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, 1998
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,
1998 1998
---- ----
ASSETS
Property and equipment, net of accumulated
depreciation of $62,458,963
and $67,405,570, respectively $59,420,124 $66,541,368
Property and equipment-held for sale,
net of accumulated depreciation of
$3,761,441 and $7,466,033 1,912,735 8,372,413
Cash and cash equivalents 7,365,484 6,069,843
Certificates of deposit 77,226 205,509
Cash - restricted for tenants'
security deposits 817,613 843,561
Mortgage escrow deposits 5,466,384 6,784,348
Rents receivable 240,515 304,888
Prepaid expenses and other assets 1,245,897 955,224
----------- -----------
Total assets $76,545,978 $90,077,154
=========== ===========
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Mortgage notes payable $45,603,013 $55,464,577
Purchase money notes payable
(Note 2) 39,923,549 46,352,956
Due to selling partners (Note 2) 48,006,061 54,951,723
Accounts payable, accrued expenses
and other liabilities 2,297,067 4,637,981
Tenants' security deposits payable 817,613 843,561
Due to general partners of
subsidiaries and their affiliates 466,471 502,593
Due to general partners and affiliates 1,321,487 1,308,614
Distribution payable 0 2,030,972
----------- -----------
Total liabilities 138,435,261 166,092,977
----------- -----------
Minority interest 288,510 167,391
----------- -----------
Commitments and contingencies (Note 6)
Partners' deficit:
Limited partners (61,107,484) (74,972,851)
General partners (1,070,309) (1,210,363)
----------- -----------
Total partners' deficit (62,177,793) (76,183,214)
----------- -----------
Total liabilities and partners' deficit $76,545,978 $90,077,154
=========== ===========
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,
1998 1997 1998 1997
---- ---- ---- ----
Revenues:
Rentals, net $5,450,835 $6,937,665 $11,275,197 $14,007,969
Other 194,303 263,883 391,235 477,015
Gain (loss) on sale of
properties (Note 5) (713,244) 483,618 5,427,756 483,618
---------- ---------- ----------- -----------
Total revenues 4,931,894 7,685,166 17,094,188 14,968,602
---------- ---------- ----------- -----------
Expenses
Administrative and
management 941,561 1,383,828 2,064,531 2,611,637
Administrative and
management-
related parties
(Note 3) 575,086 698,084 1,164,968 1,385,097
Operating 800,176 1,057,915 1,770,780 2,513,372
Repairs and
maintenance 1,544,317 1,943,506 2,861,210 3,692,931
Taxes and insurance 756,368 953,982 1,465,115 1,841,664
Interest 1,378,949 1,867,311 2,778,428 3,768,553
Depreciation 1,088,337 1,429,577 2,180,271 2,888,425
Loss on impairment
of assets (Note 4) 0 0 3,191,072 0
---------- ---------- ----------- -----------
Total expenses 7,084,794 9,334,203 17,476,375 18,701,679
---------- ---------- ----------- -----------
Loss before minority
interest and
extraordinary item (2,152,900) (1,649,037) (382,187) (3,733,077)
Minority interest
in (income) loss
of subsidiaries (620,341) 384 (621,294) 247
---------- ---------- ----------- -----------
Loss before
extraordinary item (2,773,241) (1,648,653) (1,003,481) (3,732,830)
Extraordinary item-
forgiveness of
indebtedness
income (Note 5) 15,762 3,187,950 15,008,902 3,187,950
---------- ---------- ----------- -----------
Net income (loss) $(2,757,479) $1,539,297 $14,005,421 $ (544,880)
=========== ========== =========== ===========
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, 1998 $(76,183,214) $(74,972,851) $(1,210,363)
Net income-
six months ended
August 31, 1998 14,005,421 13,865,367 140,054
------------ ------------ -----------
Balance-
August 31, 1998 $(62,177,793) $(61,107,484) $(1,070,309)
============ ============ ===========
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,
