UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR
- - ------ 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 2001
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR
- - ------ 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-12634
CAMBRIDGE + RELATED HOUSING
PROPERTIES LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Massachusetts 13-3161322
- - --------------------------------- -----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
625 Madison Avenue, New York, New York 10022
- - -------------------------------------- --------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212)421-5333
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
-- --
PART I - Financial Information
Item 1. Financial Statements
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
============ ============
May 31, February 28,
2001 2001
------------ ------------
ASSETS
Property and equipment, net of
accumulated depreciation of
$21,567,022 and $25,049,936,
respectively $15,929,910 $19,378,524
Property and equipment-held for
sale, net of accumulated
depreciation of $14,544,286
and $11,301,311, respectively 11,825,300 9,186,060
Cash and cash equivalents 1,379,123 2,477,459
Cash - restricted for tenants'
security deposits 282,552 283,593
Mortgage escrow deposits 5,725,792 5,611,034
Rents receivable 96,549 251,411
Prepaid expenses and other assets 451,989 547,053
------------ ------------
Total assets $35,691,215 $37,735,134
============ ============
2
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
(continued)
============ ============
May 31, February 28,
2001 2001
------------ ------------
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Mortgage notes payable $ 20,530,993 $ 21,211,953
Purchase money notes payable
(Note 2) 20,394,684 20,801,534
Due to selling partners (Note 2) 30,276,329 30,460,518
Accounts payable, accrued expenses
and other liabilities 1,606,743 1,842,834
Tenants' security deposits payable 282,552 283,593
Due to general partners of
subsidiaries and their affiliates 109,282 222,280
Due to general partners and affiliates 1,915,421 1,894,730
Distribution payable 0 516,300
------------ ------------
Total liabilities 75,116,004 77,233,742
------------ ------------
Minority interest 33,610 33,648
------------ ------------
Commitments and contingencies
(Note 5)
Partners' deficit:
Limited partners (38,615,288) (38,688,406)
General partners (843,111) (843,850)
------------ ------------
Total partners' deficit (39,458,399) (39,532,256)
------------ ------------
Total liabilities and partners' deficit $ 35,691,215 $ 37,735,134
============ ============
See Accompanying Notes to Consolidated Financial Statements.
3
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
==============================
Three Months Ended
May 31,
------------------------------
2001 2000
------------------------------
Revenues:
Rentals, net $ 2,952,348 $ 3,506,286
Other 104,373 91,557
Loss on sale
of properties
(Note 4) (68,323) 0
----------- -----------
Total revenues 2,988,398 3,597,843
----------- -----------
Expenses
Administrative and management 880,374 952,967
Administrative and management-
related parties (Note 3) 387,293 406,189
Operating 694,797 589,607
Repairs and maintenance 641,136 889,427
Taxes and insurance 351,726 445,008
Interest 571,949 809,081
Depreciation 288,023 402,444
----------- -----------
Total expenses 3,815,298 4,494,723
----------- -----------
Loss before
minority interest
and extraordinary
item (826,900) (896,880)
Minority interest in
income
of subsidiaries (462) (662)
----------- -----------
Loss before
extraordinary
item (827,362) (897,542)
Extraordinary item-
forgiveness of
indebtedness
income (Note 4) 901,219 0
----------- -----------
Net income (loss) $ 73,857 $ (897,542)
=========== ===========
4
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
(continued)
=============================
Three Months Ended
May 31,
-----------------------------
2001 2000
-----------------------------
Loss before
extraordinary
item - limited
partners $(819,088) $(888,567)
Extraordinary item -
limited partners 892,206 0
--------- ---------
Net income (loss) -
limited partners $ 73,118 $(888,567)
========= =========
Number of limited
Partnership
units outstanding 10,038 10,038
========= =========
Loss before
extraordinary
item per limited
partnership unit $ (81.60) $ (88.52)
Extraordinary item
per limited
partnership unit 88.88 0
--------- ---------
Net income (loss)
per limited
partnership unit $ 7.28 $ (88.52)
========= =========
See Accompanying Notes to Consolidated Financial Statements.
