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, 1997
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
Item 1. Financial Statements
CAMBRIDGE + RELATED HOUSING PROPERTIES LIMITED
PARTNERSHIP AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
==============================
August 31, February 28,
------------------------------
1997 1997
------------------------------
ASSETS
Property and equipment, net of
accumulated depreciation of
$81,157,036 and $80,183,677,
respectively $89,457,300 $93,530,519
Cash and cash equivalents 4,632,387 5,981,506
Certificates of deposit 203,594 201,986
Cash - restricted for tenants'
security deposits 1,090,990 1,082,255
Mortgage escrow deposits 8,714,469 8,098,227
Rents receivable 299,672 303,172
Prepaid expenses and other assets 767,634 1,164,356
------------- -------------
Total assets $105,166,046 $110,362,021
============= =============
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Mortgage notes payable 60,939,747 $63,599,388
Purchase money notes payable
(Note 2) 55,499,956 56,929,115
Due to selling partners (Note 2) 64,136,987 63,552,033
Accounts payable, accrued expenses
and other liabilities 4,301,998 4,448,032
Tenants' security deposits payable 1,090,990 1,082,255
Due to general partners of
subsidiaries and their affiliates 821,511 1,152,253
Due to general partners and
affiliates 2,188,896 1,742,027
Distribution payable 0 1,111,554
------------- -------------
Total liabilities 188,980,085 193,616,657
------------- -------------
Minority interest 65,851 80,374
------------- -------------
Commitments and contingencies (Note 5)
Partners' deficit:
Limited partners (82,592,560) (82,053,129)
General partners (1,287,330) (1,281,881)
------------- -------------
Total partners' deficit (83,879,890) (83,335,010)
------------- -------------
Total liabilities and partners' deficit $105,166,046 $110,362,021
============= =============
See Accompanying Notes to Consolidated Financial Statements
2
CAMBRIDGE + RELATED HOUSING PROPERTIES LIMITED
PARTNERSHIP AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
========================== ==========================
Three Months Ended Six Months Ended
August 31, August 31,
-------------------------- --------------------------
1997 1996* 1997 1996*
-------------------------- --------------------------
Revenues
Rentals, net $6,937,665 $7,466,372 $14,007,969 $14,913,050
Other 263,883 290,957 477,015 489,226
Gain on sale of
of properties
(Note 4) 483,618 1,714,132 483,618 1,714,132
----------- ----------- ----------- -----------
Total revenues 7,685,166 9,471,461 14,968,602 17,116,408
----------- ----------- ----------- -----------
Expenses
Administrative and
management 1,383,828 1,387,565 2,611,637 2,664,264
Administrative
and management-
related parties
(Note 3) 698,084 482,345 1,385,097 956,753
Operating 1,057,915 1,261,901 2,513,372 2,671,766
Repairs and
maintenance 1,943,506 2,083,083 3,692,931 3,809,052
Taxes and
insurance 953,982 1,090,449 1,841,664 2,045,728
Interest 1,867,311 2,038,792 3,768,553 4,153,686
Depreciation 1,429,577 1,624,558 2,888,425 3,262,034
----------- ----------- ----------- -----------
Total expenses 9,334,203 9,968,693 18,701,679 19,563,283
----------- ----------- ----------- -----------
(1,649,037) (497,232) (3,733,077) (2,446,875)
Minority interest
in loss of
subsidiaries 384 875 247 1,464
----------- ----------- ----------- -----------
Loss before
extraordinary item (1,648,653) (496,357) (3,732,830) (2,445,411)
Extraordinary item-
forgiveness of
indebtedness
income (Note 4) 3,187,950 1,077,053 3,187,950 1,077,053
----------- ----------- ----------- -----------
Net income
(loss) $1,539,297 $580,696 $(544,880) $(1,368,358)
=========== =========== =========== ===========
*Reclassified for comparative purposes
See Accompanying Notes to Consolidated Financial Statements
3
CAMBRIDGE + RELATED HOUSING PROPERTIES LIMITED
PARTNERSHIP AND SUBSIDIARIES
Consolidated Statement of Partners' Deficit
(Unaudited)
================================================
Limited General
Total Partners Partners
------------------------------------------------
Balance-
March 1, 1997 $(83,335,010) $(82,053,129) $(1,281,881)
Net loss-
six months ended
August 31, 1997 (544,880) (539,431) (5,449)
------------ ------------ ------------
Balance-
August 31, 1997 $(83,879,890) $(82,592,560) $(1,287,330)
============ ============ ============
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,