----------------
1998 1997
---- ----
Cash flows from operating activities:
Net income (loss) $14,005,421 $(544,880)
----------- ----------
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Gain on sale of properties (Note 5) (5,427,756) (483,618)
Extraordinary item - forgiveness
of indebtedness income (Note 5) (15,008,902) (3,187,950)
Depreciation 2,180,271 2,888,425
Loss on impairment of assets (Note 4) 3,191,072 0
Minority interest in income (loss)
of subsidiaries 621,294 (247)
Decrease (increase) in cash-restricted
for tenants' security deposits 3,484 (24,282)
Decrease (increase) in mortgage
escrow deposits 468,071 (736,958)
Decrease in rents receivable 59,744 2,709
(Increase) decrease in prepaid
expenses and other assets (299,155) 369,714
Increase in due to selling partners 1,790,981 2,517,232
Payments to selling partners (85,784) (173,487)
Decrease in accounts
payable, accrued expenses and
other liabilities (665,584) (114,689)
(Decrease) increase in tenants'
security deposits payable (5,748) 24,118
Increase in due to
general partners of subsidiaries
and their affiliates 152,331 228,889
Decrease in due to general partners of
subsidiaries and their affiliates (144,191) (85,139)
Increase in due to
general partners and affiliates 5,373 446,869
----------- ----------
Total adjustments (13,164,499) 1,671,586
----------- ----------
Net cash provided by
operating activities 840,922 1,126,706
----------- ----------
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,
-------------------------
1998 1997
---- ----
Cash flows from investing activities:
Decrease (increase) in certificates
of deposit 128,283 (1,608)
Proceeds from sale of properties 7,082,059 100,000
Acquisitions of property and
equipment (262,766) (470,453)
Increase in mortgage escrow deposits (44,574) 0
---------- ----------
Net cash provided by (used in)
investing activities 6,903,002 (372,061)
---------- ----------
Cash flows from financing activities:
Principal payments of mortgage
notes payable (3,837,510) (977,934)
Decrease in minority interest (500,175) (14,276)
Distributions paid to partners (2,030,972) (1,111,554)
Principal payments of purchase
notes payable (79,626) 0
----------- ----------
Net cash used in financing activities (6,448,283) (2,103,764)
---------- ----------
Net increase (decrease) in cash and
cash equivalents 1,295,641 (1,349,119)
Cash and cash equivalents at
beginning of period 6,069,843 5,981,506
----------- ----------
Cash and cash equivalents at
end of period $7,365,484 $4,632,387
=========== ==========
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,
-------------------------
1998 1997
---- ----
Supplemental disclosures of
noncash activities:
Forgiveness of indebtedness
Decrease in purchase money
notes payable (6,349,781) (1,429,159)
Decrease in due to selling
partners (8,650,859) (1,758,791)
Increase in due to general
partners and affiliates 7,500 0
Decrease in due to general
partners of subsidiaries
and their affiliates (15,762) 0
Summarized below are the
components of the gain
on sale of properties:
Decrease in property and
equipment, net of accumulated
depreciation 8,472,345 1,655,247
Decrease in cash-restricted for
tenants' security deposits 22,464 15,547
Decrease in mortgage escrow
deposits 894,467 120,716
Decrease in rents receivable 4,629 791
Decrease in prepaid expenses and
other assets 8,482 27,008
Decrease in mortgage notes
payable (6,024,054) (1,681,707)
Decrease in accounts payable,
accrued expenses and other
liabilities (1,675,330) (31,345)
Decrease in tenants' security
deposits payable (20,200) (15,383)
Decrease in due to general
partners of subsidiaries and
their affiliates (28,500) (474,492)
See Accompanying Notes to Consolidated Financial Statements.
