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 August 31, 1996
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 (I.R.S. Employer Identification No.)
of incorporation or organization)
625 Madison Avenue, New York, New York 10022
- - ---------------------------------------- ---------
(Address of principal executive offices) (ZipCode)
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
Item 1. Financial Statements
CAMBRIDGE + RELATED HOUSING PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
August 31, February 29,
1996 1996*
------------ ------------
Property and equipment, net of accumulated depreciation of
$81,153,220 and $80,440,482, respectively $106,101,778 $111,663,787
Cash and cash equivalents 4,502,783 4,277,246
Certificates of deposit 200,483 255,000
Cash - restricted for tenants' security deposits 1,139,969 1,155,455
Mortgage escrow deposits 8,490,616 7,969,001
Rents receivable 272,478 288,143
Prepaid expenses and other assets 1,049,290 961,020
------------ ------------
Total assets $121,757,397 $126,569,652
============ ============
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Mortgage notes payable $ 68,235,917 $ 71,832,854
Purchase money notes payable (Note 2) 59,729,115 61,029,115
Due to selling partners (Note 2) 63,972,942 62,562,415
Accounts payable, accrued expenses and other liabilities 6,436,229 6,333,269
Tenants' security deposits payable 1,139,969 1,155,455
Due to general partners of subsidiaries and
their affiliates (Note 3) 1,004,137 998,268
Due to general partners and affiliates (Note 3) 3,087,536 2,989,870
------------ ------------
Total liabilities 203,605,845 206,901,246
Minority interest 70,652 76,347
------------ ------------
Commitments and contingencies (Note 6)
Partners' deficit:
Limited partners (80,651,378) (79,155,331)
General partners (1,267,722) (1,252,610)
------------ ------------
Total partners' deficit (81,919,100) (80,407,941)
------------ ------------
Total liabilities and partners' deficit $121,757,397 $126,569,652
============ ============
*Reclassified for comparative purposes
See accompanying notes to consolidated financial statements.
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CAMBRIDGE + RELATED HOUSING PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
August 31, August 31,
-------------------------- ----------------------------
1996 1995 1996 1995
----------- ----------- ------------ ------------
Revenues
Rentals, net $ 7,466,372 $ 7,462,427 $ 14,913,050 $ 14,767,754
Other 290,643 238,858 488,912 439,313
----------- ----------- ------------ ------------
Total revenues 7,757,015 7,701,285 15,401,962 15,207,067
----------- ----------- ------------ ------------
Expenses
Selling and renting 124,527 114,941 239,904 220,500
Administrative and management 1,263,063 1,129,425 2,424,385 2,279,611
Administrative and management-
related parties (Note 3) 482,345 455,730 956,753 924,015
Operating 1,261,902 1,106,042 2,671,767 2,499,795
Repairs and maintenance 2,083,083 2,027,828 3,809,052 3,630,735
Taxes and insurance 1,090,449 995,269 2,045,728 1,940,535
Interest 2,041,653 2,132,118 4,156,547 4,289,063
Depreciation 1,624,559 1,635,937 3,262,035 3,267,763
----------- ----------- ------------ ------------
Total expenses 9,971,581 9,597,290 19,566,171 19,052,017
----------- ----------- ------------ ------------
(2,214,566) (1,896,005) (4,164,209) (3,844,950)
Minority interest in (income)
loss of subsidiaries 875 (60) 1,464 (188)
----------- ----------- ------------ ------------
Loss before extraordinary items (2,213,691) (1,896,065) (4,162,745) (3,845,138)
Extraordinary item-gain on sale of
property and equipment (Note 5) 1,574,533 0 1,574,533 0
Extraordinary item-forgiveness of
indebtedness income (Note 5) 1,077,053 0 1,077,053 0
----------- ----------- ------------ ------------
Net income (loss) $ 437,895 $(1,896,065) $ (1,511,159) $ (3,845,138)
=========== =========== ============ ============
See accompanying notes to consolidated financial statements.
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CAMBRIDGE + RELATED HOUSING PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF PARTNERS' DEFICIT
(Unaudited)
Total Limited General
Partners Partners
------------ ------------ -----------
Balance - March 1, 1996 $(80,407,941) $(79,155,331) $(1,252,610)
Net loss - six months ended August 31, 1996 (1,511,159) (1,496,047) (15,112)
------------ ------------ -----------
Balance - August 31, 1996 $(81,919,100) $(80,651,378) $(1,267,722)
============ ============ ===========
See accompanying notes to consolidated financial statements.
