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, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- - - - - - - - - --- EXCHANGE ACT OF 1934
Commission File Number 0-12634
CAMBRIDGE + RELATED HOUSING
PROPERTIES LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Massachusetts 13-3161322
- - - - - - - - - ------------------------------- -------------------
(State or other jurisdiction 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
--- ---
<PAGE>
PART I
Item 1. Financial Statements
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Consolidated Balance Sheets
(unaudited)
<TABLE>
<CAPTION>
November 30, February 29,
1996 1996*
------------ ------------
<S> <C> <C>
ASSETS
Property and equipment, net of
accumulated depreciation of
$78,669,670 and $80,440,482, respectively $ 99,877,418 $111,663,787
Cash and cash equivalents 7,856,526 4,277,246
Certificates of deposit 201,124 255,000
Cash - restricted for tenants'
security deposits 1,086,058 1,155,455
Mortgage escrow deposits 8,570,270 7,969,001
Rents receivable 296,519 288,143
Prepaid expenses and other assets 1,321,427 961,020
------------ ------------
Total assets $119,209,342 $126,569,652
============ ============
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Mortgage notes payable $ 64,128,421 $ 71,832,854
Purchase money notes payable
(Note 2) 56,929,115 61,029,115
Due to selling partners (Note 2) 62,681,058 62,562,415
Accounts payable, accrued expenses
and other liabilities 4,203,359 6,333,269
Tenants' security deposits payable 1,086,058 1,155,455
Due to general partners of
subsidiaries and their affiliates 1,086,663 998,268
Due to general partners and affiliates 3,188,244 2,989,870
------------ ------------
Total liabilities 193,302,918 206,901,246
Minority interest 70,581 76,347
------------ ------------
Commitments and contingencies (Note 6)
Partners' deficit:
Limited partners (72,973,985) (79,155,331)
General partners (1,190,172) (1,252,610)
------------ ------------
Total partners' deficit (74,164,157) (80,407,941)
------------ ------------
Total liabilities and partners' deficit $119,209,342 $126,569,652
============ ============
</TABLE>
*Reclassified for comparative purposes
See Accompanying Notes to Consolidated Financial Statements
2
<PAGE>
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaduited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
November 30, November 30,
-------------------------------- -----------------------------
1996 1995 1996 1995
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues
Rentals, net $7,371,246 $7,499,468 $22,284,296 $22,267,222
Other 225,871 250,560 715,097 689,873
Gain on sale of properties
(Note 4) 5,319,969 0 7,034,101 0
---------- ----------- ----------- -----------
Total revenues 12,917,086 7,750,028 30,033,494 22,957,095
---------- ----------- ----------- -----------
Expenses
Selling and
renting 110,376 102,253 350,279 322,753
Administrative and
management 1,225,031 1,102,317 3,649,392 3,381,928
Administrative
and management-
related parties
(Note 3) 454,565 480,974 1,411,318 1,404,989
Operating 1,096,085 1,118,215 3,767,851 3,618,010
Repairs and
maintenance 2,066,999 2,020,448 5,876,051 5,651,183
Taxes and
insurance 1,004,723 981,765 3,050,451 2,922,300
Interest 1,887,379 2,138,272 6,041,065 6,427,335
Depreciation 1,590,844 1,645,093 4,852,878 4,912,856
---------- ----------- ----------- -----------
Total expenses 9,436,002 9,589,337 28,999,285 28,641,354
---------- ----------- ----------- -----------
3,481,084 (1,839,309) 1,034,209 (5,684,259)
Minority interest
in loss of
subsidiaries 71 194 1,535 6
---------- ----------- ----------- -----------
Income (loss)
before extra-
ordinary item 3,481,155 (1,839,115) 1,035,744 (5,684,253)
Extraordinary item-
forgiveness of
indebtedness income
(Note 5) 4,130,987 0 5,208,040 0
---------- ----------- ----------- -----------
Net income
(loss) $7,612,142 $(1,839,115) $6,243,784 $(5,684,253)
========== =========== =========== ===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
3
<PAGE>
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Consolidated Statement of Partner's Deficit
(Unaudited)
Limited General
Total Partners Partners
------------- ------------- ------------
Balance-
March 1, 1996 $(80,407,941) $(79,155,331) $(1,252,610)