5
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Consolidated Statement of Partners' Deficit
(Unaudited)
==========================================
Limited General
Total Partners Partners
------------------------------------------
Balance-
March 1, 2001 $(39,532,256) $(38,688,406) $(843,850)
Net income -
three months ended
May 31, 2001 73,857 73,118 739
----------- ---------- --------
Balance-
May 31, 2001 $(39,458,399) $(38,615,288) $(843,111)
=========== ========== ========
See Accompanying Notes to Consolidated Financial Statements.
6
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Increase (decrease) in Cash and Cash Equivalents
(Unaudited)
============================
Three Months Ended
May 31,
----------------------------
2001 2000
----------------------------
Cash flows from operating activities:
Net income(loss) $ 73,857 $ (897,542)
---------- ----------
Adjustments to reconcile net income
to net cash provided by
operating activities:
Loss on sale of properties
(Note 4) 68,323 0
Extraordinary item - forgiveness
of indebtedness income (Note 4) (901,219) 0
Depreciation 288,023 402,444
Minority interest in income
of subsidiaries 462 662
Increase in cash-restricted
for tenants' security deposits (3,929) (161)
Decrease (increase) in mortgage
escrow deposits 8,655 (204,233)
Decrease in rents receivable 154,862 9,533
Decrease (increase) in prepaid
expenses and other assets 89,088 (43,485)
Increase in due to selling partners 551,435 569,928
(Decrease) increase in accounts payable,
accrued expenses and other liabilities (326,553) 3,038,424
(Decrease) increase in tenants'
security deposits payable (2,250) 161
Increase in due to general partners
of subsidiaries and their affiliates 92,947 27,830
Decrease in due to general partners of
subsidiaries and their affiliates (112,998) (336)
Increase (decrease) in due to
general partners and affiliates 60,899 (238,594)
---------- ----------
Total adjustments (32,255) 3,562,173
---------- ----------
Net cash provided by
operating activities 41,602 2,664,631
---------- ----------
7
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Increase (decrease) in Cash and Cash Equivalents
(Unaudited)
(continued)
====================================
Three Months Ended
May 31,
--------------------------------------
2001 2000
--------------------------------------
Cash flows from investing activities:
Proceeds from sale of properties 475,000 0
Acquisitions of property and
equipment (127,741) (78,269)
Increase in mortgage escrow deposits (148,020) (91,618)
------------ ------------
Net cash provided by (used in)
investing activities 199,239 (169,887)
------------ ------------
Cash flows from financing activities:
Principal payments of mortgage
notes payable (680,960) (238,952)
Increase in minority interest (500) (134)
Distributions paid to partners (516,300) (1,004,200)
Payments to selling partners (141,417) (1,693,978)
------------ ------------
Net cash used in financing activities (1,339,177) (2,937,264)
------------ ------------
Net decrease in cash and
cash equivalents (1,098,336) (442,520)
------------ ------------
Cash and cash equivalents at
beginning of period 2,477,459 3,431,673
------------ ------------
Cash and cash equivalents at
end of period $ 1,379,123 $ 2,989,153
============ ============
8
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Increase (decrease) in Cash and Cash Equivalents
(Unaudited)
(continued)
===================================
Three Months Ended
May 31,
-----------------------------------
2001 2000
-----------------------------------
Supplemental disclosures of
noncash activities:
Forgiveness of indebtedness
Decrease in purchase money
notes payable $(406,850) $(2,131,500)
Decrease in due to selling partners (494,368) (1,414,478)
Increase in accounts payable,
accrued expenses and
other liabilities 0 3,545,978
Summarized below are the components
of the gain on sale of properties:
Decrease in property and
equipment, net of accumulated
depreciation 649,092 0
Decrease in cash-restricted for
tenants' security deposits 4,970 0
Decrease in mortgage escrow deposits 24,607
Decrease in prepaid expenses and
other assets 5,976 0
Increase in accounts payable, accrued
expenses and other liabilities 90,462 0
Increase in tenants' security
deposits payable 1,209 0
Decrease in due to general
partners of subsidiaries and
their affiliates (92,947) 0
Decrease in due to selling partners (99,838) 0
Decrease in due to general partner
and their affiliates (40,208) 0
See Accompanying Notes to Consolidated Financial Statements.