-4-
CAMBRIDGE + RELATED HOUSING PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(Unaudited)
Six Months Ended
August 31
--------------------------
1996 1995
----------- -----------
Cash flows from operating activities:
Net loss $(1,511,159) $(3,845,138)
----------- -----------
Adjustments to reconcile net loss to net cash
provided by operating activities:
Extraordinary item-gain on sale of property and equipment (Note 5) (1,574,533) 0
Extraordinary item-forgiveness of indebtedness income (Note 5) (1,077,053) 0
Depreciation 3,262,035 3,267,763
Minority interest in (loss) income of subsidiaries (1,464) 188
Decrease (increase) in cash-restricted for tenants' security deposits 15,486 (34,189)
Increase in mortgage escrow deposits (521,615) (199,456)
Decrease (increase) in rents receivable 15,665 (9,039)
Increase in prepaid expenses and other assets (88,270) (90,966)
Increase in due to selling partners 2,718,022 2,746,310
Increase (decrease) in accounts payable, accrued expenses and other liabilities 102,960 (133,381)
(Decrease) increase in tenants' security deposits payable (15,486) 34,189
Increase (decrease) in due to general partners of subsidiaries and their affiliates 5,869 (113,286)
Increase in due to general partners and affiliates 97,666 49,594
----------- -----------
Total adjustments 2,939,282 5,517,727
----------- -----------
Net cash provided by operating activities 1,428,123 1,672,589
----------- -----------
Cash flows provided by (used in) investing activities:
Decrease in certificates of deposit 54,517 0
Net proceeds from sale of property and equipment 4,399,813 0
Acquisitions of property and equipment (525,306) (377,515)
----------- -----------
Net cash provided by (used in) investing activities 3,929,024 (377,515)
----------- -----------
Cash flows used in financing activities:
Principal payments of mortgage notes payable (3,596,937) (960,002)
Payments to selling partners (302,501) (398,840)
Decrease in minority interest (4,231) (6,781)
Principal payment of purchase money notes payable (1,227,941) 0
----------- -----------
Net cash used in financing activities (5,131,610) (1,365,623)
----------- -----------
See accompanying notes to consolidated financial statements.
-5-
CAMBRIDGE + RELATED HOUSING PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(Unaudited)
Six Months Ended
August 31
--------------------------
1996 1995
----------- -----------
Net increase (decrease) in cash and cash equivalents 225,537 (70,549)
Cash and cash equivalents at beginning of period 4,277,246 4,176,820
---------- ----------
Cash and cash equivalents at end of period $4,502,783 $4,106,271
========== ==========
Supplemental disclosures of noncash financing activities:
Forgiveness of indebtedness:
Decrease in purchase money notes payable (72,059) 0
Decrease in due to selling partners (1,004,994) 0
See accompanying notes to consolidated financial statements.
-6-
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1996
(Unaudited)
NOTE 1 - General
The consolidated financial statements include the accounts of Cambridge
+ Related Housing Properties Limited Partnership, a Massachusetts limited
partnership (the OPartnershipO) and 44 subsidiary partnerships one of which only
has activity through the date of sale of its property on June 3, 1996 (see Note
4). The Partnership is the sole limited partner, with an ownership interest of
98.99% in each of the subsidiary partnerships. Through the rights of the
Partnership and/or the General Partner, which General Partner has a contractual
obligation to act on behalf of the Partnership, to remove the general partner of
the subsidiary local partnerships and to approve certain major operating and
financial decisions, the Partnership has a controlling financial interest in the
subsidiary local partnerships.
The Partnership's fiscal quarter ends August 31. All subsidiaries have
fiscal quarters ending June 30. Accounts of the subsidiary partnerships have
been adjusted for intercompany transactions from July 1 through August 31.
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 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 $6,400 and $4,500 and $10,600 and $8,900 for the
three and six months ended August 31, 1996 and 1995, respectively. The
Partnership's investment in each subsidiary is equal to the respective
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 29, 1996. 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 August 31, 1996,
the results of operations for the three and six months ended August 31, 1996 and
1995 and cash flows for the six months ended August 31, 1996 and 1995. However,
the operating results for the six months ended August 31, 1996 may not be
indicative of the results for the year.
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Asset and for Long-Lived Assets to Be Disposed Of".
Under SFAS No. 121, the Partnership is required to review long-lived assets and
certain identifiable intangibles for impairment whenever events or changes in
circumstances indicate that the book value of an asset may not be recoverable.
An impairment loss should be recognized whenever the review demonstrates that
the book value of a long-lived asset is not recoverable. Effective March 1,
1996, the Partnership adopted SFAS No. 121, consistent with the required
adoption period.