7
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
August 31, 1998
(Unaudited)
Note 1 - General
The consolidated financial statements for the six months ended August 31, 1998,
include the accounts of Cambridge + Related Housing Properties Limited
Partnership, a Massachusetts limited partnership (the "Partnership") and
thirty-three subsidiary partnerships ("subsidiaries", "subsidiary partnerships"
or "Local Partnerships"), one of which only has activity through the effective
date of sale of the Partnership's interest and four of which only have activity
through the date of sale of their properties and the related assets and
liabilities (see Note 5). The consolidated financial statements for the six
months ended August 31, 1997, include the accounts of the Partnership and
forty-one subsidiary partnerships, one of which only has activity through the
date of sale of the Partnership's interest (see Note 5). 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, the right to remove the local general partner of the subsidiary
partnerships and to approve certain major operating and financial decisions, the
Partnership has a controlling financial interest in the subsidiary partnerships.
For financial reporting purposes, the Partnership's fiscal quarter ends on
August 31. All subsidiaries have fiscal quarters ending June 30. Accounts of
subsidiaries have been adjusted for intercompany transactions from June 1
through August 31. The Partnership's fiscal quarter ends on August 31 in order
to allow adequate time for the subsidiaries financial statements to be prepared
and consolidated. The books and records of the Partnership are maintained on the
accrual basis of accounting, in accordance with generally accepted accounting
principles ("GAAP").
All intercompany accounts and transactions have been eliminated in
consolidation.
Increases (decreases) in the capitalization of consolidated subsidiaries
attributable to minority interest arise from cash contributions from and cash
distributions to the minority interest partners.
8
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
August 31, 1998
(Unaudited)
Losses attributable to minority interests which exceed the minority interests'
investment in a subsidiary have been charged to the Partnership. Such losses
aggregated approximately $0 and $500 and $0 and $5,500 for the three and six
months ended August 31, 1998 and 1997, 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 28, 1998. 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, 1998, the results of operations for
the three and six months ended August 31, 1998 and 1997 and cash flows for the
six months ended August 31, 1998 and 1997. However, the operating results for
the six months ended August 31, 1998 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, 1998 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.
The Purchase Money Notes, which provide for simple interest at the rate of 9%
per annum through maturity, which will occur
9
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
August 31, 1998
(Unaudited)
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
$47,881,013 and $54,826,676 at August 31, 1998 and February 28, 1998,
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 was permitted to extend the term of the Purchase Money Notes for
up to five additional years. In connection with such extensions, the Partnership
incurred an extension fee of 1/2% per annum of the outstanding principal balance
of the assets. The Partnership sent an extension notice to each Purchase Note
holder that pursuant to the note it was extending the maturity. However, the
Partnership did not pay the extension fee at this time, deferring such payment
to the future. The holders of the Note could argue that until the fee is paid
the Note has not been properly extended. The Partnership expects that upon final
maturity it will be required to refinance or sell its investments in the Local
Partnerships in order to pay the Purchase Money Notes and accrued interest
thereon. Based on the historical operating results of the Local Partnerships and
the current economic conditions including changes in tax laws, it is 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. No assurance can be given that man-
10
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
August 31, 1998
(Unaudited)
agement's efforts will be successful. 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, 1998 and 1997, the Partnership received
cash flow distributions aggregating $454,597 and $289,146, respectively, of
which $85,784 and $173,488 was used to pay interest on the purchase money notes.
In addition, the Partnership received a distribution of proceeds from the sale
of four Local Partnerships and proceeds from the sale of its Local Partnership
Interest in one Local Partnership aggregating $1,810,906 and $100,000,
respectively, of which $488,712 and $0 was used to pay principal on the Purchase
Money Notes during the six months ended August 31, 1998 and 1997, respectively.