Net income-
nine months ended
November 30, 1996 6,243,784 6,181,346 62,438
------------- ------------- ------------
Balance-
November 30, 1996 $(74,164,157) $(72,973,985) $(1,190,172)
============ ============ ===========
See Accompanying Notes to Consolidated Financial Statements
4
<PAGE>
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,
------------------------
1996 1995
---------- -----------
Cash flows from operating activities:
Net income (loss) $6,243,784 $(5,684,253)
---------- -----------
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Gain on sale of properties (Note 4) (7,034,101) 0
Extraordinary item-forgiveness of
indebtedness income (Note 5) (5,208,040) 0
Depreciation 4,852,878 4,912,856
Minority interest in loss
of subsidiaries (1,535) (6)
Decrease (increase) in cash-restricted
for tenants' security deposits 16,448 (25,704)
Increase in mortgage escrow deposits (617,123) (536,230)
Increase in rents receivable (15,234) (77,629)
Increase in prepaid expenses and
other assets (453,860) (201,208)
Increase in due to selling partners 4,005,190 4,119,465
Increase in accounts payable,
accrued expenses and other liabilities 198,645 5,009
Increase in tenants' security
deposits payable 13,783 25,704
Increase (decrease) in due to general
partners of subsidiaries and their
affiliates 88,395 (102,996)
Increase in due to general partners
and affiliates 198,374 36,569
---------- -----------
Total adjustments (3,956,180) 8,155,830
---------- -----------
Net cash provided by operating
activities 2,287,604 2,471,577
---------- -----------
Cash flows provided by (used in)
investing activities:
Decrease in certificates of deposit 53,876 0
Proceeds from sale of property 13,096,696 0
Acquisitions of property and
equipment (686,277) (744,926)
---------- -----------
Net cash provided by (used in)
investing activities 12,464,295 (744,926)
---------- -----------
See Accompanying Notes to Consolidated Financial Statements
5
<PAGE>
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,
------------------------
1996 1995
---------- -----------
Cash flows used in financing activities:
Principal payments of mortgage
notes payable (6,621,081) (1,431,928)
Payments to selling partners (1,319,366) (398,840)
Decrease in minority interest (4,231) (6,782)
Principal payment of purchase
money notes payable (3,227,941) 0
----------- -----------
Net cash used in financing activities (11,172,619) (1,837,550)
----------- -----------
Net increase (decrease) in cash and
cash equivalents 3,579,280 (110,899)
Cash and cash equivalents at
beginning of period 4,277,246 4,176,820
----------- -----------
Cash and cash equivalents at
end of period $7,856,526 $4,065,921
=========== ===========
Supplemental disclosures of noncash activities:
Forgiveness of indebtedness (Note 5):
Decrease in purchase money
notes payable (872,059) 0
Decrease in due to selling
partners (2,567,181) 0
Decrease in mortgage notes
payable (1,083,352) 0
Decrease in accounts payable,
accrued expenses and
other liabilities (685,448) 0
Summarized below are the
components of the gain
on sale of properties:
Decrease in property and
equipment, net of accumulated
depreciation 7,619,768 0
Decrease in cash-restricted for
tenants' security deposits 52,949 0
Decrease in rents receivable 6,858 0
Decrease in mortgage escrow deposits 15,854 0
Decrease in prepaid expenses and
other assets 93,453 0
Decrease in accounts payable,
accrued expenses and other
liabilities (1,643,107) 0
Decrease in tenants' security
deposits payable (83,180) 0
See Accompanying Notes to Consolidated Financial Statements
6
<PAGE>
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
November 30, 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, 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 the sole limited partner, with
an ownership interest of 98.99% in each of the subsidiary partnerships. Through
the rights of the Partnership and/or the General Partner, which General Partner
has a contractual obligation to act on behalf of the Partnership, to remove the
general partner of the subsidiary local partnerships and to approve certain
major operating and financial decisions, the Partnership has a controlling
financial interest in the subsidiary local partnerships.
