SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- - --- EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 1996
OR
- - --- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-12634
CAMBRIDGE + RELATED HOUSING PROPERTIES LIMITED PARTNERSHIP
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(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Massachusetts 13-3161322
- - -------------------------------------------------------------- ------------------------------------
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
625 Madison Avenue, New York, New York 10022
- - -------------------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
</TABLE>
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 | |
<PAGE>
PART I
Item 1. Financial Statements
CAMBRIDGE + RELATED HOUSING PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
May 31, February 29,
1996 1996
--------------- ------------
<S> <C> <C>
Property and equipment, net of accumulated depreciation of
$82,077,938 and $80,440,482, respectively $ 110,126,273 $ 111,663,787
Cash and cash equivalents 4,005,258 4,277,246
Certificates of deposit 255,000 255,000
Cash - restricted for tenants' security deposits 1,171,681 1,155,455
Mortgage escrow deposits 8,648,158 7,969,001
Rents receivable 322,425 288,143
Prepaid expenses and other assets 678,404 961,020
------------- -------------
Total assets $ 125,207,199 $ 126,569,652
============= =============
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Mortgage notes payable $ 71,367,099 $ 71,832,854
Purchase money notes payable (Note 2) 61,029,115 61,029,115
Due to selling partners (Note 2) 63,755,306 62,562,415
Accounts payable, accrued expenses and other liabilities 6,090,570 6,333,269
Tenants' security deposits payable 1,171,681 1,155,455
Due to general partners of subsidiaries and their affiliates (Note 3) 1,043,850 998,268
Due to general partners and affiliates (Note 3) 3,034,702 2,989,870
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Total liabilities 207,492,323 206,901,246
Minority interest 71,871 76,347
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Commitments and contingencies (Note 4)
Partners' deficit (82,356,995) (80,407,941)
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Total liabilities and partners' deficit $ 125,207,199 $ 126,569,652
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
CAMBRIDGE + RELATED HOUSING PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
May 31
------------------------------
1996 1995
------------ ------------
Revenues
Rentals, net $7,446,678 $7,305,327
Other 198,269 200,455
------------ ------------
Total revenues 7,644,947 7,505,782
------------ ------------
Expenses
Selling and renting 115,377 105,559
Administrative and management 1,161,322 1,150,186
Administrative and management-
related parties (Note 3) 474,408 468,285
Operating 1,409,865 1,393,753
Repairs and maintenance 1,725,969 1,602,907
Taxes and insurance 955,279 945,266
Interest 2,114,894 2,156,945
Depreciation 1,637,476 1,631,826
------------ ------------
Total expenses 9,594,590 9,454,727
------------ ------------
(1,949,643) (1,948,945)
Minority interest in loss
(income) of subsidiaries 589 (128)
------------ ------------
Net loss $ (1,949,054) $ (1,949,073)
============ ============
See accompanying notes to consolidated financial statements.