Note 3 - Related Party Transactions
The costs incurred to related parties for the three and six months ended August
31, 1998 and 1997 were as follows:
Three Months Ended Six Months Ended
August 31, August 31,
------------------ -----------------
1998 1997 1998 1997
---- ---- ---- ----
Partnership manage-
ment fees (a) $241,500 $241,500 $483,000 $483,000
Expense reimburse-
ment (b) 28,060 72,625 52,560 130,625
Property manage-
ment fees (c) 299,526 377,959 616,408 758,472
Local administra-
tive fee (d) 6,000 6,000 13,000 13,000
-------- -------- ---------- --------
$575,086 $698,084 $1,164,968 $1,385,097
======== ======== ========== ==========
(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 $909,000 and $426,000 were accrued and
unpaid as of August 31, 1998 and February 28, 1998.
11
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
August 31, 1998
(Unaudited)
(b) The Partnership reimburses the General Partners and their affiliates for
actual Partnership operating expenses incurred by the General Partners and their
affiliates on the Partnership's behalf. The amount of reimbursement from the
Partnership is limited by the provisions of the Partnership Agreement. Another
affiliate of the General Partners performs asset monitoring for the Partnership.
These services include site visits and evaluations of the subsidiary
partnerships' performance.
(c) Property management fees incurred by Local Partnerships to affiliates of the
Local Partnerships amounted to $299,526 and $377,959 and $616,408 and $758,472
for the three and six months ended August 31, 1998 and 1997, respectively. Of
such fees $40,867 and $67,226 and $101,079 and $134,818, respectively, were
incurred to a company which is also an affiliate of the General Partners.
(d) Cambridge/Related Housing Associates Limited Partnership, the special
limited partner of each of the subsidiary partnerships, owning .01%, is entitled
to receive a local administrative fee of up to $2,500 per year from each
subsidiary partnership.
Note 4 - Property and Equipment
Caddo Parish-Villas South, Ltd. ("Villas South") filed for protection under
Chapter 11 of the United States Bankruptcy Code on November 12, 1996 and the
equivalent of a receiver has been appointed. Accordingly, for the six months
ended August 31, 1998, an impairment loss in the amount of $3,191,072 has been
recognized. As of August 31, 1998, the building was written down to zero.
12
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
August 31, 1998
(Unaudited)
Note 5 - Sale of Properties
On June 24, 1998, the Pacific Palm Limited Partnership entered into a contract
to sell the property to an unaffiliated third party for a price of $4,500,000.
The buyer failed to close and a contract termination notice was sent on
September 22, 1998. The general partner is actively pursuing other interested
purchasers.
On April 27, 1998, the property and the related assets and liabilities of
Riverside Gardens Limited Partnership ("Riverside") and Cudahy Gardens Limited
Partnership ("Cudahy") were sold to a third party for approximately $1,834,000
and $232,000, respectively, resulting in losses of approximately $473,000 and
$240,000 plus the assumption of the related mortgage notes. The Partnership used
approximately $442,000 and $47,000, respectively, of the net proceeds to settle
the associated Purchase Money Note and accrued interest thereon which had total
outstanding balances of approximately $5,402,000 and $2,672,000, respectively,
resulting in forgiveness of indebtedness income of approximately $4,961,000 and
$2,625,000, respectively. For tax purposes, the entire gain to be realized by
the Partnership is anticipated to be approximately $6,500,000 and $3,600,000,
respectively.
On April 21, 1998, the Partnership's limited partnership interest in Oklahoma
City - Town and Country Village Apartments, Ltd. ("Town and Country") was
assigned to the local general partner effective January 15, 1998, resulting in a
gain of approximately $4,634,000. The related purchase money note and interest
thereon were canceled resulting in forgiveness of indebtedness income of
approximately $7,407,000. For tax purposes, the entire gain to be realized by
the Partnership is anticipated to be approximately $11,500,000.