The Partnership's fiscal quarter ends 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 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 $0 and $3,300 and $5,600 and $12,200 for the three and
nine months ended November 30, 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 November 30, 1996, the
7
<PAGE>
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
November 30, 1996
(Unaudited)
Note 1 - General (continued)
results of operations for the three and nine months ended November 30, 1996 and
1995 and cash flows for the nine months ended November 30, 1996 and 1995.
However, the operating results for the nine months ended November 30, 1996 may
not be indicative of the results for the year.
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Asset and for Long-Lived Assets to Be Disposed Of".
Under SFAS No. 121, the Partnership is required to review long-lived assets and
certain identifiable intangibles for impairment whenever events or changes in
circumstances indicate that the book value of an asset may not be recoverable.
An impairment loss should be recognized whenever the review demonstrates that
the book value of a long-lived asset is not recoverable. Effective March 1,
1996, the Partnership adopted SFAS No. 121, consistent with the required
adoption period.
Property and equipment are carried at the lower of depreciated cost or estimated
amounts recoverable through future operations and ultimate disposition of the
property. Cost includes the purchase price, acquisition fees and expenses, and
any other costs incurred in acquiring the properties. As required by SFAS 121, a
provision for loss on impairment of assets is recorded when estimated amounts
recoverable through future operations and sale of the property on an
undiscounted basis are below depreciated cost. However, depreciated cost,
adjusted for such reductions in value, if any, may be greater than the fair
value. Property investments themselves are reduced to 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 November
30, 1996, the Partnership has not recorded any provisions for loss on impairment
of assets or reduction to estimated fair value.
Certain information and note disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted. It is suggested that these consolidated financial statements
should be read in conjunction with the financial statements and notes thereto
included in the Partnership's February 29, 1996 Annual Report on Form 10-K.
8
<PAGE>
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
November 30, 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. On June 3, 1996 and September
17, 1996 the properties and the related assets and liabilities owned by two
subsidiary partnerships were sold to third parties and on August 15, 1996 the
Partnership's interest in another subsidiary partnership was also sold to a
third party. A portion of the net proceeds were used to settle the associated
purchase money notes and accrued interest thereon (see Note 4).
The purchase money notes, which provide for simple interest at the rate of 9%
per annum through maturity, which will occur during the period July 1998 to
December 1999, will not be in default during the basic term (generally fifteen
years) if not less than 60% of the cash flow actually distributed to the
Partnership by the corresponding subsidiary partnership (generated by the
operations, as defined) is applied first to accrued interest and then to current
interest thereon. Any interest not paid currently accrues, without further
interest thereon, through the due date of the note. All accrued and unpaid
interest must be paid on the due date of the note, unless the Partnership
exercises an extension right.
The Partnership may elect, upon the payment of an extension fee of 1 1/2% per
annum of the outstanding principal amount, to extend the term of the purchase
money note for up to five additional years. The Partnership may also defer
payment of any accrued and unpaid interest until the due date of the note.
Management is working with the selling partners to restructure and/or refinance
the notes. The sellers' recourse, in the event of non-payment would be to
foreclose on the Partnership's interests in the respective local partnerships.
Distributions aggregating $737,827 (which includes $80,546 held in escrow for
expenses relating to refinancings or sales) and $664,734 were made to the
Partnership for the nine months ended November 30, 1996 and 1995, of which
$302,500 and $398,840, respectively, was used to pay interest on the purchase
money notes. Continued accrual of such interest without payment, would impact
the effective rate of the notes. The impact would be to reduce the effective
interest rate of 9%. The exact effect is not
9
<PAGE>
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
November 30, 1996
(Unaudited)
Note 2 - Purchase Money Notes Payable (continued)
determinable inasmuch as it is dependent on the actual future interest payments
and ultimate repayment dates of the notes. Unpaid interest of approximately
$62,556,000 and $62,437,000 at November 30, 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 and nine months ended
November 30, 1996 and 1995 were as follows:
Three Months Ended Nine Months Ended
November 30, November 30,
---------------------- ---------------------
1996 1995 1996 1995
-------- -------- -------- --------
Partnership
management
fees (a) $ 30,413 $ 29,663 $ 91,238 $ 88,988
Expense
reimburse-
ment (b) 42,500 50,190 152,363 118,845
Property
management
fees (c) 374,652 394,121 1,147,717 1,177,156
Local adminis-
trative fee (d) 7,000 7,000 20,000 20,000
-------- -------- ---------- ----------
$454,565 $480,974 $1,411,318 $1,404,989
======== ======== ========== ==========
(a) After all other expenses of the Partnership are paid, an annual partnership
management fee of up to .5% of invested assets is payable to the
Partnership's general partners and affiliates.