Property and equipment are carried at the lower of depreciated cost or
estimated amounts recoverable through future operations and ultimate disposition
of the property. Cost includes the purchase price, acquisition fees and
expenses, and any other costs incurred in acquiring the properties. As required
by SFAS 121, a provision for loss on impairment of assets is recorded when
estimated amounts recoverable through future operations and sale of the property
on an undiscounted basis are below depreciated cost. However, depreciated cost,
adjusted for such reductions in value, if any, may be greater than the fair
value. Property investments themselves are reduced to
-7-
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1996
(Unaudited)
NOTE 1 - General
estimated fair value (generally using discounted cash flows) when the property
is considered to be impaired and the depreciated cost exceeds estimate fair
value. Through August 31, 1996, the Partnership has not recorded any provisions
for loss on impairment of assets or reduction to estimated fair value.
Certain information and note disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
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 29, 1996 Annual Report on Form 10-K.
NOTE 2 - Purchase Money Notes Payable
Nonrecourse purchase money notes in the original amount of $61,029,115
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 note relates. On June 3, 1996 the property
owned by Roper Mountain Apartments Ltd. was sold to an unaffiliated third party
and a portion of the net proceeds were used to settle the associated purchase
money note and accrued interest thereon (see Note 4).
The purchase money notes, which provide for simple interest at the rate
of 9% per annum through maturity, which will occur during the period July 1998
to December 1999, will not be in default during the basic term (generally
fifteen years) 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. Any interest not paid currently accrues, without further
interest thereon, through the due date of the note. All accrued and unpaid
interest must be paid on the due date of the note, unless the Partnership
exercises an extension right.
The Partnership may elect, upon the payment of an extension fee of
1 1/2% per annum of the outstanding principal amount, to extend the term of the
purchase money note for up to five additional years. The Partnership may also
defer payment of any accrued and unpaid interest until the due date of the note.
Management is working with the selling partners to restructure and/or refinance
the notes. The sellers' recourse, in the event of non-payment would be to
foreclose on the Partnership's interests in the respective local partnerships.
Distributions aggregating $584,713 (which includes $80,546 held in
escrow for expenses relating to refinancings or sales) and $664,734 were made to
the Partnership for the six months ended August 31, 1996 and 1995, of which
$302,500 and $398,840, respectively, was used to pay interest on the purchase
money notes. Continued accrual of such interest without payment, would impact
the effective rate of the notes. The impact would be to reduce the effective
interest rate of 9%. The exact effect is not determinable inasmuch as it is
dependent on the actual future interest payments and ultimate repayment dates of
the notes. Unpaid interest of approximately $63,848,000 and $62,437,000 at
August 31, 1996 and February 29, 1996, respectively, has been accrued and is
included in the caption due to selling partners.
-8-
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1996
(Unaudited)
NOTE 3 - Related Party Transactions
The costs incurred to related parties for the three and six months
ended August 31, 1996 and 1995 were as follows:
Three Months Ended Six Months Ended
August 31, August 31,
------------------- -------------------
1996 1995 1996 1995
-------- -------- -------- --------
Partnership management
fees (a) $ 30,412 $ 29,662 $ 60,825 $ 59,325
Expense reimbursement (b) 50,440 25,750 109,863 68,655
Property management fees (c) 395,493 394,318 773,065 783,035
Local administrative fee (d) 6,000 6,000 13,000 13,000
-------- -------- -------- --------
$482,345 $455,730 $956,753 $924,015
======== ======== ======== ========
(a) After all other expenses of the Partnership are paid, an annual
partnership management fee of up to .5% of invested assets is payable to the
Partnership's general partners and affiliates.
(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 partnership's performance.
(c) Property management fees incurred by Local Partnerships to
affiliates of the Local Partnerships amounted to $395,493 and $394,318 and
$773,065 and $783,035 for the three and six months ended August 31, 1996 and
1995, respectively. Of such fees $80,477 and $78,109 and $158,371 and $154,728
were incurred to a company which is also an affiliate of the Related General
Partner.
(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.
NOTE 4 - Property and Equipment
On June 3, 1996 the property owned by Roper Mountain Apartments Ltd.
was sold to an unaffiliated third party for $4,735,000 resulting in net proceeds
of $2,106,520 to the Partnership after payment of the HUD mortgage and fees and
expenses of the sale. The Partnership's investment in Roper Mountain Apartments
Ltd. ("Roper Mountain") at June 3, 1996 was $531,987 resulting in a gain of
$1,574,533. The Partnership used $1,227,941 of the net proceeds to settle the
associated purchase money note and accrued interest which had a total
outstanding balance of $2,304,994 resulting in forgiveness of indebtedness
income of $1,077,053. Therefore the entire gain realized by the Partnership from
this transaction is $2,651,586. The balance of the proceeds amounting to
$878,579 are currently being held in an interest bearing escrow account for the
benefit of the Partnership. For tax purposes, the entire gain realized by the
Partnership is anticipated to be approximately $4,600,000.