9
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
May 31, 2001
(Unaudited)
NOTE 1 - GENERAL
The consolidated financial statements for the three months ended May 31, 2001
and 2000, include the accounts of Cambridge + Related Housing Properties Limited
Partnership, a Massachusetts limited partnership (the "Partnership"), and
nineteen and twenty-four Subsidiary Partnerships ("Subsidiaries", "Subsidiary
Partnerships" or "Local Partnerships"), respectively. The Partnership is a
limited partner, with an ownership interest of 98.99% in each of the Subsidiary
Partnerships. Through the rights of the Partnership and/or one of its general
partners (a "General Partner"), which General Partner has a contractual
obligation to act on behalf of the Partnership, the right to remove the local
general partner of the Subsidiary Partnerships and to approve certain major
operating and financial decisions, the Partnership has a controlling financial
interest in the Subsidiary Partnerships.
For financial reporting purposes, the Partnership's fiscal quarter ends on May
31. All Subsidiaries have fiscal quarters ending March 31. Accounts of
Subsidiaries have been adjusted for intercompany transactions from April 1
through May 31. The Partnership's fiscal quarter ends on May 31 in order to
allow adequate time for the Subsidiaries' financial statements to be prepared
and consolidated. The books and records of the Partnership are maintained on the
accrual basis of accounting, in accordance with generally accepted accounting
principles ("GAAP").
All intercompany accounts and transactions have been eliminated in
consolidation.
Increases (decreases) in the capitalization of consolidated Subsidiaries
attributable to minority interest arise from cash contributions from and cash
distributions to the minority interest partners.
Losses attributable to minority interests which exceed the minority interests'
investment in a Subsidiary have been charged to the Partnership. Such losses
aggregated approximately $0 for both the three months ended May 31, 2001 and
2000, respectively. The Partnership's investment in each Subsidiary is equal to
the respec-
10
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
May 31, 2001
(Unaudited)
tive Subsidiary's partners' equity less minority interest capital, if any.
These unaudited financial statements have been prepared on the same basis as the
audited financial statements included in the Partnership's Form 10-K for the
year ended February 28, 2001. In the opinion of the General Partners, the
accompanying unaudited financial statements contain all adjustments (consisting
only of normal recurring adjustments) necessary to present fairly the financial
position of the Partnership as of May 31, 2001, the results of operations and
cash flows for the three months ended May 31, 2001 and 2000. However, the
operating results for the three months ended May 31, 2001 may not be indicative
of the results for the year.
Certain information and note disclosures normally included in financial
statements prepared in accordance with GAAP have been omitted. It is suggested
that these consolidated financial statements should be read in conjunction with
the financial statements and notes thereto included in the Partnership's
February 28, 2001 Annual Report on Form 10-K.
NOTE 2 - PURCHASE MONEY NOTES PAYABLE
Nonrecourse Purchase Money Notes (the "Purchase Money Notes") were issued to the
selling partners of the Subsidiary Partnerships as part of the purchase price,
and are secured only by the Partnership's interest in the Subsidiary Partnership
to which the Purchase Money Note relates.
The Purchase Money Notes, which provide for simple interest, will not be in
default if not less than 60% of the cash flow actually distributed to the
Partnership by the corresponding Subsidiary Partnership (generated by the
operations, as defined) is applied first to accrued interest and then to current
interest thereon. As of May 31, 2001, the maturity dates of the Purchase Money
Notes associated with the remaining properties owned by the Subsidiary
Partnerships were extended for three to five years (see below). Any interest not
paid currently accrues, without further interest thereon, through the extended
due date of each of the Purchase
11
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
May 31, 2001
(Unaudited)
Money Notes, respectively. Continued accrual of such interest without payment
would impact the effective rate of the Purchase Money Notes, specifically by
reducing the current effective interest rate of 9%. The exact effect is not
determinable inasmuch as it depends on the actual future interest payments and
ultimate repayment dates of the Purchase Money Notes. Unpaid interest of
$30,185,739 and $30,335,470 at May 31, 2001 and February 28, 2001, respectively,
has been accrued and is included in the caption due to selling partners. In
general, the interest on and the principal of each Purchase Money Note is also
payable to the extent of the Partnership's actual receipt of proceeds from the
sale or refinancing of the apartment complex, or in some cases the Local
Partnerships interest ("Local Partnership Interest") to which the Purchase Money
Note relates.