----------------------------
1997 1996*
----------------------------
Cash flows from operating activities:
Net loss $ (544,880) $(1,368,358)
----------- -----------
Adjustments to reconcile net loss
to net cash provided by
operating activities:
Gain on sale of properties (Note 4) (483,618) (1,714,132)
Extraordinary item - forgiveness
of indebtedness income (Note 4) (3,187,950) (1,077,053)
Depreciation 2,888,425 3,262,034
Minority interest in loss
of subsidiaries (247) (1,464)
(Increase) decrease in cash-restricted
for tenants' security deposits (24,282) 11,482
Increase in mortgage escrow deposits (736,958) (441,615)
Decrease in rents receivable 2,709 15,101
Decrease (increase) in prepaid
expenses and other assets 369,714 (242,237)
Increase in due to selling partners 2,517,232 2,715,161
Payments to selling partners (173,487) (302,501)
(Decrease) increase in accounts
payable, accrued expenses and
other liabilities (114,689) 143,197
Increase in tenants' security
deposits payable 24,118 15,510
Increase in due to
general partners of subsidiaries
and their affiliates 228,889 140,054
Decrease in due to general partners
of subsidiaries and their affiliates (85,139) (134,185)
Increase in due to
general partners and affiliates 446,869 97,666
----------- -----------
Total adjustments 1,671,586 2,487,018
----------- -----------
Net cash provided by
operating activities 1,126,706 1,118,660
----------- -----------
*Reclassified for comparative purposes
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
(continued)
(Unaudited)
============================
Six Months Ended
August 31,
---------------------------
1997 1996*
---------------------------
Cash flows from investing activities:
(Increase) decrease in certificates
of deposit (1,608) 54,517
Proceeds from sale of properties 100,000 4,546,398
Acquisitions of property and
equipment (470,453) (525,306)
---------- -----------
Net cash (used in) provided by
investing activities (372,061) 4,075,609
---------- ----------
Cash flows from financing activities:
Principal payments of mortgage
notes payable (977,934) (3,596,937)
Decrease in minority interest (14,276) (4,231)
Distributions paid to partners (1,111,554) 0
Principal payment of purchase
money notes payable 0 (1,227,941)
---------- ----------
Net cash used in financing activities (2,103,764) (4,829,109)
---------- ----------
Net increase (decrease) in cash and
cash equivalents (1,349,119) 365,160
Cash and cash equivalents at
beginning of period 5,981,506 4,277,246
---------- ----------
Cash and cash equivalents at
end of period $4,632,387 $4,642,406
========== ==========
*Reclassified for comparative purposes
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
(continued)
(Unaudited)
========================
Six Months Ended
August 31,
------------------------
1997 1996*
------------------------
Supplemental disclosures of
noncash activities:
Distributions to partners 0 0
Decrease in distributions payable (1,111,554) 0
---------- ----------
Distribution paid to partners (1,111,554) 0
========== ==========
Forgiveness of indebtedness
Decrease in purchase money
notes payable (1,429,159) (72,059)
Decrease in due to selling
partners (1,758,791) (1,004,994)
Summarized below are the
components of the gain
on sale of properties:
Decrease in property and
equipment, net of accumulated
depreciation 1,655,247 2,825,280
Decrease in cash-restricted for
tenants' security deposits 15,547 4,004
Decrease in mortgage escrow
deposits 120,716 0
Decrease in rents receivable 791 564
Decrease in prepaid expenses and
other assets 27,008 73,653
Decrease in mortgage notes
payable (1,681,707) 0
Decrease in accounts payable,
accrued expenses and other
liabilities (31,345) (40,239)
Decrease in tenants' security
deposits payable (15,383) (30,996)
Decrease in due to general
partners of subsidiaries and
their affiliates (474,492) 0
*Reclassified for comparative purposes
See Accompanying Notes to Consolidated Financial Statements
7
CAMBRIDGE + RELATED HOUSING PROPERTIES LIMITED
PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
August 31, 1997
(Unaudited)
Note 1 - General
The consolidated financial statements for the six months ended August 31, 1997
include the accounts of Cambridge + Related Housing Properties Limited
Partnership, a Massachusetts limited partnership (the "Partnership") and forty
one subsidiary partnerships ("subsidiary partnerships" or "Local Partnerships"),