On January 16, 1998, the property and related assets and liabilities of Country
Ltd. ("Country") and Northbrook III, Ltd. ("Northbrook") were sold to a third
party for approximately $3,247,000 and $1,998,000, respectively, resulting in
gains of approximately $937,000 and $570,000, respectively. The Partnership used
approximately $860,000 and $90,000, respectively, of the net proceeds to settle
the associated Purchase Money Note and accrued
13
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
August 31, 1998
(Unaudited)
interest thereon which had total outstanding balances of $2,517,000 and $77,000,
respectively, resulting in forgiveness of indebtedness income (loss) of
$1,656,000 and $(13,000), respectively. For tax purposes, the entire gain to be
realized by the Partnership is anticipated to be approximately $4,200,000 and
$1,600,000, respectively.
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.
Note 6 - Commitments and Contingencies
There were no material changes, except as set forth in Note 5, 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 28, 1998.
a) Certificate of Deposit
The Partnership has a Certificate of Deposit in the amount of $77,226 at August
31, 1998 to secure an overdraft in Town and Country's bank account. Upon
finalization of sale the funds will be used to pay off the overdraft.
14
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
August 31, 1998
(Unaudited)
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 and sales 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, 1998 and 1997, the Partnership received
cash flow distributions aggregating $455,000 and $289,000 , respectively, of
which $86,000 and $173,000 was used to pay interest on the Purchase Money Notes.
In addition, the Partnership received a distribution of proceeds from the sale
of four Local Partnership and proceeds from the sale of its Local Partnership
Interest in one Local Partnership aggregating $1,811,000 and $100,000,
respectively, of which $489,000 and $0 was used to pay principal on the Purchase
Money Notes during the six months ended August 31, 1998 and 1997, respectively.
During the three and six months ended August 31, 1998, cash and cash equivalents
of the Partnership and its thirty-three consolidated Local Partnerships
increased approximately $1,296,000. This increase was due to cash provided by
operating activities ($841,000), decrease in certificates of deposit ($128,000)
and proceeds from sale of properties ($7,082,000) which exceeded principal
payments of mortgage notes payable ($3,838,000), principal payments of purchase
money notes payable ($80,000), an increase in mortgage escrow deposits
($45,000), distributions paid to partners ($2,031,000), a decrease in minority
interest ($500,000) and acquisitions of property and equipment ($263,000).
Included in the adjustments to reconcile the net income to cash provided by
operating activities is gain on sale of properties ($5,428,000), forgiveness of
indebtedness income ($15,009,000), a loss on impairment of assets ($3,191,000)
and depreciation ($2,180,000).
The Partnership had a working capital reserve of approximately $3,390,000 and
$2,339,000 (which does not include approximately $2,031,000 of net proceeds from
sale of properties which was distributed to limited partners and General
Partners in March 1998) at August 31, 1998 and February 28, 1998, respectively,
of which approximately $77,000 and $206,000 was restricted at August 31, 1998
and 1997 to secure an overdraft in Town and Country's bank account and to secure
operating credit lines at five other Local Partnerships. The working capital
reserve is temporarily invested
15
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 available reserves in short term investments. In March 1998 and 1997,
a distribution of approximately $2,011,000 and $1,100,000, and $21,000 and
$11,000 was paid to the limited partners and General Partners, respectively,
from net proceeds from the sale of properties. Of the total distributions of
approximately $2,031,000 and $1,111,000 for the six months ended August 31, 1998
and 1997, $0 and $1,111,000 ($110.68 per unit or 100%) represents a return of
capital determined in accordance with generally accepted accounting principles.
Partnership management fees owed to the General Partners amounting to
approximately $909,000 and $426,000 were accrued and unpaid as of August 31,
1998 and February 28, 1998.
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 and the Riverside Gardens property were sold on September 9, 1997 and
April 27, 1998, respectively. The local general partners of the other properties
are either negotiating purchase and sale contracts or exploring their
alternatives under the 1996 Act.
16
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 had funded approximately $325 million for preservation for 1997 fiscal
year. 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 option has expired and the general partners are
pursuing other opportunities. The Partnership's investment in Westgate was
approximately $839,000 at August 31, 1998. Westgate's assets constituted
approximately 3% of the consolidated total assets at August 31, 1998.