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<PAGE>
CAMBRIDGE + RELATED HOUSING PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF PARTNERS' DEFICIT
(Unaudited)
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<CAPTION>
Total Limited Partners General Partners
------------ ---------------- ----------------
<S> <C> <C> <C>
Balance-March 1, 1996 $(80,407,941) $(79,155,331) $ (1,252,610)
Net loss-three months ended May 31, 1996 (1,949,054) (1,929,563) (19,491)
------------ ------------ ------------
Balance-May 31, 1996 $(82,356,995) $(81,084,894) $ (1,272,101)
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
CAMBRIDGE + RELATED HOUSING PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
DECREASE IN CASH AND CASH EQUIVALENTS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
May 31
--------------------------
1996 1995
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Cash flows from operating activities:
<S> <C> <C>
Net loss $(1,949,054) $(1,949,073)
----------- -----------
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation 1,637,476 1,631,826
Minority interest in (loss) income of subsidiaries (589) 128
Increase in cash-restricted for tenants' security deposits (16,226) (20,105)
Increase in mortgage escrow deposits (679,157) (329,437)
(Increase) decrease in rents receivable (34,282) 13,562
Decrease in prepaid expenses and other assets 282,616 191,361
Increase in due to selling partners 1,373,155 1,373,155
Decrease in accounts payable, accrued expenses and other liabilities (242,699) (411,505)
Increase in tenants' security deposits payable 16,226 20,105
Increase (decrease) in due to general partners of subsidiaries and their affiliates 45,582 (40,185)
Increase (decrease) in due to general partners and affiliates 44,832 (17,348)
----------- -----------
Total adjustments 2,426,934 2,411,557
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Net cash provided by operating activities 477,880 462,484
----------- -----------
Cash flows used in investing activities:
Acquisitions of property and equipment (99,962) (152,762)
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Cash flows used in financing activities:
Principal payment of mortgage notes payable (465,755) (488,831)
Payments to selling partners (180,264) (50,396)
Decrease in minority interest (3,887) (1,295)
----------- -----------
Net cash used in financing activities (649,906) (540,522)
----------- -----------
Net decrease in cash and cash equivalents (271,988) (230,800)
Cash and cash equivalents at beginning of period 4,277,246 4,176,820
----------- -----------
Cash and cash equivalents at end of period $ 4,005,258 $ 3,946,020
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1996
(Unaudited)
NOTE 1 - General
The consolidated financial statements include the accounts of Cambridge +
Related Housing Properties Limited Partnership, a Massachusetts limited
partnership (the "Partnership"), and 44 subsidiary partnerships in which the
Partnership is the sole limited partner, with an ownership interest of 98.99%.
The Partnership's fiscal quarter ends May 31. All subsidiaries have fiscal
quarters ending March 31. Accounts of the subsidiary partnerships have been
adjusted for intercompany transactions from April 1 through May 31.
All intercompany accounts and transactions have been eliminated in
consolidation.
Increases (decreases) in the capitalization of consolidated subsidiaries
attributable to minority interest arise from cash contributions and
cash distributions to the minority interest partners.
Losses attributable to minority interests which exceed the minority
interests' investment in a subsidiary have been charged to the Partnership. Such
losses aggregated approximately $4,200 and $4,400, for the three months ended
May 31, 1996 and 1995, respectively. The Partnership's investment in each
subsidiary is equal to the respective subsidiary's partners' equity less
minority interest capital, if any.
These unaudited financial statements have been prepared on the same basis
as the audited financial statements included in the Partnership's Form 10-K for
the year ended February 29, 1996. In the opinion of the General Partners, the
accompanying unaudited financial statements contain all adjustments (consisting
only of normal recurring adjustments) necessary to present fairly the financial
position of the Partnership as of May 31, 1996 and the results of operations and
cash flows for the three months ended May 31, 1996 and 1995. However, the
operating results for the three months ended May 31, 1996 may not be indicative
of the results for the year.
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Asset and for Long-Lived Assets to Be Disposed Of".
Under SFAS No. 121, the Company is required to review long-lived assets and
certain identifiable intangibles for impairment whenever events or changes in
circumstances indicate that the book value of an asset may not be recoverable.
An impairment loss should be recognized whenever the review demonstrates that
the book value of a long-lived asset is not recoverable. Effective March 1,
1996, the Partnership adopted SFAS No. 121, consistent with the required
adoption period.
Property and equipment are carried at the lower of depreciated cost or
estimated amounts recoverable through future operations and ultimate disposition
of the property. Cost includes the purchase price, acquisition fees and
expenses, and any other costs incurred in acquiring the properties. As required
by SFAS 121, a provision for loss on impairment of assets is recorded when
estimated amounts recoverable through future operations and sale of the property
on an undiscounted basis are below depreciated cost. However, depreciated cost,
adjusted for such reductions in value, if any, may be greater than the fair
value. Property investments themselves are reduced to estimated fair value
(generally using discounted cash flows) when the property is considered to be
impaired and the depreciated cost exceeds estimate fair value. Through May 31,
1996, the Partnership has not recorded and provisions for loss in impairment of
assets or reduction to estimated fair value.
