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 period ended June 30, 2001
[ ] 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 0-13520
LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Massachusetts 04-2828131
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Second Avenue, Needham, MA 02494
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (781) 444-5251
_______________________________________________________________
Former address, if changed from last report
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 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.
[X] Yes [ ] No
Exhibits Index on Page 25
Page 1 of 26
LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
INDEX
Page
Part I: Financial Information
Item 1. Financial Statements:
Statement of Net Assets in Liquidation, June 30, 2001 and
December 31, 2000 3
Statement of Changes of Net Assets in Liquidation for the
Six months Ended June 30, 2001 4
Statement of Operations for the Three Months and Six Months Ended June 30, 2000 5
Statement of Cash Flows for the Six Months Ended June 30, 2000 6-7
Notes to Financial Statements 8-17
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 18-24
Item 3. Quantitative and Qualitative Disclosure about Market Risk -
Disclosure not applicable
Part II: Other Information
Item 3. Defaults Upon Senior Securities 25
Item 6. Exhibits and Reports on Form 8-K 25
2
LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
STATEMENT OF NET ASSETS IN LIQUIDATION
(Unaudited) (Audited)
June 30, December 31,
2001 2000
--------------------- ---------------------
Assets (Liquidation Basis):
Cash and cash equivalents $461,484 $ 376,286
Restricted cash 58,394 147,103
Investments in Local Limited Partnerships 109,396 296,910
--------------------- ---------------------
Total Assets $629,274 $ 820,299
===================== =====================
Liabilities (Liquidation Basis):
Purchase Money Notes and accrued interest liabilities $ 10,198 $ 51,983
Accounts payable to affiliates 384,271 386,271
Accounts payable 6,913 3,596
Accrued expenses 224,317 375,250
Interest payable 841 841
--------------------- ---------------------
Total liabilities 626,540 817,941
--------------------- ---------------------
Net Assets in Liquidation $ 2,734 $ 2,358
===================== =====================
The accompanying notes are an integral part of these financial statements.
3
LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
STATEMENT OF CHANGES OF NET ASSETS IN LIQUIDATION
For the period from January 1, 2001 to June 30, 2001
(Unaudited)
Net Assets in liquidation at December 31, 2000 $ 2,358
Operating Activities
Interest income $ 9,877
------------------
Operating Expenses
Purchase Money Note interest - increase in accrual $ (319)
Other operating expenses (9,486) (9,805)
------------------ ------------------
Sub-total operating activities 72
Liquidating Activities
Increase in investment in Local Limited Partnerships 319
Change in estimated liquidation value
Estimated sales price 148,500
Actual sales price 148,485 (15)
------------------ ------------------
Sub-total liquidating activities 304
------------------
Net Assets in liquidation at June 30, 2001 $ 2,734
==================
The accompanying notes are an integral part of these financial statements.
4
LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
STATEMENT OF OPERATIONS
(Unaudited)
For the Three For the Six
Months Ended Months Ended
June 30, 2000 June 30, 2000
---------------------- ----------------------
Interest income $ 4,408 $ 10,166
Expenses:
Interest expense 176,463 359,271
General and administrative expenses:
Affiliates 24,500 49,000
Other 2,984 8,991
---------------------- ----------------------
Total expenses 203,947 417,262
---------------------- ----------------------
Loss before other income and equity in income of Local Limited
Partnership investments (199,539) (407,096)
Other income:
Gain on sale of investment in Osuna Apartments - 2,434,099
---------------------- ----------------------
Income (loss) before equity in income of Local Limited
Partnership investments (199,539) 2,027,003
Equity in income of Local Limited partnership investments
118,470 121,610
---------------------- ----------------------
Net income (loss) $ (81,069) $2,148,613
====================== ======================
Limited partners' interest in net income (loss) $ (80,258) $2,127,127
====================== ======================
Weighted average number of units outstanding used in
computing basic net income (loss) per limited
partnership unit 21,566 21,566
====== ======
Basic net income (loss) per
Limited partnership unit $ (3.72) $ 98.63
========= ========
The accompanying notes are an integral part of these financial statements.
5
LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
STATEMENT OF CASH FLOWS
(Unaudited)
For the Six Months
Ended June 30, 2000
----------------------
Cash flows from operating activities:
Cash distributions from Local Limited Partnerships $ 129,618
Interest payments on Purchase Money Notes (123,760)
Cash paid for general and administration expenses (27,029)
Interest received 8,090
----------------------
Net cash used in operating activities (13,081)
----------------------
Cash flows from financing activity:
Capital distributions (3,087)
----------------------
Net cash used in financing activities (3,087)
----------------------
Cash flows from investing items:
Cash proceeds from sale of investment in Osuna
Apartments 100,000
Consulting fees (23,426)
Deferred closing costs and reimbursable expenses (31,223)
Estimated state taxes paid from proceeds from sale of investments
in Local Limited Partnerships (211,271)
----------------------
Net cash used in investing items (165,920)
----------------------
Net decrease in cash and cash equivalents (182,088)
Cash and cash equivalents at:
Beginning of period 526,940
----------------------
End of period $ 344,852
======================
(continued)
6
LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
STATEMENT OF CASH FLOWS (continued)
(Unaudited)
Reconciliation of net income to net cash provided by operating activities:
For the Six Months
Ended June 30, 2000
---------------------
Net income $2,148,613
Adjustments to reconcile net income to net cash provided by operating
activities:
Share of income of Local Limited
Partnership investments (121,610)
Cash distributions from Local Limited
Partnerships 129,618
Interest expense added to Purchase Money
Notes, net of discount amortization 238,757
Gain on sale of investment in Local Limited
Partnerships (2,434,099)
(Decrease) increase in:
Interest receivable (2,076)
Accrued interest payable (3,244)
Accounts payable to affiliates 48,998
Accounts payable 962
Accrued expenses (19,000)
-----------
Net cash used in operating activities $ (13,081)
===========
The accompanying notes are an integral part of these financial statements.