-9-
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1996
(Unaudited)
NOTE 5 - Extraordinary Items
On June 3, 1996 the property owned by Roper Mountain Apartments Ltd.
was sold to an unaffiliated third party resulting in a gain on sale of property
and equipment of $1,574,533 and forgiveness of indebtedness income of $1,077,053
(see Note 4).
NOTE 6 - Commitments and Contingencies
The following disclosures include changes and/or additions to
disclosures regarding the subsidiary partnerships which were included in the
Partnership's Annual Report on Form 10-K for the period ended February 29, 1996.
a) Events of Default
Two subsidiary partnerships continue to be in default of their
original mortgage agreements with aggregate delinquent payments of principal and
interest approximating $3,056,000 and $2,907,000 at August 31, 1996 and February
29, 1996, respectively. Until November 1995, both subsidiary partnerships
operated under a provisional workout agreement with HUD. On November 1, 1995,
the mortgage note of Oklahoma City - Town & Country Village Apartments ("Town
and Country") was sold to a conventional mortgagee. During November 1995, the
mortgage note of Caddo Parish - Villas South ("Villas South") was also sold to a
conventional mortgagee. The auditors for the subsidiary partnerships modified
their reports for the 1995, 1994 and 1993 Fiscal Years due to the uncertainty of
the ability of the subsidiary partnerships to continue in existence. Villas
South and Town and Country are in the process of trying to renegotiate the terms
of the notes with the new mortgage holders, but there can be no assurance that
the renegotiation will be successful. In the interim, Villas South is continuing
to make payments to the new mortgage holder under the provisions of the previous
workout agreement with HUD. Town & Country had been making payments under the
provisions of the previous workout agreement with HUD, however in February 1996
payments were suspended until management can negotiate new terms with the
mortgagee. The Partnership's investment in these two subsidiary partnerships was
approximately $504,000 and $739,000 at August 31, 1996 and February 29, 1996,
respectively, and the minority interest balance was zero at each date. The net
loss after minority interest for these two subsidiary partnerships amounted to
approximately $133,000 and $134,000 and $235,000 and $266,000 for the three and
six months ended August 31, 1996 and 1995, respectively.
Another subsidiary partnership, Los Caballeros Apartments ("Los
Caballeros"), received formal notice from the Secretary of the Department of
Housing and Urban Development ("HUD") that, as a result of deficiencies sited
upon a physical inspection of the property, the complex is in violation of their
regulatory agreement and their Housing Assistance Payment ("HAP") Contracts. Los
Caballeros does not have the working capital necessary to cover the costs to
cure the deficiencies. In addition, one of Los Caballeros' three HAP contracts
was not renewed upon the contract's expiration on November 30, 1995. The
auditors for Los Caballeros modified their report for the 1995 Fiscal Year due
to the uncertainty of the ability of Los Caballeros to continue in existence.
Management of Los Caballeros is now working on securing a commercial loan to
cover the cost of physical improvements. HUD has indicated they would be willing
to increase existing contract rents to cover the cost of debt service on a
second mortgage. The Partnership's investment in Los Caballeros was
approximately $431,000 and $539,000 at August 31, 1996 and February 29, 1996,
respectively, and the minority interest balance was zero at each date. The net
loss after minority interest for Los Caballeros amounted to approximately
$80,000 and $48,000 and $108,000 and $83,000 for the three and six months ended
August 31, 1996 and 1995, respectively.
-10-
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1996
(Unaudited)
NOTE 6 - Commitments and Contingencies (continued)
b) Certificate of Deposit
The Partnership has a Certificate of Deposit in the amount of
$70,483 at August 31, 1996 to secure an overdraft in Town and Country's bank
account. The amount of the overdraft was approximately $76,000 at June 30, 1996.
c) Other Restricted Cash
In addition, the Partnership and/or its subsidiary partnerships may
from time to time use a portion of their cash or property to secure operating
credit lines. As of August 31, 1996, $130,000 of the Partnership's funds have
been so pledged to secure operating credit lines at seven subsidiary
partnerships.
d) Sales of Subsidiary Partnerships
The general partners of one subsidiary partnership, Westgate
Associates, Limited ("Westgate"), have signed an option agreement to sell the
project to the Vermont Housing Finance Agency subject to HUD approval and other
contingencies, on or before December 31, 1998. The Partnership's investment in
Westgate was approximately $811,000 at August 31, 1996. Westgate's assets
constituted approximately 2% of the consolidated total assets at August 31,
1996.
The Partnership entered into negotiations to sell South Munjoy
Associates, Limited for a sales price of approximately $3,000,000. The net
proceeds will be used to satisfy the existing mortgage debt of approximately
$2,500,000. The balance of the proceeds will be used to settle the purchase
money notes and accrued interest with the balance, if any, available for general
partnership purposes.
NOTE 7 - Subsequent Events
Rolling Meadows of Chickasha, Ltd.