one of which only has activity through the date of sale of the Partnership's
interest on April 25, 1997 (see Note 4). The consolidated financial statements
for the six months ended August 31, 1996 include the accounts of the Partnership
and forty four subsidiary partnerships, one of which only has activity through
the date of sale of its property and the related assets and liabilities on June
3, 1996 (see Note 4). 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 a 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 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 $500 and $8,800 and $5,500 and $13,000 for the three
and six months ended August 31, 1997 and 1996, 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
8
CAMBRIDGE + RELATED HOUSING PROPERTIES LIMITED
PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
August 31, 1997
(Unaudited)
Partnership's Form 10-K/A-1 for the year ended February 28, 1997. 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, 1997,
the results of operations for the three and six months ended August 31, 1997 and
1996 and cash flows for the six months ended August 31, 1997 and 1996. However,
the operating results for the six months ended August 31, 1997 may not be
indicative of the results for the year.
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 28, 1997 Annual Report on Form 10-K/A-1.
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 and September
17, 1996, the properties and the related assets and liabilities owned by two
subsidiary partnerships were sold to third parties and on August 15, 1996 and on
April 25, 1997 the Partnership's Local Partnership Interest in two other Local
Partnership's were sold to a third party and the Local Partnership's general
partners, respectively. A portion of the net proceeds were used to settle the
associated purchase money notes and accrued interest thereon.
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
9
CAMBRIDGE + RELATED HOUSING PROPERTIES LIMITED
PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
August 31, 1997
(Unaudited)
the note, unless the Partnership exercises an extension right. Continued accrual
of such interest without payment would impact the effective rate of the notes,
specifically by reducing the current 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
$64,011,939 and $63,426,985 at August 31, 1997 and February 28, 1997,
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 Partnership Interest to which the Purchase Money Note relates.
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. 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 Purchase 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 six months ended August 31, 1997 and 1996, the Partnership received
cash flow distributions aggregating $289,146 and $584,713 (which includes $0 and
$80,546 held in escrow for expenses relating to refinancings or sales),
respectively, of which $173,488 and $302,500 was used to pay interest on the
purchase money notes. In addition, the Partnership received proceeds from the
sale of its Local Partnership Interest in one Local Partnership and a
distribution of proceeds from the sale of a property aggregating $100,000 and
$1,953,406, respectively, of which $0 and $1,227,941 was used to pay principal
on the Purchase Money Notes.
10
CAMBRIDGE + RELATED HOUSING PROPERTIES LIMITED
PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
August 31, 1997
(Unaudited)
Note 3 - Related Party Transactions
The costs incurred to related parties for the three and six months ended August
31, 1997 and 1996 were as follows:
======================== ========================
Three Months Ended Six Months Ended
August 31, August 31,
------------------------ ------------------------
1997 1996 1997 1996
------------------------ ------------------------
Partnership
management
fees (a) $ 241,500 $ 30,412 $ 483,000 $ 60,825
Expense
reimburse-
ment (b) 72,625 50,440 130,625 109,863
Property
management
fees (c) 377,959 395,493 758,472 773,065
Local administra-
tive fee (d) 6,000 6,000 13,000 13,000
---------- ---------- ---------- ----------
$ 698,084 $ 482,345 $1,385,097 $ 956,753
========== ========== ========== ==========
(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. Partnership management fees owed to the General
Partners amounting to approximately $1,324,000 and $936,000 were accrued and
unpaid as of August 31, 1997 and February 28, 1997.