7
LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. Organization and Liquidation of the Partnership
Organization
Liberty Housing Partners Limited Partnership (the "Partnership") was
formed under the Massachusetts Uniform Limited Partnership Act on March 20, 1984
for the primary purpose of investing in other limited partnerships which own and
operate government assisted multi-family rental housing complexes (the "Local
Limited Partnerships").
Liquidation and Sale of Investments in Local Limited Partnerships
On March 30, 2001, the Partnership sold its 98% limited partnership
interests in Fuquay-Varina, Oxford Homes and Williamston Homes to the general
partner of these partnerships or his affiliate for $148,485 plus the assumption
of the related Purchase Money Note obligations. The carrying value of these
properties had been adjusted at December 31, 2000 to reflect the actual sales
transactions.
On February 1, 2000, the Partnership sold its 98% interest as a limited
partner (the "Partnership Interest") in Osuna Apartments Company ("Osuna") to
the Sovereign Management Corporation, the company retained by Osuna to manage
its apartment complex (the "Purchaser"). In consideration for the sale of the
Partnership Interest, the Partnership received a net cash purchase price of
$100,000. In connection with the sale, the holders of the Purchase Money Notes
(the "Notes") issued by the Partnership in connection with its acquisition of
the Partnership Interest released the Partnership from all liabilities in
connection with the Notes. After transaction expenses, including $1,800
recognized in the third quarter of 2000, the Partnership recognized a gain of
$2,432,299 on the sale of the investment.
On May 28, 1999, the Partnership sold its interest in Fiddlers Creek
Apartments in exchange for $483,451 in cash and assumption of the Purchase Money
Note obligations. On April 13, 2000, estimated state withholding taxes totaling
$211,271 were paid from the proceeds of the sale of the Partnership's investment
in Fiddlers Creek Apartments. The Partnership subsequently reevaluated this
obligation and applied for a refund of the $211, 271 previously remitted. On
November 7, 2000 the refund was received with interest of $4,659.
On July 15, 1999, the Partnership sold its interest in Linden Park
Associates Limited Partnership in exchange for $395,960 in cash. Linden Park
Associates refinanced their existing debt and also paid in full the principal
and accrued and unpaid interest due the Partnership on their notes totaling
$241,058. In accordance with the Partnership's agreement with the General
Partner of Linden Park Associates (the "Linden GP"), these funds have been
segregated for use to pay the fees and expenses due the Linden GP in connection
with the consulting arrangement described below. Interest earned on these
segregated funds will be available to pay these fees and expenses.
8
LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. Organization and Liquidation of the Partnership, continued
Liquidation and Sale of Investments in Local Limited Partnerships, continued
The Linden GP was engaged in September, 1998 to assist the general partner
to review the Partnership's portfolio, develop a strategy for maximizing the
value of the portfolio and implementing the strategy. The agreement provides for
fees based on the successful implementation of all or part of the strategy
developed which will be paid from the segregated funds discussed above. The
remaining balance of the segregated funds was $58,394 as of June 30, 2001. In
the second quarter of 2001, consulting fees totaling $18,018 were paid to the
Linden GP in respect to Austintown Associates. In the first quarter of 2001, the
consulting fees paid to the Linden GP in respect of the successful sales of the
Partnership's investments in Fuquary-Varina, Oxford Homes and Williamston Homes
totaled $71,723. In 2000, the consulting fees paid to the Linden GP in respect
of the successful sale of the Partnership's investment in Osuna Apartments was
$23,426 and reimbursed expenses totaled $407.
Management entered into negotiations to sell the Partnership's 94%
interests in Brierwood, Brierwood II, Pine Forest and Meadowwood Apartments. The
sale of the Partnership's interests in Brierwood, Pine Forest and Meadowwood
Apartments requires consent from all the related Purchase Money Note holders.
Such consents were requested. The Partnership received unanimous consent from
the Purchase Money Note holders relating to Pine Forest Apartments but did not
receive unanimous consent from the Purchase Money Note holders relating to
Brierwood and Meadowwood Apartments. Accordingly, the transactions could not all
be consummated as proposed. Under the partnership agreements relating to these
investments, Liberty LGP has the right to cause the sale of the partnership's
project. Liberty LGP has agreed to pursue the sale of these four projects and
has caused the respective Local Limited Partnerships to enter into contracts for
sale of the projects. The proposed purchasers are affiliates of the local
general partner in these partnerships. . The Local Limited Partnership would
receive only a nominal cash payment in connection with each sale. The
transactions are not expected to result in any distribution in respect of the
Partnership's interest in these partnerships. Management presently anticipates
the closing of these transactions by the end of 2001.