----------------------------------
Rolling Meadows of Chickasha ("Chickasha"), a subsidiary partnership,
had previously filed a petition under Chapter 11 of the Bankruptcy Code
("Chapter 11") which had been dismissed. HUD notified Chickasha that it intended
to commence foreclosure proceedings. Chickasha was in default and under HUD
control as a mortgagee in possession. On September 5, 1996 the Partnership's
limited partnership interest in Chickasha was sold to a third party for $75,000
resulting in no net proceeds to the Partnership after payment of fees and
expenses of the sale. The Partnership's investment in Chickasha at September 5,
1996 was a deficit of approximately $2,400,000 resulting in a gain of
$2,400,000. No proceeds were used to settle the associated purchase money note
and accrued interest which had a total outstanding balance of $1,700,000
resulting in forgiveness of indebtedness income of $1,700,000. In addition,
voluntary noninterest bearing loans in the amount of approximately $100,000
which were made by the Partnership from its working capital reserve were
forgiven, resulting in additional forgiveness of indebtedness income of
$100,000. Therefore the entire gain realized by the Partnership from this
transaction is anticipated to be approximately $4,200,000. For financial
reporting purposes, this transaction will be reflected in the financial
-11-
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1996
(Unaudited)
NOTE 7 - Subsequent Events (continued)
statements in the third quarter coinciding with Chickasha's fiscal quarter which
includes the date of sale. For tax purposes, the entire gain realized by the
Partnership is anticipated to be approximately $2,000,000.
Oakland-Keller Plaza
--------------------
On September 17, 1996 the property owned by Oakland-Keller Plaza was
sold to an unaffiliated third party for approximately $8,800,000 resulting in
net proceeds of $6,600,000 to the Partnership after payment of the HUD mortgage
and fees and expenses of the sale. The Partnership's investment in
Oakland-Keller Plaza ("Keller Plaza") at September 17, 1996 was approximately
$2,000,000 resulting in a gain of $4,600,000. The Partnership used approximately
$3,300,000 of the net proceeds to settle the associated purchase money note and
accrued interest which had a total outstanding balance of $4,100,000 resulting
in forgiveness of indebtedness income of $800,000. Therefore the entire gain
realized by the Partnership from this transaction is anticipated to be
approximately $5,400,000. The balance of the proceeds amounting to approximately
$3,300,000 will be held in an interest bearing escrow account for the benefit of
the Partnership. For financial reporting purposes, this transaction will be
reflected in the financial statements in the third quarter coinciding with
Keller Plaza's fiscal quarter which includes the date of sale. For tax purposes,
the entire gain realized by the Partnership is anticipated to be approximately
$8,100,000.
-12-
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Liquidity and Capital Resources
- - -------------------------------
The Partnership's capital has been invested primarily in forty-four
subsidiary partnerships (the "Local Partnerships" or "subsidiary partnerships").
As of December 1984, the Partnership had completed its cash investment of
approximately $36,638,000 (including expenses) in the Local Partnerships (the
"Local Partnership Interests"). On June 3, 1996 and September 17, 1996 the
properties owned by two of the Local Partnerships were sold to unaffiliated
third parties and on September 5, 1996 the Partnership's interest in another
Local Partnership was sold to an affiliate (see below).
During the six months ended August 31, 1996, cash and cash equivalents
of the Partnership and its 44 consolidated Local Partnerships (including the
activity through the date of sale for one which sold its property on June 3,
1996) increased approximately $226,000. This increase was primarily due to cash
provided by operating activities ($1,428,000), proceeds from sale of property
and equipment ($4,400,000) and a decrease in certificates of deposit ($55,000)
which exceeded principal payments of mortgage notes and purchase money notes
payable ($4,825,000), payments to selling partners ($303,000) and acquisitions
of property and equipment ($525,000).
The Partnership's primary sources of funds are (i) cash distributions
from operations of the Local Partnerships in which the Partnership has invested,
(ii) interest earned on funds and (iii) working capital reserves. All of these
sources of funds are available to meet the obligations of the Partnership.
During the six months ended August 31, 1996 and 1995, the Partnership
received cash flow distributions from operations of the Local Partnerships of
approximately $585,000 (which includes approximately $81,000 held in escrow for
expenses relating to refinancings or sales) and $665,000, respectively, of which
approximately $303,000 and $399,000, respectively, was used to pay interest on
the related Local Partnership purchase money notes. In general, 60% of cash flow
distributions are required to be applied to interest payments; the balance used
to fund Partnership expenses.
The Partnership had a working capital reserve of approximately
$1,194,000 and $308,000 at August 31, 1996 and February 29, 1996, respectively,
of which approximately $200,000 and $255,000, respectively, was restricted to
secure an overdraft in Town and Country's bank account and to secure operating
credit lines at seven other Local Partnerships. The working capital reserve is
temporarily invested in bank certificates of deposits or 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 for 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.
