FORM 10-QSB--QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(As last amended in Rel. No. 312905, eff. 4/26/93.)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
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) (Zip Code)
Issuer's telephone number (864) 239-1000
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
a) FOX STRATEGIC HOUSING INCOME PARTNERS
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
March 31, 1996
Assets
Cash and cash equivalents $ 1,736
Investments 2,497
Receivables and other assets 314
Deferred financing costs, net 89
Investment properties:
Land $ 3,119
Buildings and related personal property 17,930
21,049
Less accumulated depreciation (5,332) 15,717
$ 20,353
Liabilities and Partners' Capital (Deficit)
Liabilities
Notes payable $ 8,213
Accrued interest 149
Accrued expenses and other liabilities 292
Partners' Capital (Deficit)
General partners $ (211)
Limited partners (26,111 units outstanding) 11,910 11,699
$ 20,353
<FN>
See Accompanying Notes to Consolidated Financial Statements
b) FOX STRATEGIC HOUSING INCOME PARTNERS
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per assignee unit data)
Three Months Ended
March 31,
1996 1995
Revenues:
Rental $ 739 $ 703
Interest 43 32
Total revenues 782 735
Expenses:
Operating 349 297
Interest 228 257
Depreciation 149 185
General and administrative 86 70
Total expenses 812 809
Net loss $ (30) $ (74)
Net loss allocated to general partner $ (30) $ (1)
Net loss allocated to limited partners -- (73)
Net loss $ (30) $ (74)
Net loss per limited partnership assignee unit $ -- $ (2.80)
Cash distributions per limited
partnership assignee unit $ -- $(15.01)
<FN>
See Accompanying Notes to Consolidated Financial Statements
c) FOX STRATEGIC HOUSING INCOME PARTNERS
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL (DEFICIT)
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited Total
Units Partners Partners Equity
Original capital contributions 26,111 $ -- $ 26,111 $ 26,111
Partners' capital (deficit)
at December 31, 1995 26,111 $ (181) $ 11,910 $ 11,729
Net loss for the three
months ended March 31, 1996 -- (30) -- (30)
Partners' capital (deficit)
at March 31, 1996 26,111 $ (211) $ 11,910 $ 11,699
<FN>
See Accompanying Notes to Consolidated Financial Statements
d) FOX STRATEGIC HOUSING INCOME PARTNERS
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three Months Ended
March 31,
1996 1995
Cash flows from operating activities:
Net loss $ (30) $ (74)
Adjustments to reconcile net loss to cash
provided by operating activities:
Depreciation 149 185
Amortization 10 9
Interest added to note payable principal 69 79
Change in accounts:
Receivables and other assets (137) 44
Accrued expenses and other liabilities 136 (34)
Accrued interest 149 168
Net cash provided by operating activities 346 377
Cash flows from investing activities
Property improvements and replacements (19) (5)
Net cash used in investing activities (19) (5)
Cash flows from financing activities
Cash distributions to partners -- (400)
Net cash used in financing activities -- (400)
Net decrease in cash and cash equivalents 327 (28)
Cash and cash equivalents at beginning of period 1,409 2,246
Cash and cash equivalents at end of period $1,736 $2,218
Supplemental disclosure of noncash investing and
financing activities:
Accrued interest added to note payable
principal $ 425 $ 477
<FN>
See Accompanying Notes to Consolidated Financial Statements
e) FOX STRATEGIC HOUSING INCOME PARTNERS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited financial statements 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.
In the opinion of the Managing General Partner, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month period ended March 31,
1996, are not necessarily indicative of the results that may be expected for the
fiscal year ending December 31, 1996. For further information, refer to the
financial statements and footnotes thereto included in the Partnership's annual
report on Form 10-K for the year ended December 31, 1995.
Certain reclassifications have been made to the 1995 information to conform to
the 1996 presentation.
Note B - Transactions with Affiliated Parties
Fox Strategic Housing Income Partners (the "Partnership") has no employees and
is dependent on NPI Equity Investments II, Inc. ("NPI Equity" or 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.
The following transactions with Insignia Financial Group, Inc. ("Insignia"),
National Property Investors, Inc. ("NPI, Inc."), and affiliates were charged to
expense in 1996 and 1995:
For the Three Months Ended
March 31,
1996 1995
Property management fees (included in operating
expenses) $ 37,000 $ 34,000
Reimbursement for services of affiliates (included
in general and administrative expenses) 46,000 24,000
For the period from January 19, 1996, to March 31, 1996, the Partnership insured
its property 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 current
year's master policy. The current 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.
The general partner received cash distributions of $8,000 during the three
months ended March 31, 1995.
An affiliate of NPI, Inc. was paid a fee of $4,000 relating to a successful real
estate tax appeal on the Partnership's Wood View Apartments during the three
months ended March 31, 1995. This fee is included in operating expenses.
Fox Partners VIII, a California general partnership, is the general partner.
The general partners of Fox Partners VIII are Fox Capital Management Corporation
("FCMC"), a California corporation, and Fox Realty Investors ("FRI"), a
California general partnership.