The Partnership entered into an agreement with the local general partner
of Austintown Associates to sell the Partnership's 98% limited partnership
interest, subject, among other things, to the consent of the related Purchase
Money Note holders. The Partnership did not receive unanimous consent of the
Purchase Money Note holders and the agreement expired on April 1, 2000. On
September 15, 2000 certain of the Purchase Money Note holders commenced an
action in the Court of Common Pleas Mahoning County, Ohio seeking, among other
things, to foreclose upon the Partnership's pledge of its 98% limited
partnership interest in Austintown Associates. The Partnership did not contest
the proceeding and, on February 26, 2001, the Court entered a default judgment
and order appointing a receiver to sell the Partnership's interest in Austintown
Associates to satisfy the judgment. The sale proceeds, after the costs of sale,
will be paid to the Purchase Money Note holders.
9
LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. Organization and Liquidation of the Partnership, continued
Liquidation and Sale of Investments in Local Limited Partnerships, continued
Management commenced discussions with the local manager for Surry Manor,
Ltd. and Glendale Manor Apartments to either purchase the Partnership's
interests in those partnerships or sell the Partnership's projects. The local
manager is now in the process of obtaining market studies for these properties.
No agreement on the transfer of these interests or the sale of these properties
has been reached. The sale of these interests requires unanimous consent of the
Purchase Money Note holders. Under the partnership agreements relating to these
investments, Liberty LGP has the right to cause the sale of these projects.
Management will continue to pursue both options in the third quarter of 2001.
The carrying values of the investments in the Local Limited Partnerships
and the Purchase Money Notes and related accrued interest were adjusted to their
estimated fair values and settlement amounts, respectively, upon adopting the
liquidation basis of accounting (See Note 2).
As discussed above, the Partnership is currently in various stages of
negotiations to sell its interests in the remaining seven Local Limited
Partnerships. If the Partnership is successful in disposing of its remaining
investments, management presently intends to wind up the Partnership's
operations in the fourth quarter of 2001 or the first quarter of 2002.
No assurance can be given that the Partnership will be able to
successfully conclude any of the above transactions. Consequently, the
completion of the liquidation of the Partnership may be different than currently
anticipated.
The net amount, if any, ultimately available for distribution from the
liquidation of the Partnership depends on many unpredictable factors, such as
the amounts realized on the sale of the remaining investments in Local Limited
Partnerships, carrying costs of the assets prior to sale, settlement of claims
and commitments, the amount of revenue and expenses of the Partnership until
completely liquidated and other uncertainties.
2. Significant Accounting Policies
Basis of Presentation
In the opinion of the General Partner, the accompanying unaudited
financial statements contain all normal recurring adjustments necessary to
present fairly the financial statements of the Partnership for the periods
presented. Changes of net assets in liquidation and operating results of any
interim period are not necessarily indicative of the results that may be
expected for a full year. The financial statements do not
10
LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
2. Significant Accounting Policies, continued
Basis of Presentation, continued
include all of the information and footnote disclosures required by accounting
principles generally accepted in the United States of America. These financial
statements should be read in conjunction with the Partnership's audited
financial statements and notes thereto included in the Partnership's annual
report on Form 10-K for the year ended December 31, 2000.
Basis of Accounting
Effective December 31, 2000, the Partnership adopted the liquidation basis
of accounting. Prior to that date, the Partnership recorded results of
operations using the going concern basis of accounting.
The accompanying statements of net assets in liquidation and statement of
changes of net assets in liquidation, reflect the transactions of the
Partnership utilizing liquidation accounting concepts as required by accounting
principles generally accepted in the United States of America. Under the
liquidation basis of accounting, assets are stated at their estimated net
realizable values and liabilities are stated at their anticipated payable
amounts.
The valuation of assets and liabilities necessarily requires estimates and
assumptions, and there are uncertainties in carrying out the dissolution of the
Partnership. The actual values upon dissolution and costs associated therewith
could be higher or lower than the amounts recorded.
The accompanying statement of operations for the three months and six
months ended June 30, 2000 reflects the operations of the Partnership prior to
the adoption of liquidation basis of accounting and prior to the adjustments
required to adopt the liquidation basis of accounting.
Investment in Local Limited Partnerships
Investments in Local Limited Partnerships at June 30, 2001 consist of
investments in seven Local Limited Partnerships which are stated at estimated
liquidation value. Prior to the adoption of liquidation accounting, the
investments in Local Limited Partnerships were accounted for by the equity
method whereby costs to acquire the investments, including cash paid, notes
issued and other costs of acquisition, were capitalized as part of the
investment account. The Partnership's equity in the earnings or losses of each
of the Local Limited Partnerships was reflected as an addition to or reduction
of the respective investment account. The Partnership did not recognize losses,
which reduced its investment account below zero. Cash distributions received
which reduce the investment below zero were recognized as investment income.
11
LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
2. Significant Accounting Policies, continued
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
3. Contingencies
The Purchase Money Notes relating to Austintown Associates, Meadowwood
Ltd, Brierwood Ltd and Pine Forest matured on October 30, 1999. The Purchase
Money Notes relating to Glendale Manor matured on August 29, 2000. These five
series Purchase Money Notes were in default at June 30, 2001. The Purchase Money
Notes for Surry Manor matured on July 9, 2001 and are now also in default.
The sale or other disposition by the Partnership of its interests in the
Local Limited Partnerships, including in connection with a foreclosure of the
pledged security for Purchase Money Note obligations, is likely to result in
recapture of previously claimed tax losses to the Partnership and may have other
adverse tax consequences to the Partnership and to the Limited Partners. Such
recapture may cause some or all of the Limited Partners to have taxable income
from the Partnership without cash distributions from the Partnership with which
to satisfy the tax liability resulting therefrom.