The Partnership was permitted to extend the term of the Purchase Money Notes for
up to five additional years. In connection with such extensions, the Partnership
incurred an extension fee of 1/2% per annum of the outstanding principal balance
of the Purchase Money Notes. The Partnership sent an extension notice to each
Purchase Money Note holder that pursuant to the Purchase Money Note, it was
extending the maturity. However in certain cases, the Partnership did not pay
the extension fee at that time, deferring such payment to the future. Extension
fees in the amount of $873,470 were incurred by the Partnership through May 31,
2001. All Purchase Money Notes are now extended with maturity dates ranging from
July 2001 to December 2004. Extension fees of $392,967 were accrued and added to
the Purchase Money Notes balance.
The Partnership expects that upon final maturity it will be required to
refinance or sell its investments in the Local Partnerships in order to pay the
Purchase Money Notes and accrued interest thereon. Based on the historical
operating results of the Local Partnerships and the current economic conditions
including changes in tax laws, it is unlikely that the proceeds from such sales
will be sufficient to meet the outstanding balances. Management is working with
the Purchase Money Note holders to restructure and/or refinance the Purchase
Money Notes. No assurance can be given that management's efforts will be
successful. The Purchase
12
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
May 31, 2001
(Unaudited)
Money Notes are without personal recourse to either the Partnership or any of
its partners and the sellers' recourse, in the event of non-payment, would be to
foreclose on the Partnership's interests in the respective Local Partnerships.
During the three months ended May 31, 2001 and 2000, the Partnership received
cash flow distributions aggregating $36,801 and $43,500, respectively, of which
$22,083 and $26,100 was used to pay interest on the Purchase Money Notes. In
addition, the Partnership received a distribution of proceeds from the sales of
Local Partnerships aggregating $88,378 and $3,461,611 of which $84,877 and
$1,667,877 was used to pay principal and interest on the Purchase Money Notes
during the three months ended May 31, 2001 and 2000, respectively.
NOTE 3 - RELATED PARTY TRANSACTIONS
The costs incurred to related parties for the three months ended May 31, 2001
and 2000 were as follows:
==================================
Three Months Ended
May 31,
----------------------------------
2001 2000
----------------------------------
Partnership management fees (a) $241,953 $241,710
Expense reimbursement (b) 30,458 25,455
Property management fees
incurred to affiliates of
the General Partners (c) 0 28,298
Local administrative fee (d) 4,000 5,000
-------- --------
Total general and administrative-
General Partners 276,411 300,463
-------- --------
Property management fees
incurred to affiliates of the
Subsidiary Partnerships'
general partners (c) 110,882 98,121
Subsidiary Partnerships'
general partners incentive fee (e) 0 7,605
-------- --------
Total general and
administrative-related parties $387,293 $406,189
======== ========
(a) After all other expenses of the Partnership are paid, an annual Partnership
management fee of up to .5% of invested assets is
13
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
May 31, 2001
(Unaudited)
payable to the Partnership's General Partners and affiliates. Partnership
management fees owed to the General Partners amounting to approximately
$1,234,000 and $1,092,000 were accrued and unpaid as of May 31, 2001 and
February 28, 2001, respectively. The General Partners' fees are being paid
currently, other than the Partnership Management fees that were accrued and
continue to be deferred.
(b) The Partnership reimburses the General Partners and their affiliates for
actual Partnership operating expenses incurred by the General Partners and their
affiliates on the Partnership's behalf. The amount of reimbursement from the
Partnership is limited by the provisions of the partnership agreement. Another
affiliate of the General Partners performs asset monitoring for the Partnership.
These services include site visits and evaluations of the Subsidiary
Partnerships' performance.
(c) Property management fees incurred by Local Partnerships to affiliates of the
Local Partnerships amounted to $110,882 and $126,419 for the three months ended
May 31, 2001 and 2000, respectively. Of such fees $0 and $28,298, respectively,
were incurred to a company which is also an affiliate of the General Partners.
(d) Cambridge/Related Housing Associates Limited Partnership, the special
limited partner of each of the Subsidiary Partnerships, owning .01%, is entitled
to receive a local administrative fee of up to $2,500 per year from each
Subsidiary Partnership.
