SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A-1
(Mark One)
X_ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended August 31, 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)
=========== ============
August 31, February 29,
1996 1996*
----------- ------------
ASSETS
Property and equipment, net of
accumulated depreciation of
$81,153,218 and $80,440,482,
respectively $106,101,779 $111,663,787
Cash and cash equivalents 4,642,406 4,277,246
Certificates of deposit 200,483 255,000
Cash - restricted for tenants'
security deposits 1,139,969 1,155,455
Mortgage escrow deposits 8,410,616 7,969,001
Rents receivable 272,478 288,143
Prepaid expenses and other assets 1,129,604 961,020
------------ ------------
Total assets $121,897,335 $126,569,652
============ ============
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Mortgage notes payable $68,235,917 $ 71,832,854
Purchase money notes payable
(Note 2) 59,729,115 61,029,115
Due to selling partners (Note 2) 63,970,081 62,562,415
Accounts payable, accrued expenses
and other liabilities 6,436,227 6,333,269
Tenants' security deposits payable 1,139,969 1,155,455
Due to general partners of
subsidiaries and their affiliates 1,004,137 998,268
Due to general partners and
affiliates 3,087,536 2,989,870
------------ ------------
Total liabilities 203,602,982 206,901,246
Minority interest 70,652 76,347
------------ ------------
Commitments and contingencies (Note 6)
Partners' deficit:
Limited partners (80,510,005) (79,155,331)
General partners (1,266,294) (1,252,610)
------------ ------------
Total partners' deficit (81,776,299) (80,407,941)
------------ ------------
Total liabilities and partners'
deficit $121,897,335 $126,569,652
============ ============
*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
(Unaudited)
========================= ========================
Three Months Ended Six Months Ended
August 31, August 31,
------------------------- ------------------------
1996 1995 1996 1995
------------------------- ------------------------
Revenues
Rentals, net $7,466,372 $7,462,427 $14,913,050 $14,767,754
Other 290,957 238,858 489,226 439,313
Gain on sale of
property
(Note 4) 1,714,132 0 1,714,132 0
---------- ----------- ----------- -----------
Total revenues 9,471,461 7,701,285 17,116,408 15,207,067
---------- ----------- ----------- -----------
Expenses
Selling and
renting 124,526 114,941 239,903 220,500
Administrative and
management 1,263,039 1,129,425 2,424,361 2,279,611
Administrative
and management-
related parties
(Note 3) 482,345 455,730 956,753 924,015
Operating 1,261,901 1,106,042 2,671,766 2,499,795
Repairs and
maintenance 2,083,083 2,027,828 3,809,052 3,630,735
Taxes and
insurance 1,090,449 995,269 2,045,728 1,940,535
Interest 2,038,792 2,132,118 4,153,686 4,289,063
Depreciation 1,624,558 1,635,937 3,262,034 3,267,763
---------- ----------- ----------- -----------
Total expenses 9,968,693 9,597,290 19,563,283 19,052,017
---------- ----------- ----------- -----------
(497,232) (1,896,005) (2,446,875) (3,844,950)
Minority interest
in (income) loss
of subsidiaries 875 (60) 1,464 (188)
---------- ----------- ----------- -----------
Loss before extra-
ordinary item (496,357) (1,896,065) (2,445,411) (3,845,138)
Extraordinary item-
forgiveness of
indebtedness
income
(Note 5) 1,077,053 0 1,077,053 0
---------- ----------- ----------- -----------
Net income
(loss) $ 580,696 $(1,896,065) $(1,368,358) $(3,845,138)
========== =========== =========== ===========
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 loss-six
months ended
August 31, 1996 (1,368,358) (1,354,674) (13,684)
------------ ------------ -----------
Balance-
August 31, 1996 $(81,776,299) $(80,510,005) $(1,266,294)
============ ============ ===========
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)
==========================
Six Months Ended
August 31,
-------------------------
1996 1995
-------------------------
Cash flows from operating activities:
Net loss $(1,368,358) $(3,845,138)
----------- -----------
Adjustments to reconcile net loss to
net cash provided by operating
activities:
Gain on sale of property (Note 4) (1,714,132) 0
Extraordinary item-forgiveness of
indebtedness income (Note 5) (1,077,053) 0
Depreciation 3,262,034 3,267,763
Minority interest in (loss) income
of subsidiaries (1,464) 188
Decrease (increase) in cash-restricted
for tenants' security deposits 11,482 (34,189)
Increase in mortgage escrow deposits (441,615) (199,456)
Decrease (increase) in rents receivable 15,101 (9,039)
Increase in prepaid expenses and
other assets (242,237) (90,966)
Increase in due to selling partners 2,715,161 2,746,310