As discussed in Note 1 above, the Partnership is currently in various
stages of negotiations to sell its interests in the remaining seven Local
Limited Partnerships. If the Partnership is successful in disposing of its
remaining investments, management presently intends to wind up the Partnership's
operations in the fourth quarter of 2001 or the first quarter of 2002.
No assurance can be given that the Partnership will be able to
successfully conclude any of the above transactions. Consequently, the
completion of the liquidation of the Partnership may be different than currently
anticipated.
As a result of its investments in the Local Limited Partnerships, the
Partnership is affected by certain risks and uncertainties associated with the
operations of the Properties owned by the Local Limited Partnerships.
12
LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
3. Contingencies, continued
The rents of the Properties, many of which receive rental subsidy
payments, including payments under Section 8 of Title II of the Housing and
Community Development Act of 1974 ("Section 8"), are subject to specific laws,
regulations and agreements with federal and state agencies. The subsidy
agreement for Surry Manor expired in April, 2001. The local manager is working
with HUD for a one year extension. The agreements for Austintown Associates and
Glendale Manor expire in October 2001 and May 2002, respectively. Under the
Multifamily Assisted Housing and Reform and Affordability Act (MAHRAA) of 1997,
as amended, Congress set forth the legislation for a permanent "mark-to-market"
program and provided for permanent authority for the renewal of Section 8
Contracts. Owners with Section 8 contracts expiring after September 30, 1998 are
subject to the provisions of MAHRA. On September 11, 1998, HUD issued an interim
rule to provide clarification for implementation of the mark-to-market program.
Since then, revised guidance has been provided through various HUD housing
notices, most recently HUD housing notice 99-36, which addresses project-based
Section 8 contracts expiring in fiscal year 2000.
Under this notice, project owners have several options for Section 8
contract renewals, depending on the type of project and rent level. Options
include marking rents up to market, renewing other contracts with rents at or
below market, referring projects to the Office of Multifamily Housing Assistance
Restructuring (OMHAR) for mark-to-market or "OMHAR lite" renewals, renewing
contracts that are exempted from referral to OMHAR, renewing contracts for
portfolio re-engineering demonstration and preservation projects, and opting out
of the Section 8 program. Owners must submit their option to HUD at least 120
days before expiration of their contract. Each option contains specific rules
and procedures that must be followed to comply with the requirements of housing
notice 99-36.
As such, each Local Limited Partnership may choose to either opt out of
the Section 8 program, request mortgage restructuring and renewal of the Section
8 contract, or request renewal of the Section 8 contract without mortgage
restructuring. Each option contains a specific set of rules and procedures that
must be followed in order to comply with the requirements of MAHRAA. The
properties are working with HUD to renew their existing contracts for two to
five year periods.
The Partnership cannot reasonably predict legislative initiatives and
governmental budget negotiations, the outcome of which could result in a
reduction in funds available for the various federal and state administered
housing programs including the Section 8 program. Such changes could adversely
affect the future net operating income and debt structure of certain Local
Limited Partnerships currently receiving such subsidy or similar subsidies.
13
LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
4. Investments in Local Limited Partnerships
The Partnership acquired Local Limited Partnership interests in thirteen
Local Limited Partnerships which own and operate government assisted
multi-family housing complexes. As discussed in Note 1 above, the Partnership
has sold six of its investments as of June 30, 2001. The Partnership, as
Investor Limited Partner pursuant to Local Limited Partnership Agreements,
acquired interests ranging from 94% to 98% in the profit or losses from
operations and cash from operations of each of the Local Limited Partnerships.
As discussed above, the Partnership is currently in the process of
liquidating the Partnership and disposing of its remaining investments in the
Local Limited Partnerships presently estimated to occur through the fourth
quarter of 2001 or first quarter of 2002. No assurance can be given that
management will be able to complete its liquidation of Partnership's investments
within this time period.
The following is a summary of cumulative activity for investments in Local
Limited Partnerships since their dates of acquisition:
(Unaudited) (Audited)
June 30, December 31,
2001 2000
------------------------- -----------------------
Total acquisition cost to the Partnership $ 9,356,379 $ 9,356,379
Additional capital contributed by the Partnership 11,425 11,425
Partnership's share of losses of Local Limited Partnerships (3,375,022) (3,444,200)
Cash distributions received from Local Limited Partnerships (4,199,256) (4,199,256)
Cash distributions received from Local Limited
Partnerships recognized as Investment Income 95,195 95,195
Sales of investments in Local Limited Partnerships (1,512,144) (1,035,518)
Adjustment to reduce investments in Local Limited Partnerships
to liquidation accounting basis (267,181) (487,115)
------------------------- -----------------------
Investments in Local Limited Partnerships $ 109,396 $ 296,910
========================= =======================
14
LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
4. Investments in Local Limited Partnerships, continued
Summarized financial information from the combined financial statements of
the ten Local Limited Partnerships in which the Partnership held investments
during the six months ended June 30, 2001 is as follows:
Summarized Statement of Operations (Unaudited)
For the Three Months Ended June 30, For the Six Months Ended June 30,
-------------------------------------------- -----------------------------------------
2001 2000 2001 2000
--------------------- ------------------- ------------------ -------------------
Rental and other income $ 621,156 $ 847,309 $ 1,454,929 $ 1,619,168
Expenses:
Operating expenses 385,931 458,079 909,818 978,608
Interest expense 108,672 143,579 252,251 288,437
Depreciation and amortization 111,556 144,423 256,305 294,530
--------------------- ------------------- ------------------ -------------------
Total expenses 606,159 746,081 1,418,374 1,561,575