(b) The Partnership reimburses the General Partners and their affiliates for
actual Partnership operating expenses incurred by the General Partners and
their affiliates on the Partnership's behalf. The amount of reimbursement
from the Partnership is limited by the provisions of the Partnership
Agreement. Another affiliate of the General Partners performs asset
monitoring for the Partnership. These services include site visits and
evaluations of the subsidiary partnership's performance.
(c) Property management fees incurred by Local Partnerships to affiliates of
the Local Partnerships amounted to $374,652 and $316,036 and $1,147,717 and
$944,343 for the three and nine months
10
<PAGE>
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
November 30, 1996
(Unaudited)
Note 3 - Related Party Transactions (continued)
ended November 30, 1996 and 1995, respectively. Of such fees $67,876 and $78,085
and $226,247 and $232,813 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 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 net proceeds of $1,953,406 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
$1,714,132 was realized. The Partnership used $1,227,941 of the net proceeds to
settle the associated purchase money note and accrued interest which had a total
outstanding balance of $2,304,994 resulting in forgiveness of indebtedness
income of $1,077,053. For tax purposes, the entire gain to be realized by the
Partnership is anticipated to be approximately $4,500,000.
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. For tax
11
<PAGE>
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
November 30, 1996
(Unaudited)
Note 4 - Sale of Properties (continued)
purposes, the entire gain to be realized by the Partnership is anticipated to be
approximately $1,800,000.
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 $3,016,865 of the net proceeds (not including
$409,930 which is anticipated to be repaid in January 1997 from a distribution
of escrow funds) 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. For tax purposes, the entire
gain to be realized by the Partnership is anticipated to be approximately
$8,200,000.
Note 5 - Extraordinary Items
On June 3, 1996, the property and the related assets and liabilities of Roper
Mountain were sold to a third party for $4,735,000. For financial reporting
purposes, forgiveness of indebtedness income of $1,077,053 was realized (see
Note 4).
On August 15, 1996, the Partnership's limited partnership interest in Chickasha
was sold to a third party for $75,000. For financial reporting purposes,
forgiveness of indebtedness income of $3,491,895 was realized (see Note 4).
On September 17, 1996, the property and the related assets and liabilities of
Keller Plaza were sold to a third party for $8,800,000. For financial reporting
purposes, forgiveness of indebtedness income of $639,092 was realized (see Note
4).
Note 6 - Commitments and Contingencies
The following disclosures include changes and/or additions to disclosures
regarding the subsidiary partnerships which were included in the Partnership's
Annual Report on Form 10-K for the period ended February 29, 1996.
12
<PAGE>
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
November 30, 1996
(Unaudited)
Note 6 - Commitments and Contingencies (continued)
a) Events of Default
Two subsidiary partnerships continue to be in default of their original mortgage
agreements. Until November 1995, both subsidiary partnerships operated under a
provisional workout agreement with HUD. On November 1, 1995, the mortgage note
of Oklahoma City - Town & Country Village Apartments ("Town and Country") was
sold to a conventional mortgagee. During November 1995, the mortgage note of
Caddo Parish - Villas South ("Villas South") was also sold to a conventional
mortgagee. The auditors for the subsidiary partnerships modified their reports
for the 1995, 1994 and 1993 Fiscal Years due to the uncertainty of the ability
of the subsidiary partnerships to continue in existence. Villas South and Town
and Country are in the process of trying to renegotiate the terms of the notes
with the new mortgage holders, but there can be no assurance that the
renegotiation will be successful. 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. 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 $384,000 and $739,000 at November 30, 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 $119,000 and $125,000 and $354,000 and
$391,000 for the three and nine months ended November 30, 1996 and 1995,
respectively.