(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 Related General Partner 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 $377,959 and $395,493 and $758,472 and $773,065
for the three and six months ended August 31, 1997 and 1996, respectively. Of
such fees $67,226 and $80,477 and $134,818 and $158,371, respectively,
11
CAMBRIDGE + RELATED HOUSING PROPERTIES LIMITED
PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
August 31, 1997
(Unaudited)
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 - Sale of Properties
On April 25, 1997, the Partnership's Local Partnership Interest in Los
Caballeros Apartments ("Los Caballeros") was sold to the general partners of Los
Caballeros for $100,000, resulting in a gain in the amount of $483,618. No
proceeds were used to settle the associated Purchase Money Note and accrued
interest thereon which had a total outstanding balance of $3,187,950, resulting
in forgiveness of indebtedness income. For tax purposes, the entire gain to be
realized by the Partnership is anticipated to be approximately $5,000,000.
On June 3, 1996, the property and the related assets and liabilities of Roper
Mountain Apartments Ltd. ("Roper Mountain") were sold to a third party for
$4,735,000, resulting in a gain in the amount of $1,714,132. The Partnership
used $1,227,941 of the net proceeds to settle the associated Purchase Money Note
and accrued interest thereon which had a total outstanding balance of
$2,304,994, resulting in forgiveness of indebtedness income of $1,077,053.
Note 5 - Commitments and Contingencies
There were no changes and/or additions to disclosures regarding the subsidiary
partnerships which were included in the Partnership's Annual Report on Form
10-K/A-1 for the period ended February 28, 1997.
a) Certificate of Deposit
The Partnership has a Certificate of Deposit in the amount of $73,594 at August
31, 1997 to secure an overdraft in Town and Country's bank account. The amount
of the overdraft was approximately $49,000 at June 30, 1997.
12
CAMBRIDGE + RELATED HOUSING PROPERTIES LIMITED
PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
August 31, 1997
(Unaudited)
b) 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, 1997, $130,000 of the Partnership's funds have been so pledged
to secure operating credit lines at seven subsidiary partnerships.
Note 6 - Subsequent Event
On March 14, 1996, South Munjoy Associates, Limited ("South Munjoy") entered
into a purchase and sale of real estate agreement with Mainland Development
Company of Portland, Maine ("Mainland Development") to sell the project for a
sales price of approximately $3,000,000, subject to HUD approval and other
contingencies. On September 9, 1997, the property and the related assets and
liabilities of South Munjoy were sold to Montfort Housing Limited Partnership
(which is an affiliate of Mainland Development) for $3,000,000, resulting in a
loss in the amount of approximately $300,000. The Partnership used approximately
$1,265,000 of the net proceeds to settle the associated Purchase Money Note and
accrued interest thereon which had a total outstanding balance of approximately
$3,248,000, resulting in forgiveness of indebtedness income of approximately
$1,983,000. For financial reporting purposes, this transaction will be reflected
in the financial statements in the third quarter coinciding with South Munjoy's
fiscal quarter which includes the date of sale. For tax purposes, the entire
gain to be realized by the Partnership is anticipated to be approximately
$3,000,000.
13
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 of the Local Partnerships in which the Partnership has invested, (ii)
interest earned on funds and (iii) cash in 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, 1997 and 1996, the Partnership received
cash flow distributions aggregating approximately $289,000 and $585,000 (which
includes approximately $0 and $81,000 held in escrow for expenses relating to
refinancings or sales), respectively, of which approximately $173,000 and
$303,000 was used to pay interest on the purchase money notes. In addition, the
Partnership received proceeds from the sale of its Local Partnership Interest in
one Local Partnership and a distribution of proceeds from the sale of a property
aggregating approximately $100,000 and $1,953,000, respectively, of which
approximately $0 and $1,228,000 was used to pay principal on the Purchase Money
Notes.
