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 September 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, September 30, 2001 and
December 31, 2000 3
Statement of Changes of Net Assets in Liquidation for the
Nine months Ended September 30, 2001 4
Statement of Operations for the Three Months and Nine Months Ended September 30, 2000 5
Statement of Cash Flows for the Nine Months Ended September 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
2
LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
STATEMENT OF NET ASSETS IN LIQUIDATION
(Unaudited) (Audited)
September 30, December 31,
2001 2000
------------- -------------
Assets (Liquidation Basis):
Cash and cash equivalents $449,243 $376,286
Restricted cash 58,696 147,103
Investments in Local Limited Partnerships 109,396 296,910
-------- --------
Total Assets $617,335 $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 -- 3,596
Accrued expenses 216,669 375,250
Interest payable 841 841
-------- --------
Total liabilities 611,979 817,941
-------- --------
Net Assets in Liquidation $ 5,356 $ 2,358
======== ========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
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 September 30, 2001
(Unaudited)
Net Assets in liquidation at December 31, 2000 $ 2,358
Operating Activities
Interest income $ 14,174
--------
Operating Expenses
Purchase Money Note interest - increase in
accrual $ (319)
Other operating expenses (11,161) (11,480)
-------- --------
Sub-total operating activities 2,694
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 September 30, 2001 $ 5,356
=======
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
4
LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
STATEMENT OF OPERATIONS
(Unaudited)
For the Three For the Nine
Months Ended Months Ended
September 30, 2000 September 30, 2000
------------------- --------------------
Interest income $ 3,733 $ 13,899
Expenses:
Interest expense 201,690 560,962
General and administrative expenses:
Affiliates 24,500 73,500
Other 18,011 27,001
----------- -----------
Total expenses 244,201 661,463
----------- -----------
Loss before other income and equity in income of Local
Limited Partnership investments (240,468) (647,564)
Other income:
Gain on sale of investment in Osuna Apartments (1,800) 2,432,299
----------- -----------
Income (loss) before equity in income of Local Limited
Partnership investments (242,268) 1,784,735
Equity in income (loss) of Local Limited Partnership
investments (12,011) 109,599
----------- -----------
Net income (loss) $ (254,279) $ 1,894,334
=========== ===========
Limited partners' interest in net income (loss) $ (251,736) $ 1,875,391
=========== ===========
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 $ (11.67) $ 86.96
=========== ===========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
5
LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP
(A Massachusetts Limited Partnership)
STATEMENT OF CASH FLOWS
(Unaudited)
For the Nine
Months Ended
September 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 (47,567)
Interest received 13,899
-----------
Net cash used in operating activities (27,810)
-----------
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 (49,797)
Estimated state taxes paid from proceeds from sale of
investments in Local Limited Partnerships (211,271)
-----------
Net cash used in investing items (184,494)
-----------
Net decrease in cash and cash equivalents (215,391)
Cash and cash equivalents at:
Beginning of period 526,940
-----------
End of period $ 311,549
===========
(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 Nine
Months Ended
September 30,
2000
-------------
Net income $ 1,894,334
Adjustments to reconcile net income to net cash
provided by operating activities:
Share of income of Local Limited
Partnership investments (109,599)
Cash distributions from Local Limited
Partnerships 129,618
Interest expense added to Purchase Money
Notes, net of discount amortization 440,482
Gain on sale of investment in Local Limited
Partnerships (2,432,299)
(Decrease) increase in:
Accrued interest payable (3,280)
Accounts payable to affiliates 73,499
Accounts payable (1,565)
Accrued expenses (19,000)
-----------
Net cash used in operating activities $ (27,810)
===========
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 $58,696 as of September 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 fourth 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 nine
months ended September 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 September 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. The Purchase
Money Notes for Surry Manor matured on July 9, 2001. These six series Purchase
Money Notes were in default at September 30, 2001.
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
agreements for Surry Manor and Glendale Manor expire in April, 2002 and May
2002, respectively. The agreements for Austintown Associates expired in October,
2001 and the local manager is working with HUD for a one year extension. 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, including notice 99-36, which addresses
project-based Section 8 contracts expiring in fiscal year 2000. In February
2001, HUD issued a new Section 8 Contract Renewal GuideBook, which replaced HUD
notice 99-36.
Under the GuideBook, 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 the
GuideBook.