As part of the purchase price of its investment in the Local
Partnerships, the Partnership issued approximately $61,029,000 of Purchase Money
Notes. The typical Purchase Money Note has a basic term of fifteen years
(maturities range from July 1998 to December 1999), subject to certain possible
extensions as described below; provided, however, that the Purchase Money Note,
as it may have been extended from time to time, will mature in any event upon
the sale or refinancing of the Apartment Complex or in the event that the Local
Partnership Interest has been sold by the Partnership prior thereto, in twenty
years from issuance. The sale of the properties owned by two Local Partnerships
on June 3, 1996 and September 17, 1996 and the sale of the Partnership's
interest in another Local Partnership on September 5, 1996 resulted in the
settlement of the three associated purchase money notes and accrued interest
thereon (see below).
Interest on each Purchase Money Note is payable at the rate of 9% per
annum. A Purchase Money Note will not be in default during the basic
fifteen-year term if not less than 60% of the cash flow actually distributed to
the Partnership by the corresponding Local Partnership (generated by the
operations of its Apartment Complex) is applied first to accrued interest and
then to current interest thereon. Any interest not paid currently shall accrue,
without further interest thereon, through the fifteenth year. All accrued and
unpaid interest must be paid in full at the end of the fifteenth year, unless
the Partnership exercises an extension right.
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The obligation to pay the Purchase Money Note is on a non-recourse
basis to any General or Limited Partner but payment thereof is secured by a
pledge under the purchase, sale and security agreement of the related Local
Partnership Interest. The payee has the right to foreclose on the related Local
Partnership Interest in the event that any payment on the Purchase Money Note is
not paid when due or if the Partnership is otherwise in default thereunder.
At August 31, 1996, unpaid accrued interest on the Purchase Money Notes
amounted to approximately $63,848,000. The principal of and all accrued interest
on the Purchase Money Notes is due at maturity, which will occur during the
period July 1998 to December 1999. The Partnership may elect, upon the payment
of an extension fee of 1 1/2% per annum of the outstanding principal amount, to
extend the term of the Purchase Money Notes for up to five additional years. The
cash distributions out of which the Partnership pays interest on the Purchase
Money Notes is less than the total interest thereon, and it is expected that
accrued and unpaid interest on the Purchase Money Notes will continue to
increase. The Partnership expects that upon 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 uncertain as to whether the proceeds from
such sales will be sufficient to meet the outstanding balances. Management is
working with the selling partners to restructure and/or refinance the notes. The
sellers recourse, in the event of non-payment would be to foreclose on the
Partnerships interests in the respective local partnerships.
The Local Partnerships which receive government assistance are subject
to low-income use restrictions which limited 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 OPreservation
ActsO) 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 provides financial assistance by funding the
sale of such properties to not-for-profit owners and also restores the owners
ability to prepay their HUD mortgage and convert the property to condominiums or
market-rate rental housing . Local General Partners have 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, a Limited
Partnership, Pacific Palms, a Limited Partnership, Canton Commons Associates,
Rosewood Manor Associates, Bethany Glen Associates, and South Munjoy Associates,
Ltd. The South Munjoy Associates, Ltd. property is under contract for sale to a
private owner. The local general partners of the other properties are either
negotiating purchase and sale contracts or exploring their alternatives under
the 1996 Act.
Funding for the 1996 Act is subject to appropriations by Congress.
Congress funded $624 million in fiscal year 1996 for the preservation of
housing. Congress has funded approximately $325 million for preservation for
1997 Fiscal Year. Moreover only $175 million of the 1997 allocation is available
to fund preservation, the balance is set aside for rental assistance payments
and for special projects. There is a backlog of properties having a preservation
value of in excess of $900 million. Accordingly, no assurance can be given that
any of the Local Partnerships will obtain such incentives.
HUD previously released the American Community Partnerships Act (the
"ACPA"). The ACPA is HUD's blueprint for providing for the nation's housing
needs in an era of static or decreasing budget authority.
Two key proposals in the ACPA that could affect the Local Partnerships
are: a discontinuation of project based Section 8 subsidy payments and an
attendant reduction in debt on properties that were supported by the Section 8
payments.
The ACPA calls for a transition during which the project based Section
8 would be converted to a tenant based voucher system. Any FHA insured debt
would then be "marked-to-market", that is revalued in light of the reduced
income stream, if any.
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Several industry sources have already commented to HUD and Congress
that in the event the ACPA was fully enacted in its present form the reduction
in mortgage indebtedness would be considered taxable income to limited partners
in the Partnership. Legislative relief has been proposed to exempt
"marked-to-market" debt from cancellation of indebtedness income treatment.