Certain information and note disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted. It is suggested that these consolidated financial statements
should be read in conjunction with the financial statements and notes thereto
included in the Partnership's February 29, 1996 Annual Report on Form 10-K.
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<PAGE>
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1996
(Unaudited)
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 during the period July 1998 to
December 1999, will not be in default during the basic term (generally fifteen
years) if not less than 60% of the cash flow actually distributed to the
Partnership by the corresponding subsidiary partnership (generated by the
operations, as defined) is applied first to accrued interest and then to current
interest thereon. Any interest not paid currently accrues, without further
interest thereon, through the due date of the note. All accrued and unpaid
interest must be paid on the due date of the note, unless the Partnership
exercises an extension right.
The Partnership may elect, upon the payment of an extension fee of 1 1/2%
per annum of the outstanding principal amount, to extend the term of the
purchase money note for up to five additional years. The Partnership may also
defer payment of any accrued and unpaid interest until the due date of the note.
Management is working with the selling partners to restructure and/or refinance
the notes. The sellers' recourse, in the event of non-payment would be to
foreclose on the Partnership's interests in the respective local partnerships.
Distributions aggregating $380,986 (which includes $80,546 held in escrow
for expenses relating to refinancings or sales) and $126,941 were made to the
Partnership for the three months ended May 31, 1996 and 1995, of which $180,264
and $76,165, respectively, was used to pay interest on the purchase money notes.
Of the $76,165 interest on the purchase money notes, $25,769 was actually paid
in the subsequent quarter. Continued accrual of such interest without payment,
would impact the effective rate of the notes. The impact would be to reduce the
effective interest rate of 9%. The exact effect is not determinable inasmuch as
it is dependent on the actual future interest payments and ultimate repayment
dates of the notes. Unpaid interest of approximately $63,630,000 and $62,437,000
at May 31, 1996 and February 29, 1996, respectively, has been accrued and is
included in the caption due to selling partners.
NOTE 3 - Related Party Transactions
The costs incurred to related parties for the three months ended May 31,
1996 and 1995 were as follows:
Three Months Ended
May 31,
-------------------
1996 1995
-------- --------
Partnership management fees (a) $ 30,413 $ 29,663
Expense reimbursement (b) 59,423 42,905
Property management fees (c) 377,572 388,717
Local administrative fee (d) 7,000 7,000
-------- --------
$474,408 $468,285
======== ========
(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.
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<PAGE>
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1996
(Unaudited)
NOTE 3 - Related Party Transactions (continued)
(b) The Partnership reimburses the General Partners and their affiliates
for actual Partnership operating expenses incurred by the General Partners and
their affiliates on the Partnership's behalf. The amount of reimbursement from
the Partnership is limited by the provisions of the Partnership Agreement.
Another affiliate of the General Partners performs asset monitoring for the
Partnership. These services include site visits and evaluations of the
subsidiary partnership's performance.
(c) Property management fees incurred by Local Partnerships to affiliates
of the Local Partnerships amounted to approximately $378,000 and $312,000, for
the three months ended May 31, 1996 and 1995, respectively. Of such fees $77,894
and $76,619 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 - Commitments and Contingencies
a) Events of Default
Two subsidiary partnerships continue to be in default of their original
mortgage agreements with aggregate delinquent payments of principal and interest
approximating $2,975,000 and $2,907,000 at May 31, 1996 and February 29, 1996,
respectively. Until November 1995, both subsidiary partnerships operated under a
provisional workout agreement with HUD. On November 1, 1995, the mortgage note
of Oklahoma City - Town & Country Village Apartments was sold to a conventional
mortgagee. During November 1995, the mortgage note of Caddo Parish - Villas
South was also sold to a conventional mortgagee. The auditors for the subsidiary
partnerships modified their reports for the 1995, 1994 and 1993 Fiscal Years due
to the uncertainty of the ability of the subsidiary partnerships to continue in
existence. Villas South and Town and Country are in the process of trying to
renegotiate the terms of the notes with the new mortgage holders, but there can
be no assurance that the renegotiation will be successful. In the interim,
Villas South is continuing to make payments to the new mortgage holder under the
provisions of the previous workout agreement with HUD. Town & Country had been
making payments under the provisions of the previous workout agreement with HUD,
however in February 1996 payments were suspended until management can negotiate
new terms with the mortgagee. The Partnership's investment in these two
subsidiary partnerships was approximately $637,000 and $739,000 at May 31, 1996
and February 29, 1996, respectively, and the minority interest balance was zero
at each date. The net loss after minority interest for these two subsidiary
partnerships amounted to approximately $102,000 and $132,000, for the three
months ended May 31, 1996 and 1995, respectively.