During the six months ended August 31, 1997, cash and cash equivalents of the
Partnership and its forty one consolidated Local Partnerships decreased
approximately $1,349,000. This decrease was primarily due to acquisitions of
property and equipment ($470,000), principal payments of mortgage notes payable
($978,000) and distributions paid to partners ($1,112,000) which exceeded cash
provided by operating activities ($1,127,000) and proceeds from sale of
properties ($100,000). Included in the adjustments to reconcile the net loss to
cash provided by operating activities is gain on sale of properties ($484,000),
forgiveness of indebtedness income ($3,188,000) and depreciation ($2,888,000).
The Partnership had a working capital reserve of approximately $1,138,000 and
$1,211,000 (which does not include approximately $1,111,000 of net proceeds from
sale of properties which was distributed to the limited partners and General
Partners in March 1997) at August 31, 1997 and February 28, 1997, respectively,
of which approximately $204,000 and $202,000, 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 from future sales
and future cash flow distributions will be adequate for its operating needs, and
plans to continue investing
14
available reserves in short term investments. In March 1997, a distribution of
approximately $1,100,000 and $11,000 was paid to the limited partners and
General Partners, respectively, from net proceeds from the sale of properties.
Partnership management fees owed to the General Partners amounting to
approximately $1,324,000 and $936,000 were accrued and unpaid as of August 31,
1997 and February 28, 1997.
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, September 17,
1996 and September 9, 1997, the properties and the related assets and
liabilities owned by three subsidiary partnerships were sold to third parties
and on August 15, 1996 and on April 25, 1997 the Partnership's Local Partnership
Interest in two other Local Partnerships were sold to a third party and the
Local Partnership's general partners, respectively. A portion of the net
proceeds were used to settle the associated purchase money notes and accrued
interest thereon (see below).
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. Continued accrual of such interest without payment
would impact the effective rate of the notes, specifically by reducing the
current 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 $64,012,000 and
$63,427,000 at August 31, 1997 and February 28, 1997, 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 Partnership
Interest to which the Purchase Money Note relates.
15
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. 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 Purchase 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.
The local partnerships which 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
provide 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 was sold on September 9, 1997 (see below). 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 did
not allocate any funds for preservation for the 1998 fiscal year, effectively
ending the preservation effort for the time
16
being. Management is working with the local general partners in an effort to
find alternative exit strategies.
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 $796,000 at August 31, 1997. Westgate's assets constituted
approximately 2% of the consolidated total assets at August 31, 1997.
On March 14, 1996, South Munjoy Associates, Limited ("South Munjoy") entered
into a purchase and sale of real estate agreement with Mainland Development
Company of Portland, Maine ("Mainland Development") to sell the project for a
sales price of approximately $3,000,000, subject to HUD approval and other
contingencies. On September 9, 1997, the property and the related assets and
liabilities of South Munjoy were sold to Montfort Housing Limited Partnership
(which is an affiliate of Mainland Development) for $3,000,000, resulting in a
loss in the amount of approximately $300,000. The Partnership used approximately
$1,265,000 of the net proceeds to settle the associated Purchase Money Note and
accrued interest thereon which had a total outstanding balance of approximately
$3,248,000, resulting in forgiveness of indebtedness income of approximately
$1,983,000. For financial reporting purposes, this transaction will be reflected
in the financial statements in the third quarter coinciding with South Munjoy's
fiscal quarter which includes the date of sale. For tax purposes, the entire
gain to be realized by the Partnership is anticipated to be approximately
$3,000,000.
On April 25, 1997, the Partnership's Local Partnership Interest in Los
Caballeros Apartments ("Los Caballeros") was sold to the general partners of Los
Caballeros for $100,000, resulting in a gain in the amount of $483,618. No
proceeds were used to settle the associated Purchase Money Note and accrued
interest thereon which had a total outstanding balance of $3,187,950, resulting
in forgiveness of indebtedness income. For tax purposes, the entire gain to be
realized by the Partnership is anticipated to be approximately $5,000,000.
