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 November 30, 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)
=========== ============
November 30, February 28,
1997 1997
----------- ------------
ASSETS
Property and equipment, net of
accumulated depreciation of
$81,278,098 and $80,183,677,
respectively $85,303,658 $93,530,519
Cash and cash equivalents 4,691,576 5,981,506
Certificates of deposit 204,545 201,986
Cash - restricted for tenants'
security deposits 1,044,383 1,082,255
Mortgage escrow deposits 8,035,719 8,098,227
Rents receivable 397,245 303,172
Prepaid expenses and other assets 1,440,888 1,164,356
----------- ------------
Total assets $101,118,014 $110,362,021
=========== ============
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Mortgage notes payable $ 59,707,841 $ 63,599,388
Purchase money notes payable
(Note 2) 54,009,956 56,929,115
Due to selling partners (Note 2) 63,597,860 63,552,033
Accounts payable, accrued expenses
and other liabilities 4,595,368 4,448,032
Tenants' security deposits payable 1,044,383 1,082,255
Due to general partners of
subsidiaries and their affiliates 586,160 1,152,253
Due to general partners and
affiliates 1,390,489 1,742,027
Distribution payable 0 1,111,554
----------- ------------
Total liabilities 184,932,057 193,616,657
----------- -----------
Minority interest 59,878 80,374
Commitments and contingencies (Note 5) ----------- -----------
Partners' deficit:
Limited partners (82,586,651) (82,053,129)
General partners (1,287,270) (1,281,881)
------------ ------------
Total partners' deficit (83,873,921) (83,335,010)
------------ ------------
Total liabilities and partners' deficit $101,118,014 $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 Nine Months Ended
November 30, November 30,
------------------ ------------------
1997 1996 * 1997 1996 *
---- ------ ---- ------
Revenues
Rentals, net $6,888,566 $7,371,246 $20,896,535 $22,284,296
Other 209,248 225,871 686,263 715,097
Gain (loss) on sale
of properties
(Note 4) (254,466) 5,319,969 229,152 7,034,101
--------- --------- ---------- ----------
Total revenues 6,843,348 12,917,086 21,811,950 30,033,494
--------- --------- ---------- ----------
Expenses
Administrative and
management 1,115,204 1,335,407 3,726,841 3,999,671
Administrative
and management-
related parties
(Note 3) 635,452 454,565 2,020,549 1,411,318
Operating 1,000,679 1,096,085 3,514,051 3,767,851
Repairs and
maintenance 1,869,079 2,066,999 5,562,010 5,876,051
Taxes and
insurance 961,928 1,004,723 2,803,592 3,050,451
Interest 1,802,724 1,887,379 5,571,277 6,041,065
Depreciation 1,424,401 1,590,844 4,312,826 4,852,878
--------- --------- ---------- ----------
Total expenses 8,809,467 9,436,002 27,511,146 28,999,285
--------- --------- ---------- ----------
(1,966,119) 3,481,084 (5,699,196) 1,034,209
Minority interest
in (income) loss of
subsidiaries (10,835) 71 (10,588) 1,535
--------- --------- ---------- ----------
Income (loss) before
extraordinary item (1,976,954) 3,481,155 (5,709,784) 1,035,744
Extraordinary item-
forgiveness of
indebtedness
income (Note 4) 1,982,923 4,130,987 5,170,873 5,208,040
--------- --------- ---------- ----------
Net income
(loss) $ 5,969 $7,612,142 $ (538,911) $6,243,784
=========== ========== ========== ==========
*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-
nine months ended
November 30, 1997 (538,911) (533,522) (5,389)
----------- ----------- -----------
Balance-
November 30, 1997 $(83,873,921) $(82,586,651) $(1,287,270)
============ ============ ===========
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)
======================
Nine Months Ended
November 30,
----------------------
1997 1996 *
----------------------
Cash flows from operating activities:
Net income (loss) $ (538,911) $6,243,784
--------- ----------
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Gain on sale of properties (Note 4) (229,152) (7,034,101)
Extraordinary item - forgiveness
of indebtedness income (Note 4) (5,170,873) (5,208,040)
Depreciation 4,312,826 4,852,878
Minority interest in income (loss)
of subsidiaries 10,588 (1,535)
(Increase) decrease in cash-restricted
for tenants' security deposits (6,073) 16,448
Increase in mortgage escrow deposits (242,105) (617,123)
Increase in rents receivable (97,783) (15,234)
Increase in prepaid
expenses and other assets (334,988) (453,860)
Increase in due to selling partners 3,735,764 4,005,190
Payments to selling partners (173,488) (1,319,366)
Increase in accounts
payable, accrued expenses and
other liabilities 189,712 198,645
Increase in tenants' security
deposits payable 28,873 13,783
Increase in due to
general partners of subsidiaries
and their affiliates 189,986 211,418
Decrease in due to general partners
of subsidiaries and their affiliates (281,587) (123,023)
(Decrease) increase in due to
general partners and affiliates (351,538) 198,374
--------- ----------
Total adjustments 1,580,162 (5,275,546)
--------- ----------
Net cash provided by
operating activities 1,041,251 968,238
--------- ----------
*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)