Another subsidiary partnership, Los Caballeros Apartments, received formal
notice from the Secretary of the Department of Housing and Urban Development
("HUD") that, as a result of deficiencies sited upon a physical inspection of
the property, the complex is in violation of their regulatory agreement and
their Housing Assistance Payment ("HAP") Contracts. The subsidiary partnership
does not have the working capital necessary to cover the costs to cure the
deficiencies. In addition, one of the subsidiary partnership's three HAP
contracts was not renewed upon the contract's expiration on November 30, 1995.
The auditors for this subsidiary partnership modified their report for the 1995
Fiscal Year due to the uncertainty of the ability of the subsidiary partnership
to continue in existence. Management of the Local Partnership is now working on
securing a commercial loan to
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<PAGE>
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1996
(Unaudited)
NOTE 4 - Commitments and Contingencies (continued)
cover the cost of physical improvements. HUD has indicated they would be willing
to increase existing contract rents to cover the cost of debt service on a
second mortgage. The Partnership's investment in this subsidiary partnership was
approximately $511,000 and $539,000 at May 31, 1996 and February 29, 1996,
respectively, and the minority interest balance was zero at each date. The net
loss after minority interest for this subsidiary partnership amounted to
approximately $27,000 and $35,000, for the three months ended May 31, 1996 and
1995, respectively.
One other subsidiary partnership, Rolling Meadows of Chickasha
("Chickasha"), had previously filed a petition under Chapter 11 of the
Bankruptcy Code ("Chapter 11") which has been dismissed. HUD notified Chickasha
that it intended to commence foreclosure proceedings. Chickasha is in default
and under HUD control as a mortgagee in possession. A foreclosure sale occurred
on June 14, 1996. Bids were accepted but a closing has not yet occurred. It is
anticipated that the Partnership will not receive any net proceeds as a result
of the sale. In addition, it is anticipated that the gain on the sale of the
property will be approximately $2,300,000 and that forgiveness of indebtedness
income as a result of the cancellation of the associated purchase money note and
accrued interest will be $1,700,000. Therefore, the entire gain realized by the
Partnership from the sale is anticipated to be approximately $4,000,000. The
Partnership is working on different alternatives in order to mitigate the
effects of the transaction. The minority interest balance was zero at May 31,
1996 and February 29, 1996. The net loss after minority interest of Chickasha
amounted to approximately $97,000 and $65,000, for the three months ended May
31, 1996 and 1995, respectively.
b) Certificate of Deposit
The Partnership has a Certificate of Deposit in the amount of $125,000 at
May 31, 1996 to secure an overdraft in Town and Country's bank account. The
amount of the overdraft was approximately $77,000 at March 31, 1996.
c) Other Restricted Cash
In addition, the Partnership and/or its subsidiary partnerships may from
time to time use a portion of their cash or property to secure operating credit
lines. As of May 31, 1996, $130,000 of the Partnership's funds have been so
pledged to secure operating credit lines at seven subsidiary partnerships.
d) Sales of Subsidiary Partnerships
The general partners of one subsidiary partnership, Westgate Associates
Ltd., 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 this subsidiary partnership
was approximately $800,000 at May 31, 1996. This subsidiary partnership's assets
constituted approximately 2% of the consolidated total assets at May 31, 1996.