Increase (decrease) in accounts payable,
accrued expenses and other liabilities 143,197 (133,381)
Increase in tenants' security
deposits payable 15,510 34,189
Increase (decrease) in due to general
partners of subsidiaries and their
affiliates 5,869 (113,286)
Increase in due to general partners
and affiliates 97,666 49,594
----------- -----------
Total adjustments 2,789,519 5,517,727
----------- -----------
Net cash provided by operating
activities 1,421,161 1,672,589
----------- -----------
Cash flows provided by (used in)
investing activities:
Decrease in certificates of deposit 54,517 0
Proceeds from sale of property 4,546,398 0
Acquisitions of property and
equipment (525,306) (377,515)
----------- -----------
Net cash provided by (used in)
investing activities 4,075,609 (377,515)
----------- -----------
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)
=========================
Six Months Ended
August 31,
-------------------------
1996 1995
-------------------------
Cash flows used in financing activities:
Principal payments of mortgage
notes payable (3,596,937) (960,002)
Payments to selling partners (302,501) (398,840)
Decrease in minority interest (4,231) (6,781)
Principal payment of purchase
money notes payable (1,227,941) 0
---------- ----------
Net cash used in financing activities (5,131,610) (1,365,623)
---------- ----------
Net increase (decrease) in cash and
cash equivalents 365,160 (70,549)
Cash and cash equivalents at
beginning of period 4,277,246 4,176,820
---------- ----------
Cash and cash equivalents at
end of period $4,642,406 $4,106,271
========== ===========
Supplemental disclosures of
noncash activities:
Forgiveness of indebtedness (Note 5):
Decrease in purchase money
notes payable (72,059) 0
Decrease in due to selling
partners (1,004,994) 0
Summarized below are the
components of the gain
on sale of property:
Decrease in property and
equipment, net of accumulated
depreciation 2,825,280 0
Decrease in cash-restricted for
tenants' security deposits 4,004 0
Decrease in rents receivable 564 0
Decrease in prepaid expenses and
other assets 73,653 0
Decrease in accounts payable,
accrued expenses and other
liabilities (40,239) 0
Decrease in tenants' security
deposits payable (30,996) 0
See Accompanying Notes to Consolidated Financial Statements
6
<PAGE>
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
August 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 one of which only
has activity through the date of sale of its property and the related assets and
liabilities on June 3, 1996 (see Note 4). The Partnership is 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 August 31. All subsidiaries have fiscal
quarters ending June 30. Accounts of the subsidiary partnerships have been
adjusted for intercompany transactions from July 1 through August 31.
All intercompany accounts and transactions have been eliminated in
consolidation.
Increases (decreases) in the capitalization of consolidated subsidiaries
attributable to minority interest arise from cash contributions 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 $8,800 and $4,500 and $13,000 and $8,900 for the three
and six months ended August 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 August 31, 1996, the results of operations for
the three and six months ended August 31, 1996 and 1995 and cash flows for the
six months ended August 31, 1996 and 1995. However, the operating results
for the six
7
<PAGE>
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
August 31, 1996
(Unaudited)
Note 1 - General (continued)
months ended August 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 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 August
31, 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.
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
8
<PAGE>
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
August 31, 1996
(Unaudited)
Note 2 - Purchase Money Notes Payable (continued)
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 the property and the related assets and liabilities owned by
Roper Mountain Apartments Ltd. was sold to an unaffiliated third party and a
portion of the net proceeds were used to settle the associated purchase money
note 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 six months ended August 31, 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 determinable inasmuch as it is
dependent on the actual future interest payments and ultimate repayment dates of
the notes. Unpaid interest of approximately $63,845,000 and $62,437,000 at
August 31, 1996 and February 29, 1996, respectively, has been accrued and is
included in the caption due to selling partners.