Though HUD initially backed away from the "marked-to-market" proposal, it has
now been re-introduced as "Portfolio Restructuring". Additionally, in the
interim, HUD has agreed to annual extensions of any expiring project based
Section 8 contracts.
The Partnership entered into negotiations to sell South Munjoy
Associates, Limited for a sales price of approximately $3,000,000. The net
proceeds will be used to satisfy the existing mortgage debt of approximately
$2,500,000. The balance of the proceeds will be used to settle the purchase
money notes and accrued interest with the balance, if any, available for general
partnership purposes. Additionally, another Local Partnership has signed an
option agreement to sell its property to the Local Housing Authority subject to
HUD approval on or before December 31, 1998.
On June 3, 1996 the property owned by Roper Mountain Apartments Ltd.
was sold to an unaffiliated third party for $4,735,000 resulting in net proceeds
of $2,106,520 to the Partnership after payment of the HUD mortgage and fees and
expenses of the sale. The Partnership's investment in Roper Mountain Apartments
Ltd. ("Roper Mountain") at June 3, 1996 was $531,987 resulting in a gain of
$1,574,533. The Partnership used $1,227,941 of the net proceeds to settle the
associated purchase money note and accrued interest which had a total
outstanding balance of $2,304,994 resulting in forgiveness of indebtedness
income of $1,077,053. Therefore the entire gain realized by the Partnership from
this transaction is $2,651,586. The balance of the proceeds amounting to
$878,579 are currently being held in an interest bearing escrow account for the
benefit of the Partnership. For tax purposes, the entire gain realized by the
Partnership is anticipated to be approximately $4,600,000.
On September 5, 1996 the Partnership's limited partnership interest in
Chickasha was sold to an affiliate for $75,000 resulting in no net proceeds to
the Partnership after payment of fees and expenses of the sale. The
Partnership's investment in Chickasha at September 5, 1996 was a deficit of
approximately $2,400,000 resulting in a gain of $2,400,000. No proceeds were
used to settle the associated purchase money note and accrued interest which had
a total outstanding balance of $1,700,000 resulting in forgiveness of
indebtedness income of $1,700,000. In addition, voluntary noninterest bearing
loans in the amount of approximately $100,000 which were made by the Partnership
from its working capital reserve were forgiven, resulting in additional
forgiveness of indebtedness income of $100,000. Therefore the entire gain
realized by the Partnership from this transaction is anticipated to be
approximately $4,200,000. For financial reporting purposes, this transaction
will be reflected in the financial statements in the third quarter coinciding
with Chickasha's fiscal quarter which includes the date of sale. For tax
purposes, the entire gain realized by the Partnership is anticipated to be
approximately $2,000,000.
On September 17, 1996 the property owned by Oakland-Keller Plaza was
sold to an unaffiliated third party for approximately $8,800,000 resulting in
net proceeds of $6,600,000 to the Partnership after payment of the HUD mortgage
and fees and expenses of the sale. The Partnership's investment in
Oakland-Keller Plaza ("Keller Plaza") at September 17, 1996 was approximately
$2,000,000 resulting in a gain of $4,600,000. The Partnership used approximately
$3,300,000 of the net proceeds to settle the associated purchase money note and
accrued interest which had a total outstanding balance of $4,100,000 resulting
in forgiveness of indebtedness income of $800,000. Therefore the entire gain
realized by the Partnership from this transaction is anticipated to be
approximately $5,400,000. The balance of the proceeds amounting to approximately
$3,300,000 will be held in an interest bearing escrow account for the benefit of
the Partnership. For financial reporting purposes, this transaction will be
reflected in the financial statements in the third quarter coinciding with
Keller Plaza's fiscal quarter which includes the date of sale. For tax purposes,
the entire gain realized by the Partnership is anticipated to be approximately
$8,100,000.
For a discussion of contingencies affecting certain Local Partnerships,
see Note 6 to the financial statements. 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.
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Except as described above, management is not aware of any trends or
events, commitments or uncertainties that will 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 country 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
- - ---------------------
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Asset and for Long-Lived Assets to Be Disposed Of".
Under SFAS No. 121, the Partnership is required to review long-lived assets and
certain identifiable intangibles for impairment whenever events or changes in
circumstances indicate that the book value of an asset may not be recoverable.
An impairment loss should be recognized whenever the review demonstrates that
the book value of a long-lived asset is not recoverable. Effective March 1,
1996, the Partnership adopted SFAS No. 121, consistent with the required
adoption period.