The Partnership entered into negotiations to sell two properties
(Oakland-Keller Plaza and South Munjoy Associates Ltd.) for an aggregate selling
price of approximately $11,000,000. The net proceeds will be used to satisfy the
existing mortgage debt of approximately $4,400,000. The balance of the proceeds
will be used to settle the purchase money notes and accrued interest with the
balance, if any, available for general partnership purposes.
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<PAGE>
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1996
(Unaudited)
NOTE 5 - Subsequent Event
On June 3, 1996 the property owned by Roper Mountain Apartments Ltd. was
sold to an unaffiliated third party for approximately $4,700,000 resulting in
net proceeds of $2,100,000 to the Partnership after payment of the HUD mortgage
and fees and expenses of the sale. The Partnership's investment in Roper
Mountain Apartments Ltd. ("Roper Mountain") at June 3, 1996 was approximately
$500,000 resulting in a gain of $1,600,000. The Partnership used approximately
$1,200,000 of the net proceeds to settle the associated purchase money note and
accrued interest which had a total outstanding balance of $2,300,000 resulting
in forgiveness of indebtedness income of $1,100,000. Therefore the entire gain
realized by the Partnership from this transaction is anticipated to be
approximately $2,700,000. The balance of the proceeds amounting to approximately
$900,000 are currently being held in an interest bearing escrow account for the
benefit of the Partnership. For financial reporting purposes, this transaction
will be reflected in the financial statements in the second quarter coinciding
with Roper Mountain's fiscal quarter which includes the date of sale.
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
- - -------------------------------
The Partnership's capital has been invested primarily in forty-four
subsidiary partnerships (the "Local Partnerships" or "subsidiary partnerships").
As of December 1984, the Partnership had completed its cash investment of
approximately $36,638,000 (including expenses) in the Local Partnerships (the
"Local Partnership Interests").
During the three months ended May 31, 1996, cash and cash equivalents of
the Partnership and its 44 consolidated Local Partnerships decreased
approximately $272,000 primarily as a result of capital improvements ($100,000),
mortgage principal payments ($466,000) and payments of interest on purchase
money notes ($180,000) which exceeded cash provided by operating activities
(478,000).
The Partnership's primary sources of funds are (i) cash distributions from
operations of the Local Partnerships in which the Partnership has invested, (ii)
interest earned on funds and (iii) working capital reserves. All of these
sources of funds are available to meet the obligations of the Partnership.
During the three months ended May 31, 1996 and 1995, the Partnership
received cash flow distributions from operations of the Local Partnerships of
approximately $381,000 (which includes approximately $81,000 held in escrow for
expenses relating to refinancings or sales) and $127,000, respectively, of which
approximately $180,000 and $76,000, respectively, was used to pay interest on
the related Local Partnership purchase money notes. Of the $76,000 interest on
the purchase money notes, $26,000 was actually paid in the subsequent quarter.
In general, 60% of cash flow distributions are required to be applied to
interest payments; the balance used to fund Partnership expenses.
The Partnership had a working capital reserve of approximately $382,000 and
$308,000 at May 31, 1996 and February 29, 1996, respectively, of which $255,000
at each date 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 as well as future cash flow distributions will be adequate for its
operating needs, and plan to continue investing available reserves in short term
investments.
As part of the purchase price of its investment in the Local Partnerships,
the Partnership issued approximately $61,029,000 of Purchase Money Notes. The
typical Purchase Money Note has a basic term of fifteen years (maturities range
from July 1998 to December 1999), subject to certain possible extensions as
described below; provided, however, that the Purchase Money Note, as it may have
been extended from time to time, will mature in any event upon the sale or
refinancing of the Apartment Complex or in the event that the Local Partnership
Interest has been sold by the Partnership prior thereto, in twenty years from
issuance.