9
<PAGE>
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
August 31, 1996
(Unaudited)
Note 3 - Related Party Transactions
The costs incurred to related parties for the three and six months ended August
31, 1996 and 1995 were as follows:
Three Months Ended Six Months Ended
August 31, August 31,
------------------- ---------------------
1996 1995 1996 1995
------------------- ---------------------
Partnership
management
fees (a) $ 30,412 $ 29,662 $ 60,825 $ 59,325
Expense
reimburse-
ment (b) 50,440 25,750 109,863 68,655
Property
management
fees (c) 395,493 394,318 773,065 783,035
Local adminis-
trative fee (d) 6,000 6,000 13,000 13,000
--------- --------- --------- --------
$ 482,345 $ 455,730 $ 956,753 $924,015
========= ========= ========= ========
(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 $395,493 and $394,318 and $773,065 and $783,035
for the three and six months ended August 31, 1996 and 1995, respectively. Of
such fees $80,477 and $78,109 and $158,371 and $154,728 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.
10
<PAGE>
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
August 31, 1996
(Unaudited)
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 financial reporting
purposes, this transaction will be reflected in the financial statements in the
third quarter coinciding with Chickasha's fiscal quarter which includes the date
of sale. For tax purposes, the entire gain to be realized by the Partnership is
anticipated to be approximately $1,800,000.
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
11
<PAGE>
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
August 31, 1996
(Unaudited)
Note 5 - Extraordinary Items (continued)
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 resulting in forgiveness of indebtedness
income of $3,491,895 (see Note 4). For financial reporting purposes, this
transaction will be reflected in the financial statements in the third quarter
coinciding with Chickasha's fiscal quarter which includes the date of sale.
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.
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 $3,056,000 and $2,907,000 at August 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 ("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 $504,000 and $739,000 at August 31, 1996 and
February 29, 1996, respectively, and the minority interest balance was zero at
each
12
<PAGE>
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
August 31, 1996
(Unaudited)
Note 6 - Commitments and Contingencies (continued)
date. The net loss after minority interest for these two subsidiary partnerships
amounted to approximately $133,000 and $134,000 and $235,000 and $266,000 for
the three and six months ended August 31, 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 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 $431,000 and $539,000 at August 31, 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
$80,000 and $48,000 and $108,000 and $83,000 for the three and six months ended
August 31, 1996 and 1995, respectively.
b) Certificate of Deposit
The Partnership has a Certificate of Deposit in the amount of $70,483 at August
31, 1996 to secure an overdraft in Town and Country's bank account. The amount
of the overdraft was approximately $76,000 at June 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 August 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, 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
13
<PAGE>
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
August 31, 1996
(Unaudited)
Note 6 - Commitments and Contingencies (continued)
December 31, 1998. The Partnership's investment in Westgate was approximately
$811,000 at August 31, 1996. Westgate's assets constituted approximately 2% of
the consolidated total assets at August 31, 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 $2,385,000 at August 31, 1996. South Munjoy's assets constituted
approximately 3% of the consolidated total assets at August 31, 1996.
Note 7 - Subsequent Event
On September 17, 1996, the property and the related assets and liabilities of
Oakland-Keller Plaza ("Keller Plaza") were sold to an unaffiliated 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 financial reporting
purposes, this transaction will be reflected in the financial statements in the
third quarter coinciding with Keller Plaza's fiscal quarter which includes the
date of sale. For tax purposes, the entire gain to be realized by the
Partnership is anticipated to be approximately $8,200,000.
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 of the Local
Partnerships were sold to unaffiliated third parties and on August 15, 1996 the
Partnership's interest in another Local Partnership was sold to a third party
(see below).
During the six months ended August 31, 1996, cash and cash equivalents of the
Partnership and its 44 consolidated Local Partnerships (including the activity
through the date of sale for one which sold its property and the related assets
and liabilities on June 3, 1996) increased approximately $365,000. This increase
was primarily due to cash provided by operating activities ($1,421,000),
proceeds from sale of property ($4,546,000) and a decrease in certificates of
deposit ($55,000) which exceeded principal payments of mortgage notes and
purchase money notes payable ($4,825,000), payments to selling partners
($303,000) and acquisitions of property and equipment ($525,000).