Another subsidiary partnership, Los Caballeros Apartments ("Los Caballeros"),
received formal notice from the Secretary of the Department of Housing and Urban
Development ("HUD") that, as a result of deficiencies sited upon a physical
inspection of the property, the complex is in violation of their regulatory
agreement and their Housing Assistance Payment ("HAP") Contracts. Los Caballeros
does not have the working capital necessary to cover the costs to cure the
deficiencies. In addition, one of Los Caballeros' three HAP contracts was not
renewed upon the contract's expiration on November 30, 1995. The auditors for
Los Caballeros modified their report for the 1995 Fiscal Year due to the
uncertainty of the ability of Los Caballeros to continue in existence.
Management of Los Caballeros is now working on
13
<PAGE>
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
November 30, 1996
(Unaudited)
Note 6 - Commitments and Contingencies (continued)
securing a commercial loan to cover the cost of physical improvements. HUD has
indicated they would be willing to increase existing contract rents to cover the
cost of debt service on a second mortgage. The Partnership's investment in Los
Caballeros was approximately $423,000 and $539,000 at November 30, 1996 and
February 29, 1996, respectively, and the minority interest balance was zero at
each date. The net loss after minority interest for Los Caballeros amounted to
approximately $8,000 and $28,000 and $116,000 and $111,000 for the three and
nine months ended November 30, 1996 and 1995, respectively.
b) Certificate of Deposit
The Partnership has a Certificate of Deposit in the amount of $71,124 at
November 30, 1996 to secure an overdraft in Town and Country's bank account. The
amount of the overdraft was approximately $56,000 at September 30, 1996.
c) Other Restricted Cash
In addition, the Partnership and/or its subsidiary partnerships may from time to
time use a portion of their cash or property to secure operating credit lines.
As of November 30, 1996, $130,000 of the Partnership's funds have been so
pledged to secure operating credit lines at seven subsidiary partnerships.
d) Sales of Subsidiary Partnerships
The general partners of one subsidiary partnership, Westgate Associates, Limited
("Westgate"), have signed an option agreement to sell the project to the Vermont
Housing Finance Agency subject to HUD approval and other contingencies, on or
before December 31, 1998. The Partnership's investment in Westgate was
approximately $812,000 at November 30, 1996. Westgate's assets constituted
approximately 2% of the consolidated total assets at November 30, 1996.
The Partnership entered into negotiations to sell South Munjoy Associates,
Limited ("South Munjoy") for a sales price of approximately $3,000,000. The net
proceeds will be used to satisfy the existing mortgage debt of approximately
$800,000. 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. The Partnership's investment in South Munjoy was
approximately $2,411,000 at November 30, 1996. South Munjoy's assets constituted
approximately 3% of the consolidated total assets at November 30, 1996.
14
<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"). On June 3, 1996 and September 17, 1996 the
properties and the related assets and liabilities owned by two subsidiary
partnerships were sold to third parties and on August 15, 1996 the Partnership's
interest in another subsidiary partnership was also sold to a third party (see
below).
During the nine months ended November 30, 1996, cash and cash equivalents of the
Partnership and its 44 consolidated Local Partnerships (including the activity
through the dates of sale for the three Local Partnerships above) increased
approximately $3,579,000. This increase was primarily due to cash provided by
operating activities ($2,288,000), proceeds from sale of properties
($13,097,000) and a decrease in certificates of deposit ($54,000) which exceeded
principal payments of mortgage notes and purchase money notes payable
($9,849,000), payments to selling partners ($1,319,000) and acquisitions of
property and equipment ($686,000).
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 nine months ended November 30, 1996 and 1995, the Partnership
received cash flow distributions from operations of the Local Partnerships of
approximately $738,000 (which includes approximately $81,000 held in escrow for
expenses relating to refinancings or sales) and $665,000, respectively, of which
approximately $303,000 and $399,000, respectively, was used to pay interest on
the related Local Partnership purchase money notes. In general, 60% of cash flow
distributions are required to be applied to interest payments; the balance used
to fund Partnership expenses.