Interest on each Purchase Money Note is payable at the rate of 9% per
annum. A Purchase Money Note will not be in default during the basic
fifteen-year term if not less than 60% of the cash flow actually distributed to
the Partnership by the corresponding Local Partnership (generated by the
operations of its Apartment Complex) is applied first to accrued interest and
then to current interest thereon. Any interest not paid currently shall accrue,
without further interest thereon, through the fifteenth year. All accrued and
unpaid interest must be paid in full at the end of the fifteenth year, unless
the Partnership exercises an extension right.
The obligation to pay the Purchase Money Note is on a non-recourse basis to
any General or Limited Partner but payment thereof is secured by a pledge under
the purchase, sale and security agreement of the related Local Partnership
Interest. The payee has the right to foreclose on the related Local Partnership
Interest in the event that any payment on the Purchase Money Note is not paid
when due or if the Partnership is otherwise in default thereunder.
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<PAGE>
At May 31, 1996, unpaid accrued interest on the Purchase Money Notes
amounted to approximately $63,630,000. The principal of and all accrued interest
on the Purchase Money Notes is due at maturity, which will occur during the
period July 1998 to December 1999. The Partnership may elect, upon the payment
of an extension fee of 1 1/2% per annum of the outstanding principal amount, to
extend the term of the Purchase Money Notes for up to five additional years. The
cash distributions out of which the Partnership pays interest on the Purchase
Money Notes is less than the total interest thereon, and it is expected that
accrued and unpaid interest on the Purchase Money Notes will continue to
increase. The Partnership expects that upon maturity it will be required to
refinance or sell its investments in the Local Partnerships in order to pay the
Purchase Money Notes and accrued interest thereon. Based on the historical
operating results of the Local Partnerships and the current economic conditions
including changes in tax laws, it is uncertain as to whether the proceeds from
such sales will be sufficient to meet the outstanding balances. Management is
working with the selling partners to restructure and/or refinance the notes. The
sellers recourse, in the event of non-payment would be to foreclose on the
Partnerships interests in the respective local partnerships.
The Local Partnerships which receive government assistance are subject to
low-income use contracts which restrict the sale or refinancing of the
properties. These contracts have begun to expire. 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 eliminating the owners right to prepay the HUD
mortgage and convert the property to market rate use, the Preservation Acts
provided financial incentives for owners of government assisted properties. The
1996 Act provides financial assistance by funding the sale of such properties to
not-for-profit owners and also restores the owners ability to prepay their HUD
mortgage and convert the property to condominiums or market-rate rental housing
. Local General Partners have filed for incentives under the Preservation Acts
or the 1996 Act for the following Local Partnerships: Oakland -Keller Plaza, 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
Oakland-Keller Plaza property is currently under contract for sale to the
Oakland Housing Authority. The South Munjoy Associates, Ltd. property is under
contract for sale to a private owner. The local general partners of the other
properties are either negotiating purchase and sale contracts or exploring their
alternatives under the 1996 Act.
Funding for the 1996 Act is subject to appropriations by Congress. Congress
funded $624 million in fiscal year 1996 for the preservation of housing. No
preservation funds have been requested by HUD nor has Congress yet allocated
such funds for the 1997 Fiscal Year. Accordingly, no assurance can be given that
any of the Local Partnerships will obtain such incentives.
HUD previously released the American Community Partnerships Act (the
"ACPA"). The ACPA is HUD's blueprint for providing for the nation's housing
needs in an era of static or decreasing budget authority.
Two key proposals in the ACPA that could affect the Local Partnerships are:
a discontinuation of project based Section 8 subsidy payments and an attendant
reduction in debt on properties that were supported by the Section 8 payments.
The ACPA calls for a transition during which the project based Section 8
would be converted to a tenant based voucher system. Any FHA insured debt would
then be "marked-to-market", that is revalued in light of the reduced income
stream, if any.
Several industry sources have already commented to HUD and Congress that in
the event the ACPA was fully enacted in its present form the reduction in
mortgage indebtedness would be considered taxable income to limited partners in
the Partnership. Legislative relief has been proposed to exempt "mark-to-market"
debt from cancellation of indebtedness income treatment. Though HUD initially
backed away from the "marked-to-market" proposal, it has now been re-introduced
as "Portfolio Restructuring". Additionally, in the interim, HUD has agreed to
annual extensions of any expiring project based Section 8 contracts.