(e) The Partnership entered into an agreement with the local general partner of
Parktowne Ltd. and Westwood Apartment Company Ltd., which provides for an annual
incentive fee based on cash flow distributed from the respective properties.
Such fee amounted to $0 and $7,605 for the three months ended May 31, 2001 and
2000, respectively.
14
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
May 31, 2001
(Unaudited)
NOTE 4 - SALE OF PROPERTIES
GENERAL
The Partnership is currently in the process of winding up its operations and
disposing of its investments. It is anticipated that this process will take a
number of years. As of May 31, 2001, the Partnership has disposed of twenty-six
of its forty-four original investments. Six additional investments are listed
for sale and the Partnership anticipates that the twelve remaining investments
will be listed for sale by December 31, 2002. There may be no assurance as to
when the Partnership will dispose of its last remaining investments or the
amount of proceeds which may be received. However, based on the historical
operating results of the Local Partnerships and the current economic conditions
including changes in tax laws, it is unlikely that the proceeds from such sales
received by the Partnership will be sufficient to return to the limited partners
their original investment.
On January 17, 2000, Rolling Meadows Apartments, Ltd. ("Rolling Meadows")
entered into an agreement for the purchase and sale of real estate with an
unaffiliated third party purchaser for a purchase price of $2,400,000. This
contract was terminated on April 30, 2001. Rolling Meadows entered into a new
agreement for the purchase and sale of real estate to a different unaffiliated
third party purchaser for a purchase price of $2,350,000, which was subsequently
reduced to $1,925,000. The sale is expected to occur in August 2001. No
assurances can be given that the sale will actually occur.
On April 28, 2000, the property and the related assets and liabilities of
Pacific Palms were sold to a third party purchaser for approximately $4,900,000,
resulting in a gain of approximately $2,554,000. The Partnership used
approximately $1,668,000 of the net proceeds to settle the associated Purchase
Money Note and accrued interest thereon which had a total outstanding balance of
approximately $5,214,000, resulting in forgiveness of indebtedness of
approximately $3,546,000. The Partnership netted approximately $1,940,000 of
cash which was placed into working capital to pay Partnership expenses.
15
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
May 31, 2001
(Unaudited)
On March 16, 2001, the property and the related assets and liabilities of
Char-Mur Apartments ("Char-Mur") were sold to an unaffiliated third party
purchaser for $475,000, resulting in a loss in the amount of approximately
$68,000. The Partnership used approximately $85,000 to settle the associated
Purchase Money Note and accrued interest thereon, which had a total outstanding
balance of approximately $986,000, resulting in forgiveness of indebtedness
income of approximately $901,000.
On April 19, 2001, San Diego - Logan Square Gardens Company ("Logan Square")
entered into a purchase and sale agreement to sell the property and the related
assets and liabilities to an unaffiliated third party purchaser for a purchase
price of $9,500,000. The closing is expected to occur in November 2001. No
assurances can be given that the sale will actually occur.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
The following disclosure includes changes and/or additions to disclosures
regarding the Subsidiary Partnership which were included in the Partnership's
Annual Report on Form 10-K for the period ended February 28, 2001.
a) Purchase Money Notes
As part of the purchase price of its investment in the Local Partnerships, the
Partnership issued approximately $61,029,000 of Purchase Money Notes. As of May
31, 2001, unpaid accrued interest on the Purchase Money Notes amounted to
approximately $30,185,739. The principal of and all accrued interest on the
Purchase Money Notes is due at maturity. The Partnership was permitted to extend
the term of the Purchase Money Notes for up to five additional years. In
connection with such extensions, the Partnership incurred an extension fee of
1/2% per annum of the outstanding principal balance of the assets. The
Partnership sent an extension notice to each Purchase Money Note holder that
pursuant to the note, it was extending the maturity. However in certain cases,
the Partnership did not pay the extension fee at that time, deferring such
payment to the future. The holders of the
16
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
May 31, 2001
(Unaudited)
Note could argue that until the fee is paid the Note has not been properly
extended.