On December 6, 1993, the shareholders of FCMC entered into a Voting Trust
Agreement with NPI Equity pursuant to which NPI Equity was granted the right to
vote 100 percent of the outstanding stock of FCMC and NPI Equity became the
managing general partner of FRI. As a result, NPI Equity became responsible for
the operation and management of the business and affairs of the Partnership and
the other investment partnerships originally sponsored by FCMC and/or FRI. NPI
Equity is a wholly-owned subsidiary of NPI, Inc. The shareholders of FCMC and
the partners in FRI retain indirect economic interests in the Partnership and
such other investment limited partnerships, but have ceased to be responsible
for the operation and management of the Partnership and such other partnerships.
On August 17, 1995, the stockholders of NPI, Inc. entered into an agreement to
sell to IFGP Corporation, a Delaware corporation, an affiliate of Insignia, a
Delaware corporation, all of the issued and outstanding common stock of NPI,
Inc. for an aggregate purchase price of $1,000,000. The closing of the
transactions contemplated by the above mentioned agreement (the "Closing")
occurred on January 19, 1996.
Upon the Closing, the officers and directors of NPI, Inc., FCMC and the Managing
General Partner resigned and IFGP Corporation caused new officers and directors
of each of those entities to be elected.
Note C - Investments
Securities held-to-maturity and available-for-sale: The Managing General
Partner determines the appropriate classification of debt securities at the time
of purchase and reevaluates such designation as of each balance sheet date.
Debt securities are classified as held-to-maturity when the Partnership has the
positive intent and ability to hold the securities to maturity. Held-to-
maturity securities are stated at amortized cost, adjusted for amortization of
premiums and accretion of discounts to maturity. Such amortization is included
in investment income. Interest on securities classified as held-to-maturity is
included in investment income.
Marketable equity securities and debt securities not classified as held-to-
maturity are classified as available-for-sale. Presently, all of the
Partnership's investments are classified as held-to-maturity. Available-for-
sale securities are carried at fair value, with the unrealized gains and losses,
net of tax, reported in a separate component of partner's capital. The
amortized cost of debt securities in this category is adjusted for amortization
of premiums and accretion of discounts to maturity. Such amortization is
included in investment income. Realized gains and losses and declines in value
judged to be other-than-temporary on available-for-sale securities are included
in investment income. The cost of securities sold is based on the specific
identification method. Interest and dividends on securities classified as
available-for-sale are included in investment income.
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 the three
months ended March 31, 1996 and 1995:
Average
Occupancy
Property 1996 1995
Barrington Place Apartments
Westlake, Ohio 96% 97%
Wood View Apartments
Atlanta, Georgia 95% 96%
The Partnership's net loss for the three months ended March 31, 1996, was
approximately $30,000 versus approximately $74,000 net loss for the same period
of 1995. The decrease in the net loss is primarily attributable to a decrease
in depreciation expense due to approximately $851,000 of fixed assets becoming
fully depreciated in 1995. Also contributing to this change is a decrease in
interest expense resulting from a lower principal balance due to the principal
payment in 1995. Partially offsetting these decreases in net loss was an
increase in operating expenses due to an increase in property tax expense.
Property tax expense increased due to additional payments which were required
when the properties lost their tax appeals. In addition, general and
administrative expenses increased due to increased costs in connection with
personnel in Greenville and Atlanta during the transition of the Managing
General Partner.
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 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, due to changing market
conditions, which can result in the use of rental concessions and rental
reductions to offset softening conditions, there is no guarantee that the
Managing General Partner will be able to sustain such a plan.
At March 31, 1996, the Partnership had unrestricted cash of approximately
$1,736,000 as compared to approximately $2,218,000 at March 31, 1995. Net cash
provided by operating activities decreased primarily as a result of an increase
in receivables and other assets. Offsetting this change is an increase in
accrued expenses and other liabilities due to the prepayment of rent. The
increase in cash used in investing activities is due to an increase in property
improvements and replacements. The decrease in cash used in financing
activities is the result of the Partnership making distributions in the first
quarter of 1995 with no such activity in 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 March 31,
1996, approximately $4,303,000 in accrued interest has been added to the
principal of this note. The Partnership is 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 has generated income
in an amount as defined in the note agreement, it will be 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.) The Partnership anticipates having funds available for the August
1996 payment.
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. Such assets are currently thought
to be sufficient for any near-term needs of the Partnership. Future cash
distributions will depend on the levels of cash generated from operations, a
property sale, and the availability of cash reserves. In addition,
distributions may be limited by the debt repayment discussed above. Cash
distributions paid in 1995 totalled approximately $799,000 with approximately
$400,000 paid in the three months ended March 31, 1995. No cash distributions
were paid during the three months ended March 31, 1996. At this time it appears
that the initial investment objective of capital growth will not be attained and
that limited partners will not receive a return of all of their invested
capital.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibit 27, Financial Data Schedule, is filed as an exhibit to
this report.
b) Reports on Form 8-K:
A Form 8-K dated January 19, 1996, was filed reporting the change
in control of the registrant.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant duly
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
A General Partner
/s/William H. Jarrard, Jr.
William H. Jarrard, Jr.
President and Director
/s/Ronald Uretta
Ronald Uretta
Principal Financial Officer
and Principal Accounting Officer
Date: May 14, 1996