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<PAGE>
The Partnership entered into negotiations to sell two properties
(Oakland-Keller Plaza and South Munjoy Associates Ltd.) for an aggregate selling
price of approximately $11,000,000. The net proceeds will be used to satisfy the
existing mortgage debt of approximately $4,400,000. The balance of the proceeds
will be used to settle the purchase money notes and accrued interest with the
balance, if any, available for general partnership purposes. Additionally,
another Local Partnership has signed an option agreement to sell its property to
the Local Housing Authority subject to HUD approval on or before December 31,
1998.
On June 3, 1996 the property owned by Roper Mountain Apartments Ltd. was
sold to an unaffiliated third party for approximately $4,700,000 resulting in
net proceeds of $2,100,000 to the Partnership after payment of the HUD mortgage
and fees and expenses of the sale. The Partnership's investment in Roper
Mountain Apartments Ltd. ("Roper Mountain") at June 3, 1996 was approximately
$500,000 resulting in a gain of $1,600,000. The Partnership used approximately
$1,200,000 of the net proceeds to settle the associated purchase money note and
accrued interest which had a total outstanding balance of $2,300,000 resulting
in forgiveness of indebtedness income of $1,100,000. Therefore the entire gain
realized by the Partnership from this transaction is anticipated to be
approximately $2,700,000. The balance of the proceeds amounting to approximately
$900,000 are currently being held in an interest bearing escrow account for the
benefit of the Partnership.
For a discussion of contingencies affecting certain Local Partnerships, see
Note 4 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.
The Partnership continues to meet the investment objective of generating
tax benefits in the form of passive losses (which Limited Partners may use to
offset passive income from other sources); however, to date the Partnership has
been unable to provide cash distributions to the Limited Partners.
Except as described above, management is not aware of any trends or events,
commitments or uncertainties that will impact liquidity in a material way.
Management believes the only impact would be from laws that have not yet been
adopted. The portfolio is diversified by the location of the properties around
the United States so that if one area of the country is experiencing downturns
in the economy, the remaining properties in the portfolio may be experiencing
upswings. However, the geographic diversifications of the portfolio may not
protect against a general downturn in the national economy.
Results of Operations
- - ---------------------
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Asset and for Long-Lived Assets to Be Disposed Of".
Under SFAS No. 121, the Company is required to review long-lived assets and
certain identifiable intangibles for impairment whenever events or changes in
circumstances indicate that the book value of an asset may not be recoverable.
An impairment loss should be recognized whenever the review demonstrates that
the book value of a long-lived asset is not recoverable. Effective March 1,
1996, the Partnership adopted SFAS No. 121, consistent with the required
adoption period.
Property and equipment are carried at the lower of depreciated cost or
estimated amounts recoverable through future operations and ultimate disposition
of the property. Cost includes the purchase price, acquisition fees and
expenses, and any other costs incurred in acquiring the properties. As required
by SFAS 121, a provision for loss on impairment of assets is recorded when
estimated amounts recoverable through future operations and sale of the property
on an undiscounted basis are below depreciated cost. However, depreciated cost,
adjusted for such reductions in value, if any, may be greater than the fair
value. Property investments themselves are reduced to estimated fair value
(generally using discounted cash flows) when the property is considered to be
impaired and the depreciated cost exceeds estimate fair value. Through May 31,
1996, the Partnership has not recorded and provisions for loss in impairment of
assets or reduction to estimated fair value.
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<PAGE>
The results of operations of the Partnership, as well as the Local
Partnerships, remained fairly constant during the three months ended May 31,
1996 and 1995. Contributing to the relatively stable operations at the Local
Partnerships is the fact that a large portion of the Local Partnerships are
operating under Government Assistance Programs which provide for rental
subsidies and/or reductions of mortgage interest payments under HUD Section 8
and Section 236 Programs.