========================
Nine Months Ended
November 30,
------------------------
1997 1996 *
------------------------
Cash flows from investing activities:
(Increase) decrease in certificates
of deposit (2,559) 53,876
Proceeds from sale of properties 2,983,756 13,096,696
Acquisitions of property and
equipment (695,165) (686,277)
---------- ----------
Net cash provided by
investing activities 2,286,032 12,464,295
--------- ----------
Cash flows from financing activities:
Principal payments of mortgage
notes payable (2,209,840) (6,621,081)
Decrease in minority interest (31,084) (4,231)
Distributions paid to partners (1,111,554) 0
Principal payment of purchase
money notes payable (1,264,735) (3,227,941)
---------- -----------
Net cash used in financing activities (4,617,213) (9,853,253)
---------- -----------
Net increase (decrease) in cash and
cash equivalents (1,289,930) 3,579,280
Cash and cash equivalents at
beginning of period 5,981,506 4,277,246
--------- ---------
Cash and cash equivalents at
end of period $4,691,576 $7,856,526
========= ==========
*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)
=======================
Nine Months Ended
November 30,
-----------------------
1997 1996 *
-----------------------
Supplemental disclosures of noncash
activities:
Forgiveness of indebtedness
Decrease in purchase money
notes payable (1,654,424) (872,059)
Decrease in due to selling
partners (3,516,449) (2,567,181)
Decrease in Mortgage notes
payable 0 (1,083,352)
Decrease in accounts payable
accrued expenses and other
liabilities 0 (685,448)
Summarized below are the
components of the gain
on sale of properties:
Decrease in property and
equipment, net of accumulated
depreciation 4,609,200 7,619,768
Decrease in cash-restricted for
tenants' security deposits 43,945 52,949
Decrease in mortgage escrow
deposits 304,613 15,854
Decrease in rents receivable 3,710 6,858
Decrease in prepaid expenses and
other assets 58,456 93,453
Decrease in mortgage notes
payable (1,681,707) 0
Decrease in accounts payable,
accrued expenses and other
liabilities (42,376) (1,643,107)
Decrease in tenants' security
deposits payable (66,745) (83,180)
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
November 30, 1997
(Unaudited)
Note 1 - General
The consolidated financial statements for the nine months ended November 30,
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 and one of which only has activity through the date
of sale of the property and the related assets and liabilities on September 9,
1997 (see Note 4). The consolidated financial statements for the nine months
ended November 30, 1996 include the accounts of the Partnership and forty four
subsidiary partnerships, two of which only have activity through the date of
sale of their properties and the related assets and liabilities on June 3, 1996
and September 17, 1996 and one of which only has activity through the date of
sale of the Partnership's interest on August 15, 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 November 30. All subsidiaries have fiscal
quarters ending September 30. Accounts of the subsidiary partnerships have been
adjusted for intercompany transactions from October 1 through November 30.
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 $1,000 and $0 and $6,500 and $5,600 for the three and
nine months ended No-
8
CAMBRIDGE + RELATED HOUSING PROPERTIES LIMITED
PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
November 30, 1997
(Unaudited)
vember 30, 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 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 November 30, 1997, the results of operations
for the three and nine months ended November 30, 1997 and 1996 and cash flows
for the nine months ended November 30, 1997 and 1996. However, the operating
results for the nine months ended November 30, 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, 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 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 de
9
CAMBRIDGE + RELATED HOUSING PROPERTIES LIMITED
PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
November 30, 1997
(Unaudited)
fault 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
$63,472,812 and $63,426,985 at November 30, 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 nine months ended November 30, 1997 and 1996, the Partnership
received cash flow distributions aggregating $307,277 and $737,827 (which
includes $0 and $80,546 held in escrow for
10
CAMBRIDGE + RELATED HOUSING PROPERTIES LIMITED
PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
November 30, 1997
(Unaudited)
expenses relating to refinancings or sales), respectively, of which $200,684 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 $2,135,762 and the Partnership received proceeds from the sale of
its Local Partnership Interest in one Local Partnership and the distribution of
proceeds from the sale of two properties aggregating $7,987,137, respectively,
of which $1,264,735 and $4,244,806 was used to pay principal on the Purchase
Money Notes.