--------------------- ------------------- ------------------ -------------------
Net income (loss) $ 14,997 $ 101,228 $ 36,555 $ 57,593
--------------------- ------------------- ------------------ -------------------
Partnership's share of net income (loss) $ 15,382 $ 101,431 $ 37,238 $ 58,955
--------------------- ------------------- ------------------ -------------------
Other partners' share
of net income (loss) $ (385) $ (203) $ (683) $ (1,362)
--------------------- ------------------- ------------------ -------------------
15
LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
4. Investments in Local Limited Partnerships, continued
The difference between the Partnership's share of income in Local Limited
Partnership investments in the Partnership's Statement of Operations for the
three months ended and six months ended June 30, 2000 and the share of loss in
the above Summarized Statement of Operations consists of the Partnership's
unrecorded share of losses and cash distributions recorded as investment income
as follows:
For the Three For the Six
Months ended Months Ended
June 30, 2000 June 30, 2000
--------------------- ---------------------
Share of income in Local Limited Partnership Investments
in the Partnership's Statement of Operations $ 118,470 $ 121,610
Partnership's share of income in the
above summarized Statement of Operations $ 101,431 58,955
--------------------- ---------------------
Difference $ 17,039 $ 62,655
===================== =====================
Unrecorded Losses:
Brierwood, Ltd. (205) 6,642
Brierwood II, Ltd. 8,008 13,743
Pine Forest Apartments, Ltd. 7,933 17,793
Surry Manor 786 8,365
Glendale Manor 21,328 6,590
Meadowwood (1,811) 7,594
--------------------- ---------------------
Subtotal Unrecorded Losses 17,039 60,729
Cash distributions recorded as investment income:
Glendale Manor - 1,928
--------------------- ---------------------
Total $ 17,039 $ 62,655
===================== =====================
16
LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP
(A Massachusetts Partnership)
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
5. Transactions with Affiliates
In the first six months of 2000, the Partnership recognized administrative
expenses and management fees owed to the Managing General Partner of $24,000 and
$25,000, respectively. In the second quarter of 2000, $12,000 and $12,500,
respectively of these fees were recognized.
In connection with the adoption of the liquidation basis of accounting, an
adjustment to record estimated liabilities through the liquidation of $100,000
was recorded at December 31, 2000. This amount included $50,000 of partnership
management fees and $50,000 of reimbursable administration expenses. At June 30,
2001, accounts payable to affiliates totaling $384,271 represents amounts owed
for reimbursements of Partnership administrative expenses and management fees of
$168,000 and $167,271, respectively and amounts estimated through the
liquidation for administrative expenses and management fees of $24,000 and
$25,000, respectively. In the first half of 2001, there were no management fees
to the General Partner recognized in addition to the estimate through
liquidation recorded at December 31, 2000 and estimated administrative expenses
through liquidation were reduced by $2,000.
6. Statement of Distributable Cash from Operations
Distributable Cash From Operations for the six months ended June 30, 2001,
as defined in Section 17 of the Partnership Agreement, is as follows:
Interest income $ 9,877
Less: General and administrative expenses (80,732)
-------------
Cash from Operations, as defined (70,855)
-------------
Distributable Cash from Operations, as defined $ 0
=============
17
LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP
(A Massachusetts Partnership)
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
Because of the progress which had been made during 2000 in connection with
the Partnership's efforts to liquidate its portfolio of investments in Local
Limited Partnerships, effective December 31, 2000, the Partnership adopted the
liquidation basis of accounting. Prior to that date, the Partnership recorded
results of operations using the going concern basis of accounting.
Under the liquidation basis of accounting, assets are stated at their
estimated net realizable values and liabilities are stated at their anticipated
settlement amounts. The valuation of assets and liabilities necessarily requires
many estimates and assumptions, and there are substantial uncertainties in
carrying out the liquidation of the Partnership's assets. The actual values upon
liquidation and costs associated therewith could be higher or lower than the
amounts recorded. In connection with the liquidation, the Partnership has
recorded an accrual for additional expenses to reflect the Partnership's best
estimate of the costs associated with the liquidation.
Liquidity and Capital Resources
The Partnership
The Partnership is liable for the amount of the Purchase Money Notes
delivered to purchase its interests in the Local Limited Partnerships (as
hereinafter described), and for the Partnership's day-to-day administrative and
operating expenses.
The Partnership acquired its interests in two Local Limited Partnerships
for cash. The Partnership acquired its interests in eleven other Local Limited
Partnerships by delivery of cash, short-term promissory notes (all of which have
been paid in full) and purchase money promissory notes which bear interest at
the rate of 9% per annum (the "Purchase Money Notes"). The payment of each
Purchase Money Note is secured by a pledge of the Partnership's interest in the
Local Limited Partnership to which the note relates. Recourse on each Purchase
Money Note is limited to the pledged partnership interest. Each note had an
initial term of 15 to 17 years. The Partnership's interests in these Local
Limited Partnerships were pledged as security for the Partnership's obligations
under the respective Purchase Money Notes.
In May 1999, the Partnership sold its interest in Fiddlers Creek
Apartments and the purchaser assumed the Partnership's obligations under the
related Purchase Money Notes. In July 1999, the Partnership sold its interest in
Linden Park Associates. Linden Park Associates refinanced their existing debt
and also paid in full the principal and accrued and unpaid interest due the
Partnership on their notes. In February 2000, the Partnership sold its interest
in Osuna Apartments Company and the holders of the Purchase Money Notes released
the Partnership from all liabilities in connection with the Notes. On March 30,
2001, the Partnership sold its interest in Fuquay-Varina, Oxford Homes and
Williamston Homes and the purchaser assumed the Partnership obligations under
the related Purchase Money Notes.