b) Legal Proceedings
On or about July 24, 2000, three partnerships controlled by one of the Purchase
Money Note holders commenced litigation in the Circuit Court of Jefferson
County, Alabama against the Partnership, captioned as follows: MOBILE EASTWYCK
III APARTMENTS, LTD. V. SHEARSON + RELATED HOUSING PROPERTIES LIMITED
PARTNERSHIP ET AL., CV-00-4431, MOBILE APARTMENTS, LTD. V. SHEARSON + RELATED
HOUSING PROPERTIES LIMITED PARTNERSHIP ET AL., CV-00-4432, and ZEIGLER PARTNERS
LTD. V. SHEARSON + RELATED HOUSING PROPERTIES LIMITED PARTNERSHIP ET AL.,
CV-00-4433 (collectively, the "Litigations"). The Litigation commenced by Mobile
Apartments, Ltd. has been voluntarily dismissed by the plaintiff in favor of an
interpleader action described below.
The plaintiffs in each of the Litigations sold their interest in certain limited
partnerships to the Partnership. The interests that were sold to the Partnership
consisted of limited partnerships that own low-income housing properties located
in Mobile, Alabama (the "Alabama Limited Partnerships"). The Complaints allege
that, as payment for a portion of the purchase price of the Partnership's
acquired interest in the Alabama Limited Partnership, the plaintiffs took a
Purchase Money Note from the Partnership, and the Partnership pledged its right
title and interest in the Alabama Limited Partnerships as security for the
Purchase Money Notes. The Complaints allege that the Partnership has defaulted
in its obligations under the Purchase Money Notes, and that the plaintiffs are
entitled to sell the Partnership's interests in the Alabama Limited Partnerships
and the underlying property to pay off the Purchase Money Notes.
The Partnership has vigorously contested the Litigations, claiming that, among
other things, the Purchase Money Notes are not in default, that the Purchase
Money Note holder has breached his fiduciary duty to the Partnership as general
partner of the Alabama Limited Partnerships, and that the Purchase Money Note
holder assigned 25% of the Purchase Money Notes to third parties
17
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
May 31, 2001
(Unaudited)
who are not joined in the Litigations. While the Partnership intends to continue
to contest the Litigations, because the Litigations are in their earliest stages
and no discovery has taken place, management is unable at this time to evaluate
the likelihood of an unfavorable outcome or whether the resulting liability, if
any, would have a material adverse effect on the financial condition of the
Partnership.
In or about March 2001, Wallace, Jordan, Ratliff, and Brandt, L.L.C. ("Wallace
Jordan"), as Escrow Agents, commenced an interpleader action in the Circuit
Court of Jefferson County, Alabama entitled WALLACE, JORDAN, RATLIFF, AND
BRANDT, LLC V. SHEARSON + RELATED HOUSING PROPERTIES LIMITED PARTNERSHIP ET AL.,
CV-01-001155 (the "Interpleader Action"). The Interpleader Action seeks to
resolve competing claims to $125,000 which is held in escrow by Wallace Jordan
following the sale of the property known as Southbay, which was owned by the
Local Partnership known as New Jersey, Ltd. The Partnership does not expect to
have any liability as a result of the Interpleader Action because the action
seeks only to resolve the claims of $125,000 paid into Court; however, because
the Interpleader Action is in its earliest stages and no discovery has taken
place, management is unable at this time to evaluate the likelihood of an
unfavorable outcome or whether such an outcome would have a material adverse
effect on the financial condition of the Partnership. The Partnership and the
plaintiffs have recently engaged in meaningful settlement negotiations which the
Partnership is hopeful will lead to a resolution of these litigations.
18
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's primary sources of funds are (i) cash distributions from
operations (ii) cash distributions from sales of the Local Partnerships in which
the Partnership has invested, (iii) interest earned on funds and (iv) cash in
working capital reserves. All of these sources of funds are available to meet
the obligations of the Partnership.
During the three months ended May 31, 2001 and 2000, the Partnership received
cash flow distributions aggregating $36,801 and $43,500, respectively, of which
$22,083 and $26,100, respectively, was used to pay interest on the Purchase
Money Notes. In addition, the Partnership received a distribution of proceeds
from the sales of Local Partnerships aggregating $88,378 and $3,461,611, of
which $84,877 and $1,667,877 was used to pay principal on the Purchase Money
Notes during the three months ended May 31, 2001 and 2000, respectively.