Note 3 - Related Party Transactions
The costs incurred to related parties for the three and nine months ended
November 30, 1997 and 1996 were as follows:
Three Months Ended Nine Months Ended
November 30, November 30,
------------------ -----------------
1997 1996 1997 1996
------------------ -----------------
Partnership
management
fees (a) $241,500 $ 30,413 $724,500 $ 91,238
Expense
reimburse-
ment (b) 11,017 42,500 141,642 152,363
Property
management
fees (c) 375,935 374,652 1,134,407 1,147,717
Local administra-
tive fee (d) 7,000 7,000 20,000 20,000
-------- -------- --------- ----------
$635,452 $454,565 $2,020,549 $1,411,318
======== ======== ========= ==========
(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 $495,722 and $936,000 were accrued and
unpaid as of November 30, 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.
11
CAMBRIDGE + RELATED HOUSING PROPERTIES LIMITED
PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
November 30, 1997
(Unaudited)
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 $375,935 and $374,652 and $1,134,407 and
$1,147,717 for the three and nine months ended November 30, 1997 and 1996,
respectively. Of such fees $62,916 and $67,876 and $197,734 and $226,247,
respectively, 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 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 $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
$254,466. The Partnership used $1,264,735 of the net proceeds to settle the
associated Purchase Money Note and accrued interest thereon which had a total
outstanding balance of $3,247,658, resulting in forgiveness of indebtedness
income of $1,982,923. 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
12
CAMBRIDGE + RELATED HOUSING PROPERTIES LIMITED
PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
November 30, 1997
(Unaudited)
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.
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 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. For
Financial reporting purposes a gain on the sale of property in the amount of
$472,720 was realized and forgiveness of indebtedness income of $1,768,800 was
also realized as a result of forgiveness of the mortgage note payable to HUD and
accrued interest thereon. No proceeds were used to settle the associated
purchase money note and accrued interest which had a total outstanding balance
of $1,723,095 resulting in additional forgiveness of indebtedness income of
$1,723,095. Therefore the entire forgiveness of indebtedness income realized by
the Partnership from this transaction is $3,491,895.
On September 17, 1996, the property and the related assets and liabilities of
Oakland-Keller Plaza ("Keller Plaza") were sold to a third party for $8,800,000
resulting in net proceeds of $6,033,731 to the Partnership after repayment of
the first mortgage owed to HUD and expenses of the sale. For financial reporting
purposes a gain on the sale of property in the amount of $4,847,249 was
realized. The Partnership used $3,426,795 of the net proceeds to settle the
associated purchase money note and accrued interest which had a total
outstanding balance of $4,065,887 resulting in forgiveness of indebtedness
income of $639,092.
13
CAMBRIDGE + RELATED HOUSING PROPERTIES LIMITED
PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
November 30, 1997
(Unaudited)
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 $74,545 at
November 30, 1997 to secure an overdraft in Town and Country's bank account. The
amount of the overdraft was approximately $52,000 at September 30, 1997.
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 November 30, 1997, $130,000 of the Partnership's funds have been so
pledged to secure operating credit lines at seven subsidiary partnerships.
Note 6 - Subsequent Events
On December 12, 1997, the Partnership's limited partnership interest in Clinton
Plaza Apartments Limited Partnership and Clinton Plaza Apartments #2 Limited
Partnership (together the "Clintons") were sold to the general partners of the
Clintons for $1,673,400, resulting in a loss in the amount of approximately
$2,800,000. No proceeds were used to settle the associated Purchase Money Notes
and accrued interest which had a total outstanding balance of $9,689,980,
resulting in forgiveness of indebtedness income. For tax purposes, the entire
gain to be realized by the Partnership is anticipated to be approximately
$11,200,000.
On December 12, 1997, the Partnership limited partnership interest in Grosvenor
South Apartments Limited Partnership and Grosvenor South Apartments #2 Limited
Partnership (together, the "Grosvenors") were sold to the general partners of
the Grosvenors for $1,114,300, resulting in a loss in the amount of
approximately $1,400,000. No proceeds were used to settle the associated
Purchase Money Notes and accrued interest which had a total outstanding balance
of $5,058,313, resulting in forgiveness of indebtedness income. For tax purpose
the entire gain to be realized by the Partnership is anticipated to be
approximately $6,200,000.