18
LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP
(A Massachusetts Partnership)
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources, continued
The Partnership, continued
At June 30, 2001, five series of the Purchase Money Notes, relating to
Austintown Associates, Meadowwood Ltd., Brierwood Ltd, Pine Forest Apartments,
Ltd. and Glendale Manor Apartments, had matured and were in default. The
remaining series of Purchase Money Notes, relating to Surry Manor, Ltd., matured
on July 9, 2001. None of the series of Purchase Money Notes is cross-defaulted
to the others, nor are the series of Purchase Money Notes cross-collateralized
in any manner.
The terms of each Purchase Money Note permit interest to accrue to the
extent cash distributions to the Partnership from the applicable Local Limited
Partnership are insufficient to enable the Partnership to pay the Purchase Money
Note on a current basis. Generally, the amount of such cash distributions have
not been sufficient in any year to pay the full amount of interest accrued for
that year on the Purchase Money Notes. The Purchase Money Notes do not require
payment of any portion of the principal amount of the note prior to maturity
(except that the Purchase Money Notes require immediate payment following a
default (as defined therein) by the Partnership thereunder). Accordingly, each
Purchase Money Note requires a substantial balloon payment at maturity. In
connection with the adoption of the liquidation basis of accounting, the value
shown for the Purchase Money Notes was adjusted to the anticipated settlement
amount and no further interest accruals will be recorded.
The sale or other disposition by the Partnership of its interests in the
Local Limited Partnerships, including in connection with a foreclosure of the
pledged security, is likely to result in recapture of previously claimed tax
losses to the Partnership and may have other adverse tax consequences to the
Partnership and to the Unit holders. Such recapture may cause some or all of the
Unit holders to have taxable income from the Partnership without cash
distributions from the Partnership with which to satisfy the tax liability
resulting therefrom.
On March 30, 2001, the Partnership sold its 98% limited partnership
interests in Fuquay-Varina, Oxford Homes and Williamston Homes to the general
partner of these partnerships or his affiliate for $148,485 plus the assumption
of the related Purchase Money Note obligations. The carrying value of these
properties had been adjusted at December 31, 2000 to reflect the actual sales
transactions.
On February 1, 2000, the Partnership sold its 98% interest as a limited
partner (the "Partnership Interest") in Osuna Apartments Company ("Osuna") to
the Sovereign Management Corporation, the company retained by Osuna to manage
its apartment complex (the "Purchaser"). In consideration for the sale of the
Partnership Interest, the Partnership received a net cash purchase price of
$100,000. In connection with the sale, the holders of the Purchase Money Notes
(the "Notes") issued by the Partnership in connection with its acquisition of
the Partnership Interest released the Partnership from all liabilities in
connection with the Notes. After transaction expenses, including $1,800
recognized in the third quarter of 2000, the Partnership recognized a gain of
$2,432,299 on the sale of the investment.
19
LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP
(A Massachusetts Partnership)
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources, continued
The Partnership, continued
On May 28, 1999, the Partnership sold its interest in Fiddlers Creek
Apartments in exchange for $483,451 in cash and assumption of the Purchase Money
Note obligations. On April 13, 2000, estimated state withholding taxes totaling
$211,271 were paid from the proceeds of the sale of the Partnership's investment
in Fiddlers Creek Apartments. The Partnership subsequently reevaluated this
obligation and applied for a refund of the $211, 271 previously remitted. On
November 7, 2000 the refund was received with interest of $4,659.
On July 15, 1999, the Partnership sold its interest in Linden Park
Associates Limited Partnership in exchange for $395,960 in cash. Linden Park
Associates refinanced their existing debt and also paid in full the principal
and accrued and unpaid interest due the Partnership on their notes totaling
$241,058. In accordance with the Partnership's agreement with the General
Partner of Linden Park Associates (the "Linden GP"), these funds have been
segregated for use to pay the fees and expenses due the Linden GP in connection
with the consulting arrangement described below. Interest earned on these
segregated funds will be available to pay these fees and expenses.
Management entered into negotiations to sell the Partnership's 94%
interests in Brierwood, Brierwood II, Pine Forest and Meadowwood Apartments. The
sale of the Partnership's interests in Brierwood, Pine Forest and Meadowwood
Apartments requires consent from all the related Purchase Money Note holders.
Such consents were requested. The Partnership received unanimous consent from
the Purchase Money Note holders relating to Pine Forest Apartments but did not
receive unanimous consent from the Purchase Money Note holders relating to
Brierwood and Meadowwood Apartments. Accordingly, the transactions could not be
consummated as proposed. Under the partnership agreements relating to these
investments, Liberty LGP has the right to cause the sale of the partnership's
project. Liberty LGP has agreed to pursue the sale of these four projects and
has caused the respective Local Limited Partnerships to enter into contracts for
sale of the projects. The proposed purchasers are affiliates of the local
general partner in these partnerships. The Local Limited Partnership would
receive only a nominal cash payment in connection with each sale. The
transactions are not expected to result in any distribution in respect of the
Partnership's interest in these partnerships. Management presently anticipates
the closing of these transactions by the end of 2001.