The Partnership had a working capital reserve of approximately $4,180,000 and
$308,000 at November 30, 1996 and February 29, 1996, respectively, of which
approximately $201,000 and $255,000, respectively, was restricted to secure an
overdraft in Town and Country's bank account and to secure operating credit
lines at
15
<PAGE>
seven other Local Partnerships. The working capital reserve is temporarily
invested in bank certificates of deposits or money market accounts which can be
easily liquidated to meet obligations as they arise. The General Partners
believe that the Partnership's reserves, net proceeds for future sales and
future cash flow distributions will be adequate for its operating needs, and
plan to continue investing available reserves in short term investments.
As part of the purchase price of its investment in the Local Partnerships, the
Partnership issued approximately $61,029,000 of Purchase Money Notes. The
typical Purchase Money Note has a basic term of fifteen years (maturities range
from July 1998 to December 1999), subject to certain possible extensions as
described below; provided, however, that the Purchase Money Note, as it may have
been extended from time to time, will mature in any event upon the sale or
refinancing of the Apartment Complex or in the event that the Local Partnership
Interest has been sold by the Partnership prior thereto, in twenty years from
issuance. On June 3, 1996 and September 17, 1996 the properties and the related
assets and liabilities owned by two subsidiary partnerships were sold to third
parties and on August 15, 1996 the Partnership's interest in another subsidiary
partnership was also sold to a third party. A portion of the net proceeds were
used to settle the associated purchase money notes and accrued interest thereon
(see below).
Interest on each Purchase Money Note is payable at the rate of 9% per annum. A
Purchase Money Note will not be in default during the basic fifteen-year term if
not less than 60% of the cash flow actually distributed to the Partnership by
the corresponding Local Partnership (generated by the operations of its
Apartment Complex) is applied first to accrued interest and then to current
interest thereon. Any interest not paid currently shall accrue, without further
interest thereon, through the fifteenth year. All accrued and unpaid interest
must be paid in full at the end of the fifteenth year, unless the Partnership
exercises an extension right.
The obligation to pay the Purchase Money Note is on a non-recourse basis to any
General or Limited Partner but payment thereof is secured by a pledge under the
purchase, sale and security agreement of the related Local Partnership Interest.
The payee has the right to foreclose on the related Local Partnership Interest
in the event that any payment on the Purchase Money Note is not paid when due or
if the Partnership is otherwise in default thereunder.
At November 30, 1996, unpaid accrued interest on the Purchase
16
<PAGE>
Money Notes amounted to approximately $62,556,000. 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 Partnership's interests in the respective local partnerships.
The local partnerships which receive government assistance are subject to
low-income use restrictions which limited the owners ability to sell or
refinance the properties. In order to maintain the existing inventory of
affordable housing, Congress passed a series of related acts including the
Emergency Low Income Preservation Act of 1987, the Low-Income Housing
Preservation and Resident Homeownership Act of 1990 (together the "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 provided financial incentives for owners of government
assisted properties. The 1996 Act provides financial assistance by funding the
sale of such properties to not-for-profit owners and also restores the owners
ability to prepay their HUD mortgage and convert the property to condominiums or
market-rate rental housing. Local general partners have filed for incentives
under the Preservation Acts or the 1996 Act for the following local
partnerships: San Diego - Logan Square Gardens Company, Albuquerque - Lafayette
Square Apts. Ltd., Westgate Associates Limited, Riverside Gardens, a Limited
Partnership, Pacific Palms, a Limited Partnership, Canton Commons Associates,
Rosewood Manor Associates, Bethany Glen Associates, and South Munjoy Associates,
Ltd. The South Munjoy Associates, Ltd. property is under contract for sale to a
private owner. The local general partners of the other properties are either
negotiating purchase and sale contracts or exploring their
17
<PAGE>
alternatives under the 1996 Act.
Funding for the 1996 Act is subject to appropriations by Congress. Congress
funded $624 million in fiscal year 1996 for the preservation of housing.
Congress has funded approximately $325 million for preservation for 1997 Fiscal
Year. Moreover only $175 million of the 1997 allocation is available to fund
preservation, the balance is set aside for rental assistance payments and for
special projects. There is a backlog of properties having a preservation value
of in excess of $900 million. Accordingly, no assurance can be given that any of
the local partnerships will obtain such incentives.
HUD previously released the American Community Partnerships Act (the "ACPA").