Property and equipment are carried at the lower of depreciated cost or
estimated amounts recoverable through future operations and ultimate disposition
of the property. Cost includes the purchase price, acquisition fees and
expenses, and any other costs incurred in acquiring the properties. As required
by SFAS 121, a provision for loss on impairment of assets is recorded when
estimated amounts recoverable through future operations and sale of the property
on an undiscounted basis are below depreciated cost. However, depreciated cost,
adjusted for such reductions in value, if any, may be greater than the fair
value. Property investments themselves are reduced to estimated fair value
(generally using discounted cash flows) when the property is considered to be
impaired any the depreciated cost exceeds estimate fair value. Through August
31, 1996, the Partnership has not recorded any provisions for loss on impairment
of assets or reduction to estimated fair value.
The results of operations of the Partnership, as well as the Local
Partnerships, excluding extraordinary items, remained fairly constant during the
three and six months ended August 31, 1996 and 1995. Contributing to the
relatively stable operations at the Local Partnerships is the fact that a large
portion of the Local Partnerships are operating under Government Assistance
Programs which provide for rental subsidies and/or reductions of mortgage
interest payments under HUD Section 8 and Section 236 Programs.
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 increased approximately 1% during both the three and six
months ended August 31, 1996 as compared to 1995 primarily due to rental rate
increases. Other income increased approximately $52,000 and $50,000 during the
three and six months ended August 31, 1996 as compared to 1995, primarily due to
the receipt of proceeds from a fire insurance recovery claim by Bay Village
during the second quarter. Total expenses excluding administrative and
management and operating expenses remained fairly consistent with increases of
approximately 1% for both the three and six months ended August 31, 1996, as
compared to 1995. Administrative and management expenses increased approximately
$134,000 for the three months ended August 31, 1996 compared to the same period
in 1995 primarily due to an increase in bad debts and legal fees at one local
partnership, an increase in bad debts at a second local partnership, the change
at a third local partnership from an affiliated property manager to one which is
not an affiliate and small increases at five other local partnerships. Operating
expenses increased approximately $156,000 for the three months ended August 31,
1996 compared to the same period in 1995 primarily due to an increase in
utilities at four local partnerships and small increases at three others.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Partnership is a Plaintiff in the Oklahoma County District Court in
Oklahoma against Jerry L. Womack and Womack Property Management, Inc., an
Oklahoma corporation. In this action entitled Shearson + Related Housing
Properties Limited Partnership and Shearson/Related Housing Associates Limited
Partnership v. Jerry L. Womack and Womack Property Management, Inc., the
Partnership seeks judgment for damages caused by the individual defendant's
resignation as general partner of Rolling Meadows of Chickasha, Ltd. (Rolling
Meadows), of which the Partnership is a limited partner, and by the corporate
defendant's mismanagement of the apartment project owned by Rolling Meadows. The
individual defendant has counterclaimed against the Plaintiffs, alleging that
they breached an agreement to advance funds to Rolling Meadows sufficient to pay
operating losses on the property, thereby damaging such defendant in an amount
exceeding $10,000. The corporate defendant has counterclaimed against the
Plaintiffs for unpaid management fees and expenses approximating $6,000. Both
counterclaims seek costs and attorneys' fees.
Discovery is continuing in the action. The Plaintiffs are responding
vigorously to the counterclaims and intend to continue doing so. While it is
impossible to predict with certainty, counsel believes the counterclaims have no
substantial merit and that an outcome unfavorable to the Partnership is
unlikely.
The U.S. Department of Housing and Urban Development ("HUD"), the holder
of the mortgage on the Project, notified Rolling Meadows that such mortgage was
in default and that HUD intended to commence foreclosure proceedings. On
September 5, 1996 the Partnership's limited partnership interest in Chickasha
was sold to an affiliate for $75,000 resulting in no net proceeds to the
Partnership after payment of fees and expenses of the sale (see Note 7 to the
financial statements).
Item 2. Changes in Securities - 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.
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SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) 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
By: GOVERNMENT ASSISTED PROPERTIES, INC.,
a general partner
Date: October 14, 1996 By: /s/Paul L. Abbott
---------------------------------
Paul L. Abbott,
President
By: RELATED HOUSING PROGRAMS
CORPORATION, a general partner
Date: October 14, 1996 By: /s/Alan P. Hirmes
---------------------------------
Alan P. Hirmes,
Vice President
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Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated:
Signature Title Date
- - ---------------------------------------- ----------------------------------------------- ------------------------
/s/Alan P. Hirmes
- - ---------------------------------------- Vice President of Related Housing Programs October 14, 1996
Alan P. Hirmes Corporation (principal financial officer)
/s/Richard A. Palermo Treasurer (principal accounting officer) October 14, 1996
- - ---------------------------------------- of Related Housing Programs Corporation
Richard A. Palermo
/s/Paul L. Abott President, Chief Executive Officer (principal October 14, 1996
- - ---------------------------------------- executive officer) and Chief Financial Officer
Paul L. Abbott of Government Assisted Properties, Inc.
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