The Partnership entered into an agreement with the local general partner
of Austintown Associates to sell the Partnership's 98% limited partnership
interest, subject, among other things, to the consent of the related Purchase
Money Note holders. The Partnership did not receive unanimous consent of the
Purchase Money Note holders and the agreement expired on April 1, 2000. On
September 15, 2000 certain of the Purchase Money Note holders commenced an
action in the Court of Common Pleas Mahoning County, Ohio seeking, among other
things, to foreclose upon the Partnership's pledge of its 98% limited
partnership interest in Austintown Associates. The Partnership did not contest
the proceeding and, on February 26, 2001, the Court
20
LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP
(A Massachusetts Partnership)
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources, continued
The Partnership, continued
entered a default judgment and order appointing a receiver to sell the
Partnership's interest in Austintown Associates to satisfy the judgment. The
sale proceeds, after the costs of sale, will be paid to the Purchase Money Note
holders
Management commenced discussions with the local manager for Surry Manor,
Ltd. and Glendale Manor Apartments to either purchase the Partnership's
interests in those partnerships or sell the Partnership's projects. The local
manager is now in the process of obtaining market studies and appraisals for
these properties. No agreement on the transfer of these interests or the sale of
these properties has been reached. The sale of these interests requires
unanimous consent of the Purchase Money Note holders. Under the partnership
agreements relating to these investments, Liberty LGP has the right to cause the
sale of these projects. Management will continue to pursue both options in the
third quarter of 2001.
As discussed above, the Partnership is currently in various stages of
negotiations to sell its interests in the remaining seven Local Limited
Partnerships. If the Partnership is successful in disposing of its remaining
investments, management presently intends to wind up the Partnership's
operations in the fourth quarter of 2001 or the first quarter of 2002.
No assurance can be given that the Partnership will be able to
successfully conclude any of the above transactions. Consequently, the
completion of the liquidation of the Partnership may be different than currently
anticipated.
The net amount, if any, ultimately available for distribution from the
liquidation of the Partnership depends on many unpredictable factors, such as
the amounts realized on the sale of the remaining investments in Local Limited
Partnerships, carrying costs of the assets prior to sale, settlement of claims
and commitments, the amount of revenue and expenses of the Partnership until
completely liquidated and other uncertainties.
In light of the Partnership's adoption of the liquidation basis of
accounting, the Partnership's net asset values as of June 30, 2001 and December
31, 2000 reflect the net realizable values for the Investments in Local Limited
Partnerships after giving effect to the estimated closing costs upon sale or
disposal of the investments. In addition, an estimated liability was recorded
for estimates of costs to be incurred in carrying out the dissolution and
liquidation of the Partnership. These costs include estimated legal fees,
accounting fees, tax return preparation and partnership administration. Actual
costs could vary significantly from these estimated costs due to uncertainties
related to the length of time required to complete the liquidation and
dissolution of the Partnership and unanticipated events which may arise in
disposing of the Partnership's remaining assets.
21
LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP
(A Massachusetts Partnership)
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources, continued
The Partnership, continued
At June 30, 2001, the Partnership had total cash and cash equivalents of
$519,878, including cash reserves of $461,484 and restricted cash of $58,394 as
compared to total cash at December 31, 2000 of $523,389, including cash reserves
of $376,286 and restricted cash of $147,103. Cash reserves increased primarily
as the result of $148,485 proceeds from the sale of the Partnership's interests
in Fuquay-Varina, Oxford Homes and Williamston Homes. Restricted cash decreased
as a result of costs paid relating to the sale of the Partnership's investments.
Accounts payable and accrued expenses decreased to a total of $231,230 at
June 30, 2001 from $378,846 at December 31, 2000. The decrease was primarily the
result of payment of consulting fees relating to the sale of the Partnership's
investments of $89,741, legal and accounting fees of $56,224 and other operating
costs of $1,651.
The Local Limited Partnerships.
The liquidity of the Local Limited Partnerships in which the Partnership has
invested is dependent on the ability of the respective Local Limited
Partnerships, which own and operate government assisted multi-family rental
housing complexes, to generate cash flow sufficient to fund operations and debt
service and to maintain working capital reserves. Each of the Local Limited
Partnerships is regulated by government agencies which require monthly funding
of certain operating and capital improvements reserves and which regulate the
amount of cash to be distributed to owners. Each Local Limited Partnership's
source of funds is rental income received from tenants and government subsidies.
Certain of the Local Limited Partnerships receive rental income pursuant to
Section 8 rental assistance contracts. Surry Manor's contract expired in April
2001. The local manager is working with HUD to extend this agreement for a year.
Austintown Associates and Glendale Manor's contracts expire in October 2001 and
May 2002, respectively. Under the Multifamily Assisted Housing and Reform and
Affordability Act (MAHRAA) of 1997, as amended, Congress set forth the
legislation for a permanent "mark-to-market" program and provided for permanent
authority for the renewal of Section 8 Contracts. Owners with Section 8
contracts expiring after September 30, 1998 are subject to the provisions of
MAHRAA. On September 11, 1998, HUD issued an interim rule to provide
clarification of the implementation of the mark-to-market program. Since then,
revised guidance has been provided through various HUD housing notices, most
recently HUD housing notice 99-36, which addresses project-based Section 8
contracts expiring in fiscal year 2000.
