: FOX PARTNERS VIII
Its General Partner
By: FOX CAPITAL MANAGEMENT CORPORATION
Its Managing General Partner
By: /s/William H. Jarrard, Jr.
William H. Jarrard, Jr.
President and Director
By: /s/Ronald Uretta
Ronald Uretta
Vice President and Treasurer
Date: November 14, 1997