The ACPA is HUD's blueprint for providing for the nation's housing needs in an
era of static or decreasing budget authority.
Two key proposals in the ACPA that could affect the Local Partnerships are: a
discontinuation of project based Section 8 subsidy payments and an attendant
reduction in debt on properties that were supported by the Section 8 payments.
The ACPA calls for a transition during which the project based Section 8 would
be converted to a tenant based voucher system. Any FHA insured debt would then
be "marked-to-market", that is revalued in light of the reduced income stream,
if any.
Several industry sources have already commented to HUD and Congress that in the
event the ACPA was fully enacted in its present form the reduction in mortgage
indebtedness would be considered taxable income to limited partners in the
Partnership. Legislative relief has been proposed to exempt "marked-to-market"
debt from cancellation off 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, but there
is no guarantee that such extension will be available in the future.
The Partnership entered into negotiations to sell South Munjoy Associates,
Limited for a sales price of approximately $3,000,000. The net proceeds will be
used to satisfy the existing mortgage debt of approximately $800,000. 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.
18
<PAGE>
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 net proceeds of $1,953,406 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
$1,714,132 was realized. The Partnership used $1,227,941 of the net proceeds to
settle the associated purchase money note and accrued interest which had a total
outstanding balance of $2,304,994 resulting in forgiveness of indebtedness
income of $1,077,053. For tax purposes, the entire gain to be realized by the
Partnership is anticipated to be approximately $4,500,000.
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. For tax purposes, the entire gain to be realized by
the Partnership is anticipated to be approximately $1,800,000.
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 $3,016,865 of the net proceeds (not including
$409,930 which is anticipated to be repaid in January 1997 from a distribution
of escrow funds) 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. For tax purposes, the entire
gain to be realized by the Partnership is anticipated to be approximately
$8,200,000.
19
<PAGE>
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.
Except as described above, management is not aware of any trends or events,
commitments or uncertainties that will impact liquidity in a material way.
Management believes the only impact would be from laws that have not yet been
adopted. The portfolio is diversified by the location of the properties around
the United States so that if one area of the country is experiencing downturns
in the economy, the remaining properties in the portfolio may be experiencing
upswings. However, the geographic diversifications of the portfolio may not
protect against a general downturn in the national economy.
Results of Operations
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Asset and for Long-Lived Assets to Be Disposed Of".
Under SFAS No. 121, the Partnership is required to review long-lived assets and
certain identifiable intangibles for impairment whenever events or changes in
circumstances indicate that the book value of an asset may not be recoverable.
An impairment loss should be recognized whenever the review demonstrates that
the book value of a long-lived asset is not recoverable. Effective March 1,
1996, the Partnership adopted SFAS No. 121, consistent with the required
adoption period.
Property and equipment are carried at the lower of depreciated cost or estimated
amounts recoverable through future operations and ultimate disposition of the
property. Cost includes the purchase price, acquisition fees and expenses, and
any other costs incurred in acquiring the properties. As required by SFAS 121, a
provision for loss on impairment of assets is recorded when estimated amounts
recoverable through future operations and sale of the property on an
undiscounted basis are below depreciated cost. However, depreciated cost,
adjusted for such reductions in value, if any, may be greater than the fair
value. Property investments themselves are reduced to estimated fair value
(generally using discounted cash flows) when the property is considered to be
impaired and the depreciated cost exceeds estimated fair value. Through November
30, 1996, the Partnership has not recorded any provisions for loss on impairment
of assets or reduction to estimated fair value.
The results of operations of the Partnership, as well as the Local Partnerships,
excluding gain on sale of property and forgiveness of indebtedness income,
remained fairly constant during the three and nine months ended November 30,
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 decreased approximately 2% and increased less than 1% during the
three and nine months ended November 30, 1996 as compared to 1995. Excluding
Roper Mountain and Keller Plaza, which sold their properties on June 3, 1996 and
September 17, 1996, and Chickasha in which the Partnership's interest was sold
on August 15, 1996, rental income increased approximately 2% during both the
three and nine months ended November 30, 1996 as compared to 1995 primarily due
to rental rate increases.