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 six months ended August 31, 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 $1,194,000 and
$308,000 at August 31, 1996 and February 29, 1996, respectively, of which
approximately $200,000 and $255,000, respectively, was restricted to secure an
overdraft in Town and
15
<PAGE>
Country's bank account and to secure operating credit lines at seven other Local
Partnerships. The working capital reserve is temporarily invested in bank
certificates of deposits or money market accounts which can be easily liquidated
to meet obligations as they arise. The General Partners believe that the
Partnership's reserves, net proceeds 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. The sale of the properties and the related assets and liabilities
owned by two Local Partnerships on June 3, 1996 and September 17, 1996 and the
sale of the Partnership's interest in another Local Partnership on September 5,
1996 resulted in the settlement of the three 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 August 31, 1996, unpaid accrued interest on the Purchase Money Notes
amounted to approximately $63,848,000. The principal of
16
<PAGE>
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 alternatives under
the 1996 Act.
17
<PAGE>
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 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, 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 financial reporting purposes, this transaction
will be reflected in the financial statements in the third quarter coinciding
with Chickasha's fiscal quarter which includes the date of sale. For tax
purposes, the entire gain to be realized by the Partnership is anticipated to be
approximately $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 financial reporting
purposes, this transaction will be reflected in the financial statements in the
third quarter coinciding with Keller
19
<PAGE>
Plaza's fiscal quarter which includes the date of sale. For tax purposes, the
entire gain to be realized by the Partnership is anticipated to be approximately
$8,200,000.
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
20
<PAGE>
impaired and the depreciated cost exceeds estimated fair value. Through August
31, 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 increased less than 1% and approximately 1% during the three and
six months ended August 31, 1996 as compared to 1995 primarily due to rental
rate increases. Other income increased approximately $52,000 and $50,000 during
the three and six months ended August 31, 1996 as compared to 1995, primarily
due to the receipt of proceeds from a fire insurance recovery claim by Bay
Village during the second quarter. Total expenses excluding administrative and
management and operating expenses remained fairly consistent with increases of
approximately 1% for both the three and six months ended August 31, 1996, as
compared to 1995. Administrative and management expenses increased approximately
$134,000 for the three months ended August 31, 1996 compared to the same period
in 1995 primarily due to an increase in bad debts and legal fees at one local
partnership, an increase in bad debts 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 five other local partnerships. Operating
expenses increased approximately $156,000 for the three months ended August 31,
1996 compared to the same period in 1995 primarily due to an increase in
utilities at four local partnerships and small increases at three others.
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: January 13, 1997
By:/s/ Paul L. Abbott
-------------------
Paul L. Abbott,
President
By: RELATED HOUSING PROGRAMS
CORPORATION, a General Partner
Date: January 13, 1997
By:/s/ Alan P. Hirmes
------------------
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
/s/ Alan P. Hirmes Related Housing
- - - - - - - - - ------------------ Programs Corporation January 13, 1997
Alan P. Hirmes
Treasurer (principal
financial and
accounting officer)
/s/ Richard A. Palermo of Related Housing
- - - - - - - - - --------------------- Programs Corporation January 13, 1997
Richard A. Palermo
President, Chief
Executive Officer
(principal executive
officer) and Chief
Financial Officer of
/s/ Paul L. Abbott Government Assisted
- - - - - - - - - ----------------- Properties, Inc. January 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.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> MAR-01-1996
<PERIOD-END> AUG-31-1996
<CASH> 14,192,991
<SECURITIES> 200,483
<RECEIVABLES> 272,478
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,129,604
<PP&E> 187,254,997
<DEPRECIATION> 81,153,218
<TOTAL-ASSETS> 121,897,335
<CURRENT-LIABILITIES> 11,667,869
<BONDS> 191,935,113
0
0
<COMMON> 0
<OTHER-SE> (81,705,647)
<TOTAL-LIABILITY-AND-EQUITY> 121,897,335
<SALES> 0
<TOTAL-REVENUES> 17,116,408
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 15,409,597
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,153,686
<INCOME-PRETAX> (2,445,411)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 1,077,053
<CHANGES> 0
<NET-INCOME> (1,368,358)
<EPS-PRIMARY> (136)
<EPS-DILUTED> 0
</TABLE>