For a discussion of contingencies affecting certain Local Partnerships, see Note
5 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.
17
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
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
- - ---------------------
The results of operations of the Partnership, as well as the Local Partnerships,
excluding Roper Mountain and Keller Plaza, which sold their properties on June
3, 1996 and September 17, 1996, Chickasha and Los Caballeros in which the
Partnership's interest was sold on August 15, 1996 and April 25, 1997 and
administrative and management-related parties remained fairly consistent during
the three and six months ended August 31, 1997 and 1996. 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 decreased approximately 7% and 6% for the three and six months
ended August 31, 1997 as compared to 1996. Excluding Roper Mountain, Keller
Plaza, Chickasha and Los Caballeros, rental income increased approximately 1%
for both the three and six months ended August 31, 1997 as compared to 1996
primarily due to rental rate increases.
Total expenses excluding Roper Mountain, Keller Plaza, Chickasha, Los Caballeros
and administrative and management-related parties expenses remained fairly
consistent with a decrease of approximately 1% and an increase of approximately
1% for the three and six months ended August 31, 1997 as compared to 1996.
18
Administrative and management-related parties increased approximately $216,000
and $428,000 for the three and six months ended August 31, 1997 as compared to
1996 primarily due to an increase in partnership management fees payable to the
General Partners.
Operating expenses decreased approximately $204,000 for the three months ended
August 31, 1997 as compared to 1996 primarily due to decreases relating to Roper
Mountain, Keller Plaza, Chickasha and Los Caballeros. Excluding Roper Mountain,
Keller Plaza, Chickasha and Los Caballeros, such expenses remained fairly
consistent with a decrease of approximately 7% for the three months ended August
31, 1997 as compared to 1996.
Taxes and insurance expense and depreciation expense decreased approximately
$136,000 and $195,000 and $204,000 and $374,000, respectively, for the three and
six months ended August 31, 1997 as compared to 1996 primarily due to decreases
relating to Roper Mountain, Keller Plaza, Chickasha and Los Caballeros.
Excluding Roper Mountain, Keller Plaza, Chickasha and Los Caballeros, such
expenses remained fairly consistent with decreases of approximately 6% and 3%,
and 3% and 3%, respectively, for the three and six months ended August 31, 1997
as compared to 1996.
19
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 was 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 counter claims 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 August
15, 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 expenses of the sale.
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
20
Item 5. Other information
Paul L. Abbott, ceased to serve as President, Chief Executive Officer and
Chief Financial Officer of Government Assisted Properties, Inc. effective
September 1, 1997. Effective September 1, 1997, Doreen D. Odell was elected
President, Chief Executive Officer and Chief Financial Officer of Government
Assisted Properties, Inc.
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.
21
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: October 14, 1997
By: /s/ Doreen D. Odell
-------------------
Doreen D. Odell,
President
By: RELATED HOUSING PROGRAMS
CORPORATION, a General Partner
Date: October 14, 1997
By: /s/ Alan P. Hirmes
------------------
Alan P. Hirmes,
Vice President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf by the registrant and
in the capacities and on the dates indicated:
Signature Title Date
- - ------------------------- -------------------- --------------
Vice President
(principal financial
officer) of
/s/ Alan P. Hirmes Related Housing
- - ------------------------- Programs
Alan P. Hirmes Corporation Oct. 14, 1997
Treasurer (principal
accounting officer) of
/s/ Richard A. Palermo Related Housing
- - ------------------------- Programs
Richard A. Palermo Corporation Oct. 14, 1997
President, Chief
Executive Officer
(principal executive
officer) and Chief
/s/ Doreen D. Odell Financial Officer of
- - ------------------------- Government Assisted
Doreen D. Odell Properties, Inc. Oct. 14, 1997