20
<PAGE>
Other income decreased approximately $25,000 during the three months ended
November 30, 1996 as compared to 1995 primarily due to a real estate tax refund
at one local partnership during the third quarter of 1995.
Total expenses excluding Roper Mountain, Keller Plaza and Chickasha,
administrative and management expenses and interest expense remained fairly
consistent with increases of approximately 3% and 4% for the three and nine
months ended November 30, 1996 as compared to 1995.
Administrative and management expenses increased approximately $123,000 and
$267,000 for the three and nine months ended November 30, 1996 as compared to
1995. Excluding Roper Mountain, Keller Plaza and Chickasha, such expenses
increased approximately $160,000 and $294,000, respectively, primarily due to an
increase in bad debts and legal fees at one local partnership, hiring expenses
relating to the turnover of three positions and an increase in superintendent
services at a second local partnership, the change at a third local partnership
from an affiliated property manager to one which is not an affiliate and small
increases at three other local partnerships.
Interest expense decreased approximately $251,000 and $386,000 for the three and
nine months ended November 30, 1996 as compared to 1995 primarily due to the
sale of the properties owned by Roper Mountain and Keller Plaza and the sale of
the Partnership's interest in Chickasha.
21
<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 counter claims have
no substantial merit and that an outcome unfavorable to the Partnership is
unlikely.
The U.S. Department of Housing and Urban Development ("HUD"), the holder
of the mortgage on the Project, notified Rolling Meadows that such mortgage was
in default and that HUD intended to commence foreclosure proceedings. On August
15, 1996, the Partnership's limited partnership interest in Chickasha was sold
to a third party for $75,000, resulting in no net proceeds to the Partnership
after expenses of the sale (see Note 4 to the financial statements).
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other information - None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27 Financial Data Schedule (filed herewith)
(b) Reports on Form 8-K - No reports on Form 8-K were filed during the
quarter.
22
<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
(Registrant)
By: GOVERNMENT ASSISTED PROPERTIES,
INC., a General Partner
Date: By: /s/ Paul L. Abbott
January 13, 1997 ------------------
Paul L. Abbott,
President
By: RELATED HOUSING PROGRAMS
CORPORATION, a General Partner
Date: By: /s/ Alan P. Hirmes
January 13, 1997 ------------------
Alan P. Hirmes,
Vice President
23
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf by the registrant and
in the capacities and on the dates indicated:
Signature Title Date
- - - - - - - - - --------------------- --------------------- -------------
Vice President of
Related Housing
Programs
/s/ Alan P. Hirmes Corporation Jan. 13, 1997
- - - - - - - - - ---------------------
Alan P. Hirmes
Treasurer (principal
financial and
accounting officer) of
Related Housing
Programs
/s/ Richard A. Palermo Corporation Jan. 13, 1997
- - - - - - - - - ----------------------
Richard A. Palermo
President, Chief
Executive Officer
(principal executive
officer) and Chief
Financial Officer of
Government Assisted
/s/ Paul L. Abbott Properties, Inc. Jan. 13, 1997
- - - - - - - - - ----------------------
Paul L. Abbott
24
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The Schedule contains summary financial information extracted
from the financial statements for Cambridge + Related Housing
Properties L.P. and is qualified in its entirety by reference
to such financial statements
</LEGEND>
<CIK> 0000718915
<NAME> Cambridge + Related Housing Properties L.P.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> MAR-01-1996
<PERIOD-END> NOV-30-1996
<CASH> 17,512,854
<SECURITIES> 201,124
<RECEIVABLES> 296,519
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,321,427
<PP&E> 178,547,088
<DEPRECIATION> 78,669,670
<TOTAL-ASSETS> 119,209,342
<CURRENT-LIABILITIES> 9,564,324
<BONDS> 183,738,594
0
0
<COMMON> 0
<OTHER-SE> (74,093,576)
<TOTAL-LIABILITY-AND-EQUITY> 119,209,342
<SALES> 0
<TOTAL-REVENUES> 30,033,494
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 22,958,220
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,041,065
<INCOME-PRETAX> 1,034,209
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 5,208,040
<CHANGES> 0
<NET-INCOME> 6,243,784
<EPS-PRIMARY> 622
<EPS-DILUTED> 0
</TABLE>