Under this notice, project owners have several options for Section 8
contract renewals, depending on the type of project and rent level. Options
include marking rents up to market, renewing other contracts with rents at or
below market, referring projects to the Office of Multifamily Housing Assistance
Restructuring
22
LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP
(A Massachusetts Partnership)
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources, continued
The Local Limited Partnerships, continued
(OMHAR) for mark-to-market or "OMHAR lite" renewals, renewing contracts that are
exempted from referral to OMHAR, renewing contracts for portfolio re-engineering
demonstration and preservation projects, and opting out of the Section 8
program. Owners must submit their option to HUD at least 120 days before
expiration of their contract. Each option contains specific rules and procedures
that must be followed to comply with the requirements of housing notice 99-36.
As such, each Local Limited Partnership may choose to either opt out of
the Section 8 program, request mortgage restructuring and renewal of the Section
8 contract, or request renewal of the Section 8 contract without mortgage
restructuring. Each option contains a specific set of rules and procedures that
must be followed in order to comply with the requirements of MAHRAA. The
properties are working with HUD to renew their existing contracts for two to
five year periods.
The Partnership cannot reasonably predict legislative initiatives and
governmental budget negotiations, the outcome of which could result in a
reduction in funds available for the various federal and state administered
housing programs including the Section 8 program. Such changes could adversely
affect the future net operating income and debt structure of certain Local
Limited Partnerships currently receiving such subsidy or similar subsidies.
The Local Limited Partnerships are impacted by inflation in several ways.
Inflation allows for increases in rental rates generally reflecting the impact
of higher operating and replacement costs. Inflation also affects the Local
Limited Partnerships adversely by increasing operating costs such as utilities
and salaries.
As discussed above, the Partnership is currently in various stages of
negotiations to sell its interests in the remaining seven local limited
partnerships. If the Partnership is successful in disposing of its remaining
seven investments, management presently intends to wind up the Partnership's
operations in the fourth quarter of 2001 or the first quarter of 2002.
Each of the Local Limited Partnerships has incurred mortgage indebtedness.
The mortgage loans provide for equal monthly payments of principal and interest
in amounts, which will reduce the principal amount of the loans to zero at
maturity. Each of the maturity dates of the respective mortgages is
substantially beyond the due date of the Purchase Money Note obligations.
Upon a sale of a property by a Local Limited Partnership the mortgage
indebtedness of such property must be satisfied prior to distribution of any
funds to the partners in the Local Limited Partnership.
23
LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP
(A Massachusetts Partnership)
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources, continued
Partnership Operations
Because the Partnership adopted the liquidation basis of accounting on
December 31, 2000, the results of operations for the three month and six month
periods ended June 30, 2001 are not presented. Instead, the Partnership's
operating results have been reflected on the statement of changes of net assets
in liquidation and reflect changes from the estimated net realizable values of
assets and anticipated payable amounts of liabilities previously recorded.
In the three months ended June 30, 2001, interest income earned on cash
reserves increased slightly to $4,995 from $4,408 in the three months ended June
30, 2000. For the first six months of 2001, interest income decreased slightly
to $9,877 from $10,166 in the first six months of 2000. In the three months
ended June 30, 2001 the Partnership incurred additional expenses of $7,371
versus $27,484 in the three months ended June 30, 2000 and additional expenses
of $9,486 in the first half of 2001 versus $57,991 in the first half of 2000.
The Partnership has not booked interest expense on the remaining Purchase Money
Notes in the first six months of 2001, although the associated legal liability
has increased. For the three months and six months ended June 30, 2000 the
Partnership incurred purchase money note interest of $176,463 and $359,271.
Under the liquidation basis of accounting, the carrying value of the Purchase
Money Notes and accrued interest has been written down to the anticipated
payable amounts. On March 30, 2001, the Partnership sold its interest in
Fuquay-Varina, Oxford Homes and Williamston Homes. These sales transactions did
not vary materially from previously recorded amounts. The Partnership's equity
in income for the three months and six months ending June 30, 2000 was $118,470
and $121,610, respectively.
24
PART II
Other Information
Item 3. Defaults Upon Senior Securities.
The Purchase Money Notes relating to Austintown Associates, Meadowwood
Ltd, Brierwood Ltd and Pine Forest matured on October 30, 1999. The Purchase
Money Notes relating to Glendale Manor matured on August 29, 2000. These five
series of Purchase Money Notes are now in default. The amounts due at maturity
under these non-recourse obligations consisted of $3,280,000 in aggregate
principal amount and $3,833,453 in accrued and unpaid interest. As of August 1,
2001, the aggregate arrearages under these notes amounted to $7,591,673.
The Purchase Money Notes relating to Surry Manor, Ltd. matured on July 9,
2001 and are now also in default. The amounts due at maturity under these
non-recourse obligations consisted of $360,000 in aggregate principal amount and
$420,439 in accrued and unpaid interest. As of August 1, 2001, the aggregate
arrearages under these notes amounted to $782,329.
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K
On April 13, 2001, the Partnership filed a Current Report on form 8-K to
report the disposition on March 30, 2001 of its limited partner interests in
Oxford Homes for the Elderly, Ltd., Williamston Homes for the Elderly, Ltd. and
Fuquay-Varina Homes for the Elderly, Ltd. The Current Report was amended on June
1, 2001 to supply pro forma financial information.
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.
LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP
By: TNG Properties Inc.
Managing General Partner
By: /s/ Michael A. Stoller
Michael A. Stoller
President and CEO
By: TNG Properties Inc.
Managing General Partner
By: /s/ Wilma R. Brooks
Wilma R. Brooks
Chief Financial Officer
Date: 8/3/01