For a discussion of Purchase Money Notes Payable see Note 2 to the financial
statements.
For a discussion of the Partnership's sale of properties see Note 5 to the
financial statements.
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.
Management has endeavored to contact the Local Partnerships in the southeast
regions which may have been affected by Hurricane Georges. At this time, it is
premature to report any damage due to the incomplete information available at
this time due to the recent timing of this occurrence.
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-
17
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,
remained fairly consistent during the three and six months ended August 31, 1998
and 1997 excluding South Munjoy, Country, Northbrook III, Riverside and Cudahy
which sold their properties and Los Cabelleros, Clinton Plaza, Clinton Plaza #2,
Grosvenor Plaza, Grosvenor Plaza #2 and Town and Country in which the
Partnership's interest was sold (collectively the "Sold Assets"), administrative
and management and loss on impairment of assets. 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 21% and 20% for the three and six months
ended August 31, 1998 as compared to 1997. Excluding the Sold Assets, rental
income increased approximately 1% for both the three and six months ended August
31, 1998 as compared to 1997 primarily due to rental rate increases.
Other income decreased approximately $70,000 and $86,000 for the three and six
months ended August 31, 1998 as compared to 1997. Excluding the Sold Assets such
income increased approximately $8,000 and $9,000, respectively.
Total expenses excluding the Sold Assets, administrative and management and loss
on impairment of assets, expenses remained fairly consistent with an increase of
approximately 1% and a decrease of approximately 1% for the three and six months
ended August 31, 1998 as compared to 1997.
18
Administrative and management expense decreased approximately $442,000 and
$547,000, for the three and six months ended August 31, 1998 as compared to 1997
primarily due to decreases relating to the Sold Assets. Excluding the Sold
Assets, such expense decreased approximately $173,000 and $112,000 primarily due
to decreases in bad debt expense at two Local Partnerships as well as decreases
at three other Local Partnerships for the three and six months ended August 31,
1998 as compared to 1997.
Administrative and management-related parties, operating, repairs and
maintenance, taxes and insurance, interest and depreciation expense decreased
approximately $123,000 and $220,000, $258,000 and $743,000, $399,000 and
$832,000, $198,000 and $377,000, $488,000 and $990,000, $341,000 and $708,000,
respectively, for the three and six months ended August 31, 1998 as compared to
1997 primarily due to decreases relating to the Sold Assets. Excluding the Sold
Assets, and Pacific Palm for depreciation only, such expenses remained fairly
consistent with (decreases) increases of approximately ($25,000) and ($46,000),
($31,000) and ($169,000), $100,000 and $49,000, ($4,000) and $31,000, $17,000
and ($14,000), $5,000 and $16,000, respectively, for the three and six months
ended August 31, 1998 as compared to 1997. Pacific Palm is not depreciated
during the quarter because it is classified an asset held for sale.
Year 2000 Compliance
As the year 2000 approaches, an issue has emerged regarding how existing
application software programs and operating systems can accommodate this date
value. Failure to adequately address this issue could have potentially serious
repercussions. The General Partners are in the process of working with the
Partnership's service providers to prepare for the year 2000. Based on
information currently available, the Partnership does not expect that it will
incur significant operating expenses or be required to incur material costs to
be year 2000 compliant.
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.
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
20
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 2, 1998
By:/s/ Alan P. Hirmes
------------------
Alan P. Hirmes,
Vice President and
Principal Financial Officer
Date: October 2, 1998
By:/s/ Glenn F. Hopps
------------------
Glenn F. Hopps,
Treasurer and
Principal Accounting Officer
By: RELATED HOUSING PROGRAMS
CORPORATION, a General Partner
Date: October 2, 1998
By:/s/ Alan P. Hirmes
------------------
Alan P. Hirmes,
Vice President and
Principal Financial Officer
Date: October 2, 1998
By:/s/ Glenn F. Hopps
------------------
Glenn F. Hopps,
Treasurer and
Principal Accounting Officer
22