14
CAMBRIDGE + RELATED HOUSING PROPERTIES LIMITED
PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
November 30, 1997
(Unaudited)
On November 1, 1997, the Riverside Gardens and Cudahy Gardens partnerships
entered into an arms length agreement to sell the properties to the same
third-party purchaser. The purchase price for Riverside Gardens and Cudahy
Gardens is approximately $1,900,000 and $300,000, respectively, and is payable
in cash above the existing mortgage indebtedness. The cash proceeds will be used
to redeem the Purchase Money Note at a discount and the balance will be
distributed to the Partnership. It is anticipated that the transaction will
close before March 1998, however no assurance can be given that the transaction
will be consummated.
Oklahoma City-Town and Country Village Apartments, Ltd. ("Country") and
Northbrook III, Ltd. ("Northbrook") are currently under contract of sale to a
third party. The purchase price for Country and Northbrook are approximately
$3,200,000 and $2,000,000, respectively. The closing is scheduled for January
16, 1998, though no assurance can be given that the sale will be consummated.
15
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 nine months ended November 30, 1997 and 1996, the Partnership
received cash flow distributions aggregating approximately $307,000 and $738,000
(which includes approximately $0 and $81,000 held in escrow for expenses
relating to refinancings or sales), respectively, of which approximately
$201,000 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 $2,135,762 and $7,987,137,
respectively, of which approximately $1,264,735 and $4,244,806 was used to pay
principal on the Purchase Money Notes.
During the nine months ended November 30, 1997, cash and cash equivalents of the
Partnership and its forty one consolidated Local Partnerships decreased
approximately $1,290,000. This decrease was primarily due to acquisitions of
property and equipment ($695,000), principal payments of mortgage notes payable
($2,210,000), purchase money notes payable ($1,265,000) and distributions paid
to partners ($1,112,000) which exceeded cash provided by operating activities
($1,041,000) and proceeds from sale of properties ($2,984,000). The gross amount
of cash provided by operating activities was reduced by the payment of certain
accrued and unpaid management fees to the general partners. Included in the
adjustments to reconcile the net loss to cash provided by operating activities
is gain on sale of properties ($229,000), forgiveness of indebtedness income
($5,171,000) and depreciation ($4,313,000).
The Partnership had a working capital reserve of approximately $654,000 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 November 30, 1997 and February 28, 1997,
respectively, of which approximately $205,000 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
16
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 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 $496,000 and $936,000 were accrued and unpaid as of November 30,
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 $63,473,000 and
$63,427,000 at November 30, 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
17
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.
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.
18
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 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 $821,000 at November 30, 1997. Westgate's assets constituted
approximately 2% of the consolidated total assets at November 30, 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 $254,466. The Partnership used $1,264,735 of the net
proceeds to settle the associated Purchase Money Note and accrued interest
thereon which had a total outstanding balance of $3,247,658, resulting in
forgiveness of indebtedness income of $1,982,923. 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.
On December 12, 1997, the Partnership's limited partnership interest in Clinton
Plaza Apartments Limited Partnership and Clinton Plaza Apartments #2 Limited
Partnership (together the "Clintons") were sold to the general partners of the
Clintons for $1,673,400, resulting in a loss in the amount of approximately
$2,800,000. No proceeds were used to settle the associated Purchase Money Notes
and accrued interest which had a total outstanding balance of $9,689,980,
resulting in forgiveness of indebt-
19
edness income. For tax purposes, the entire gain to be realized by the
Partnership is anticipated to be approximately $11,200,000.
On December 12, 1997, the Partnership limited partnership interest in Grosvenor
South Apartments Limited Partnership and Grosvenor South Apartments #2 Limited
Partnership (together, the "Grosvenors") were sold to the general partners of
the Grosvenors for $1,114,300, resulting in a loss in the amount of
approximately $1,400,000. No proceeds were used to settle the associated
Purchase Money Notes and accrued interest which had a total outstanding balance
of $5,058,313, resulting in forgiveness of indebtedness income. For tax purpose
the entire gain to be realized by the Partnership is anticipated to be
approximately $6,200,000.
On November 1, 1997, the Riverside Gardens and Cudahy Gardens partnerships
entered into an arms length agreement to sell the properties to the same
third-party purchaser. The purchase price for Riverside Gardens and Cudahy
Gardens is approximately $1,900,000 and $300,000, respectively, and is payable
in cash above the existing mortgage indebtedness. The cash proceeds will be used
to redeem the Purchase Money Note at a discount and the balance will be
distributed to the Partnership. It is anticipated that the transaction will
close before March 1998, however no assurance can be given that the transaction
will be consummated.