During the three months ended May 31, 2001, cash and cash equivalents of the
Partnership and its nineteen consolidated Local Partnerships decreased
approximately ($1,098,000). This decrease was primarily due to principal
payments of mortgage notes payable ($681,000), an increase in mortgage escrow
deposits ($148,000), distributions paid to partners ($516,000), payments to
selling partners ($141,000), and acquisitions of property and equipment
($128,000) which exceeded cash provided by operating activity ($42,000) and
proceeds from the sale of properties ($475,000). Included in the adjustments to
reconcile the net income to cash provided by operating activities is loss on
sale of properties ($68,000), forgiveness of indebtedness income ($901,000) and
depreciation ($288,000).
The Partnership has a working capital reserve of approximately $833,000 at
May 31, 2001. The working capital reserve is temporarily invested in money
market accounts which can be easily liquidated to meet obligations as they
arise. The General Partners believe that the Partnership's reserves, net
proceeds from future sales and future cash flow distributions will be adequate
for its operating needs, and plan to continue investing available reserves in
short term investments. In March 2001 and 2000, a distribution of approximately
$511,000 and $994,000 and $5,000 and $10,000 was paid to the limited partners
and General Partners, respec-
19
tively, from net proceeds from the sale of properties. None of the total
distributions of approximately $516,000 and $1,004,000 for the three months
ended May 31, 2001, was deemed to be a return of capital in accordance with
GAAP.
Partnership management fees owed to the General Partners amounting to
approximately $1,234,000 and $1,092,000 were accrued and unpaid as of May 31,
2001 and February 28, 2001, respectively. The General Partners' fees are being
paid currently, other than the Partnership management fees that were accrued and
continue to be deferred.
The Local Partnerships that receive government assistance are subject to
low-income use restrictions which limit the owners' ability to sell or refinance
the properties. In order to maintain the existing inventory of affordable
housing, Congress passed a series of related acts including the Emergency Low
Income Preservation Act of 1987, the Low-Income Housing Preservation and
Resident Homeownership Act of 1990 (together the "Preservation Acts") and the
Housing Opportunity Program Extension Act of 1996 (the "1996 Act"). In exchange
for maintaining the aforementioned use restrictions, the Preservation Acts
provided financial incentives for owners of government assisted properties. The
1996 Act provided financial assistance by funding the sale of such properties to
not-for-profit owners and also restores the owners ability to prepay their U.S.
Department of Housing and Urban Development ("HUD") mortgage and convert the
property to condominiums or market-rate rental housing. Local general partners
had filed for incentives under the Preservation Acts or the 1996 Act for the
following local partnerships: San Diego - Logan Square Gardens Company,
Albuquerque - Lafayette Square Apts. Ltd., Westgate Associates Limited,
Riverside Gardens Limited Partnership, Pacific Palms, Canton Commons Associates,
Rosewood Manor Associates, Bethany Glen Associates and South Munjoy Associates,
Limited. As of May 31, 2001, all of these Local Partnerships were sold except
for Logan Square and Lafayette Square. The Preservation Acts have subsequently
been repealed or revoked. The Local General Partner of the Logan Square and
Lafayette Square Properties is currently negotiating purchase and sale
contracts.
For a discussion of Purchase Money Notes payable see Note 2 to the financial
statements.
For a discussion of the Partnership's sale of properties see Note 4 to the
financial statements.
20
For a discussion of contingencies affecting certain Local Partnerships, see Note
5 to the financial statements and Part II, Item 1 of this report. Since the
maximum loss the Partnership would be liable for is its net investment in the
respective Local Partnerships, the resolution of the existing contingencies is
not anticipated to impact future results of operations, liquidity or financial
condition in a material way although the Partnership would lose its entire
investment in the property and any ability for future appreciation.
Management is not aware of any trends or events, commitments or uncertainties
which have not otherwise been disclosed that will or are likely to impact
liquidity in a material way. Management believes the only impact would be from
laws that have not yet been adopted. The portfolio is diversified by the
location of the properties around the United States so that if one area of the
United States is experiencing downturns in the economy, the remaining properties
in the portfolio may be experiencing upswings. However, the geographic
diversifications of the portfolio may not protect against a general downturn in
the national economy.