The Partnership's primary source of income continues to be its portion of
the Local Partnerships' operating results. The majority of Local Partnership
income continues to be in the form of rental income with the corresponding
expenses being divided among operations, depreciation, and mortgage interest. In
addition, the Partnership incurred interest expense relating to the Purchase
Money Notes issued when the Local Partnership Interests were acquired.
Rental income increased approximately 2% during the three months ended May
31, 1996 as compared to 1995 primarily due to rental rate increases. Total
expenses remained fairly consistent with an increase of 1% for the three months
ended May 31, 1996, as compared to 1995.
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<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Partnership is a Plaintiff in the Oklahoma County District Court in
Oklahoma against Jerry L. Womack and Womack Property Management, Inc., an
Oklahoma corporation. In this action entitled Shearson + Related Housing
Properties Limited Partnership and Shearson/Related Housing Associates Limited
Partnership v. Jerry L. Womack and Womack Property Management, Inc., the
Partnership seeks judgment for damages caused by the individual defendant's
resignation as general partner of Rolling Meadows of Chickasha, Ltd. (Rolling
Meadows), of which the Partnership is a limited partner, and by the corporate
defendant's mismanagement of the apartment project owned by Rolling Meadows. The
individual defendant has counterclaimed against the Plaintiffs, alleging that
they breached an agreement to advance funds to Rolling Meadows sufficient to pay
operating losses on the property, thereby damaging such defendant in an amount
exceeding $10,000. The corporate defendant has counterclaimed against the
Plaintiffs for unpaid management fees and expenses approximating $6,000. Both
counterclaims seek costs and attorneys' fees.
Discovery is continuing in the action. The Plaintiffs are responding
vigorously to the counterclaims and intend to continue doing so. While it is
impossible to predict with certainty, counsel believes the counterclaims have no
substantial merit and that an outcome unfavorable to the Partnership is
unlikely.
The U.S. Department of Housing and Urban Development ("HUD"), the holder of
the mortgage on the Project, notified Rolling Meadows that such mortgage was in
default and that HUD intended to commence foreclosure proceedings. A foreclosure
sale occurred on June 14, 1996. Bids were accepted but a closing has not yet
occurred. It is anticipated that the Partnership will not receive any net
proceeds as a result of the sale. In addition, it is anticipated that the gain
on the sale of the property will be approximately $2,300,000 and that
forgiveness of indebtedness income as a result of the cancellation of the
associated purchase money note and accrued interest will be $1,700,000.
Therefore, the entire gain realized by the Partnership from the sale is
anticipated to be approximately $4,000,000. The Partnership is working on
different alternatives in order to mitigate the effects of the transaction.
Counsel is aware of no reason HUD could recover a money judgment against Rolling
Meadows by reason of such foreclosure.
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other information - None
Item 6. Exhibits and Reports on Form 8-K - None
-15-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP
By: GOVERNMENT ASSISTED PROPERTIES, INC.,
a general partner
Date: July 14, 1996 By: /s/Paul L. Abbott
-----------------------------------
Paul L. Abbott,
President
By: RELATED HOUSING PROGRAMS
CORPORATION, a general partner
Date: July 14, 1996 By: /s/Alan P. Hirmes
-----------------------------------
Alan P. Hirmes,
Vice President
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<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
- - ---------------------------- -------------------------------------------- ------------
<S> <C> <C>
/s/Alan P. Hirmes Vice President of Related Housing Programs July 14, 1996
- - ---------------------------- Corporation
Alan P. Hirmes
/s/Lawrence J. Lipton Treasurer (principal financial and accounting
- - ---------------------------- officer) of Related Housing Programs
Lawrence J. Lipton Corporation July 14, 1996
/s/Paul L. Abbott President, Chief Executive Officer (principal
- - ---------------------------- executive officer) and Chief Financial Officer
Paul L. Abbott of Government Assisted Properties, Inc. July 14, 1996
</TABLE>
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