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 September 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)
September 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 (3,289,654) (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 (352,549) (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 three and nine months ended September 30, 2001 and 2000 are as
follows:
Summarized Statement of Operations (Unaudited)
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
---------------------------- ---------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
Rental and other income $ 621,347 $ 790,367 $ 2,076,276 $ 2,409,534
Expenses:
Operating expenses 422,617 542,891 1,332,435 1,521,499
Interest expense 108,672 143,579 360,923 432,016
Depreciation and amortization 111,556 145,076 367,861 439,605
----------- ----------- ----------- -----------
Total expenses 642,845 831,546 2,061,219 2,393,120
----------- ----------- ----------- -----------
Net income (loss) $ (21,498) $ (41,179) $ 15,057 $ 16,414
----------- ----------- ----------- -----------
Partnership's share of net income (loss) $ (19,510) (40,067) $ 17,728 $ 18,888
----------- ----------- ----------- -----------
Other partners' share
of net income (loss) $ (1,988) $ (1,112) $ (2,671) $ (2,474)
----------- ----------- ----------- -----------
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 nine months ended September 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 Nine
Months ended Months Ended
September 30, September 30,
2000 2000
-------------- --------------
Share of income (loss) in Local Limited Partnership Investments
in the Partnership's Statement of Operations $(12,011) $109,599
Partnership's share of income (loss) in the
above summarized Statement of Operations $(40,067) 18,888
-------- --------
Difference $ 28,056 $ 90,711
======== ========
Unrecorded Losses:
Brierwood, Ltd. 1,491 8,133
Brierwood II, Ltd. 4,344 18,087
Pine Forest Apartments, Ltd. 14,461 32,254
Surry Manor 8,646 17,011
Glendale Manor (498) 6,092
Meadowwood (388) 7,206
-------- --------
Subtotal Unrecorded Losses 28,056 88,783
Cash distributions recorded as investment income:
Glendale Manor -- 1,928
-------- --------
Total $ 28,056 $ 90,711
======== ========
16
LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP
(A Massachusetts Partnership)
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
5. Transactions with Affiliates
In the first nine months of 2000, the Partnership recognized
administrative expenses and management fees owed to the Managing General Partner
of $36,000 and $37,500, respectively. In the third 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 September 30, 2001, accounts payable to affiliates totaling $384,271
represents amounts owed for reimbursements of Partnership administrative
expenses and management fees of $180,000 and $179,771, respectively and amounts
estimated through the liquidation for administrative expenses and management
fees of $12,000 and $12,500, respectively. In the first nine months 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 nine months ended September
30, 2001, as defined in Section 17 of the Partnership Agreement, is as follows:
Interest income $ 14,174
Less: General and administrative expenses (113,555)
---------
Cash from Operations, as defined (99,381)
---------
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 September 30, 2001, six series of the Purchase Money Notes, relating
to Austintown Associates, Meadowwood Ltd., Brierwood Ltd, Pine Forest
Apartments, Ltd., Glendale Manor Apartments and Surry Manor, Ltd. had matured
and were in default. 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
fourth 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 September 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 September 30, 2001, the Partnership had total cash and cash
equivalents of $507,939, including cash reserves of $449,243 and restricted cash
of $58,696 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 $216,669
at September 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 $58,174 and
other operating costs of $14,262.
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 and
Glendale Manor's contracts expire in April 2002 and May 2002, respectively.
Austintown Associates' contract expires in October 2001. The local manager is
working with HUD to extend this agreement for a year. 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,
including notice 99-36, which addresses project-based Section 8 contracts
expiring in fiscal year 2000. In February 2001, HUD issued a new Section 8
Contract Renewal GuideBook, which replaced HUD notice 99-36.
Under the GuideBook, 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 the GuideBook.
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 nine month
periods ended September 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 September 30, 2001, interest income earned on
cash reserves increased to $4,297 from $3,733 in the three months ended
September 30, 2000. For the first nine months of 2001, interest income increased
slightly to $14,174 from $13,899 in the first nine months of 2000. In the three
months ended September 30, 2001, the Partnership incurred additional expenses of
$1,674 versus $42,511 in the three months ended September 30, 2000 and
additional expenses of $11,160 in the first nine months of 2001 versus $100,501
in the first nine months of 2000. The Partnership has not booked interest
expense on the remaining Purchase Money Notes in the first nine months of 2001,
although the associated legal liability has increased. For the three months and
nine months ended September 30, 2000, the Partnership incurred purchase money
note interest of $201,690 and $560,962. 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 (loss) for the three months and nine
months ended September 30, 2000 was $(12,011) and $109,599 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. The Purchase
Money Notes relating to Surry Manor, Ltd. matured on July 9, 2001. These six
series of Purchase Money Notes are now in default. The amounts due at maturity
under these non-recourse obligations consisted of $3,640,000 in aggregate
principal amount and $4,253,892 in accrued and unpaid interest. As of November
1, 2001, the aggregate arrearages under these notes amounted to $8,455,902.
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: November 13, 2001
26