RESULTS OF OPERATIONS
The results of operations of the Partnership, as well as the Local Partnerships,
remained fairly consistent during the three months ended May 31, 2001 and 2000,
excluding Pacific Palms, Westwood Apartments Company, Ltd., Parktowne, Ltd.,
Westgate Associates, Limited, New Jersey, Ltd. and Char-Mur Apartments, which
sold their properties (collectively the "Sold Assets"), and administrative and
management, operating and repairs and maintenance.
The Partnership's primary source of income continues to be its portion of the
Local Partnerships' operating results. The majority of Local Partnership income
continues to be in the form of rental income with the corresponding expenses
being divided among operations, depreciation, and mortgage interest. In
addition, the Partnership incurred interest expense relating to the Purchase
Money Notes issued when the Local Partnership Interests were acquired.
Rental income decreased approximately 16% for the three months ended May 31,
2001, as compared to 2000. Excluding the Sold Assets, rental income increased
approximately 4%, primarily due to rental rate increases and decreases in
vacancies at several Local Partnerships.
21
Other income increased approximately $13,000 for the three months ended May 31,
2001, as compared to 2000. Excluding the Sold Assets, such income increased
approximately $27,000, primarily due to an increase in interest income on higher
replacement reserve balances at four Local Partnerships.
Total expenses, excluding the Sold Assets, administrative and management,
operating and repairs and maintenance remained fairly consistent with an
increase of approximately 1% for the three months ended May 31, 2001, as
compared to 2000.
Administrative and management decreased approximately 8% for the three months
ended May 31, 2001, as compared to 2000. Excluding the Sold Assets,
administrative and management increased approximately 12%, primarily due to an
increase in legal fees at the Partnership level.
Operating increased approximately 18% for the three months ending Mary 31, 2001,
as compared to 2000. Excluding the Sold Assets, operating increased
approximately 34%, primarily due to an increase in utility costs and usage at
two Local Partnerships.
Repairs and maintenance decreased approximately 28% for the three months ended
May 31, 2001, as compared to 2000. Excluding the Sold Assets, repairs and
maintenance decreased approximately 12%, primarily due to the correction of
deficiencies noted on HUD inspections at two Local Partnerships in 2000.
Taxes and insurance, interest and depreciation expense decreased approximately
($93,000), ($237,000) and ($114,000), respectively, for the three months ended
May 31, 2001, respectively, as compared to 2000, primarily due to decreases
relating to the Sold Assets. Excluding the Sold Assets, taxes and insurance and
interest increased (decreased) approximately ($6,000) and $1,000, respectively,
for the three months ended May 31, 2001 as compared to 2000. Excluding the Sold
Assets, Buena Vista Manor Apartments, Ltd., Zeigler Boulevard, Ltd., Eastwyck
III, Ltd., Rolling Meadows Apartments, Ltd., Wingate Associates, Limited, and
San Diego-Logan Square Gardens Company for depreciation only, depreciation
expense remained fairly consistent with an increase of approximately $2,000 for
the three months ended May 31, 2001 as compared to 2000. These six properties
are not depreciated during the period because they are classified as assets held
for sale.
22
Item 3. Quantitative and Qualitative Disclosures about Market Risk
None
23
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - This information is incorporated by reference in
Note 5 to the Financial Statements.
Item 2. Changes in Securities and Use of Proceeds - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other information - None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27 Financial Data Schedule (filed herewith)
(b) Reports on Form 8-K - No reports on Form 8-K were filed during the
quarter.
24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CAMBRIDGE + RELATED HOUSING
PROPERTIES LIMITED PARTNERSHIP
(Registrant)
By: GOVERNMENT ASSISTED PROPERTIES,
INC., a General Partner
Date: June 29, 2001
By:/s/ Alan P. Hirmes
------------------
Alan P. Hirmes,
President and Principal
Executive and Financial Officer
Date: June 29, 2001
By:/s/ Glenn F. Hopps
------------------
Glenn F. Hopps,
Treasurer and
Principal Accounting Officer
By: RELATED HOUSING PROGRAMS
CORPORATION, a General Partner
Date: June 29, 2001
By:/s/ Alan P. Hirmes
------------------
Alan P. Hirmes,
President and Principal
Executive Financial Officer
Date: June 29, 2001
By:/s/ Glenn F. Hopps
------------------
Glenn F. Hopps,
Treasurer and
Principal Accounting Officer