Oklahoma City-Town and Country Village Apartments, Ltd. ("Country") and
Northbrook III, Ltd. ("Northbrook") are currently under contract of sale to a
third party. The purchase price for Country and Northbrook are approximately
$3,200,000 and $2,000,000, respectively. The closing is scheduled for January
16, 1998, though no assurance can be given that the sale will be consummated.
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.
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. How-
20
ever, 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, Keller Plaza and South Munjoy, which sold their
properties on June 3, 1996, September 17, 1996 and September 9, 1997, 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 nine months ended November 30,
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 nine months
ended November 30, 1997 as compared to 1996. Excluding Roper Mountain, Keller
Plaza, Chickasha, Los Caballeros and South Munjoy, rental income increased less
than 1% and approximately 1% for the three and nine months ended November 30,
1997 as compared to 1996 primarily due to rental rate increases.
Total expenses excluding Roper Mountain, Keller Plaza, Chickasha, Los Caballeros
and South Munjoy and administrative and management-related parties expenses
remained fairly consistent with a decrease of approximately 2% and a decrease of
less than 1% for the three and nine months ended November 30, 1997 as compared
to 1996.
Administrative and management-related parties increased approximately $181,000
and $609,000 for the three and nine months ended November 30, 1997 as compared
to 1996 primarily due to an increase in partnership management fees payable to
the General Partners.
21
Administrative and management expenses decreased approximately $220,000 for the
three months ended November 30, 1997 as compared to 1996 primarily due to
decreases relating to Roper Mountain, Keller Plaza, Chickasha, Los Caballeros
and South Munjoy. Excluding Roper Mountain, Keller Plaza, Chickasha, Los
Caballeros and South Munjoy, such expenses remained fairly consistent with a
decrease of approximately $119,000 for the three months ended November 30, 1997
as compared to 1996.
Depreciation expense decreased approximately $166,000 and $540,000,
respectively, for the three and nine months ended November 30, 1997 as compared
to 1996 primarily due to decreases relating to Roper Mountain, Keller Plaza,
Chickasha, Los Caballeros and South Munjoy. Excluding Roper Mountain, Keller
Plaza, Chickasha, Los Caballeros and South Munjoy, such expenses remained fairly
consistent with decreases of approximately 5% and 4%, respectively, for the
three and nine months ended November 30, 1997 as compared to 1996.
22
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.
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
23
Item 5. Other information
On November 25, 1997, an affiliate of Related Housing Programs
Corporation ("RHPC') the general partner of the Partnership, purchased 100% of
the stock of Government Assisted Properties, Inc. ("GAP"), the other general
partner of the Partnership (the "Transfer"). In addition to the Transfer, an
affiliate of RHPC also acquired GAP's general partner interest in
Cambridge/Related Housing Associates Limited Partnership, the special limited
partner of the Partnership. Pursuant to the Partnership's Amended and Restated
Partnership Agreement, the consent of the limited partners was not required to
approve the Transfer. In connection with the Transfer, the Partnership paid to
GAP the accrued asset management fees owed to GAP in the aggregate amount of
$1,000,814. See Note 3 - Related Party Transactions to the Financial Statements
included in Part I of this Form 10-Q.
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. However, a report on Form 8-K dated November 25, 1997 was filed by the
Partnership on December 5, 1997 which reported in Item 1. the Transfer referred
to in Item 5. Other Information of this Form 10-Q.
24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CAMBRIDGE + RELATED HOUSING
PROPERTIES LIMITED PARTNERSHIP
(Registrant)
By: GOVERNMENT ASSISTED PROPERTIES,
INC., a General Partner
Date: January 8, 1998
By: /s/ Alan P. Hirmes
------------------
Alan P. Hirmes,
Vice President and
Principal Financial Officer
Date: January 8, 1998
By: /s/ Glenn F. Hopps
------------------
Glenn F. Hopps,
Treasurer and
Principal Accounting Officer
By: RELATED HOUSING PROGRAMS
CORPORATION, a General Partner
Date: January 8, 1998
By: /s/ Alan P. Hirmes
------------------
Alan P. Hirmes,
Vice President and
Principal Financial Officer
Date: January 8, 1998
By: /s/ Glenn F. Hopps
------------------
Glenn F. Hopps,
Treasurer and
Principal Accounting Officer