<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Quarterly Period Ended JUNE 30, 1998
Commission File Number 0-13808
HOUSING PROGRAMS LIMITED
(A California Limited Partnership)
I.R.S. Employer Identification No. 95-3906167
9090 WILSHIRE BLVD., SUITE 201
BEVERLY HILLS, CALIF. 90211
Registrant's Telephone Number,
Including Area Code (310) 278-2191
Indicate by check mark whether the registrant (1) has filed all documents and
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding twelve 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> 2
HOUSING PROGRAMS LIMITED
(A CALIFORNIA LIMITED PARTNERSHIP)
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1998
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets, June 30, 1998 and December 31, 1997 .................1
Statements of Operations,
Six and Three Months Ended June 30, 1998 and 1997............2
Statement of Partners' Deficiency,
Six Months Ended June 30, 1998 ..............................3
Statements of Cash Flow,
Six Months Ended June 30, 1998 and 1997......................4
Notes to Financial Statements .......................................5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation.........................11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................14
Item 6. Exhibits and Reports on Form 8-K..................................14
Signatures ............................................................15
</TABLE>
<PAGE> 3
HOUSING PROGRAMS LIMITED
(A CALIFORNIA LIMITED PARTNERSHIP)
BALANCE SHEETS
JUNE 30, 1998 AND DECEMBER 31, 1997
ASSETS
<TABLE>
<CAPTION>
1998
(Unaudited) 1997
------------ ------------
<S> <C> <C>
INVESTMENTS IN LIMITED PARTNERSHIPS
(Notes 1 and 2) $ 13,558,015 $ 13,409,054
CASH AND CASH EQUIVALENTS (Note 1) 1,460,143 1,162,398
OTHER ASSETS 3,200 --
------------ ------------
TOTAL ASSETS $ 15,021,358 $ 14,571,452
============ ============
LIABILITIES AND PARTNERS' DEFICIENCY
LIABILITIES:
Notes payable (Notes 3 and 6) $ 8,669,743 $ 8,669,743
Accrued fees and expenses due general partners (Note 4) 1,725,701 1,562,552
Accrued interest payable (Notes 3 and 6) 10,315,393 9,921,172
Accounts payable 78,440 3,855
------------ ------------
20,789,277 20,157,322
------------ ------------
COMMITMENTS AND CONTINGENCIES (Notes 2, 4 and 5)
PARTNERS' DEFICIENCY:
General partners (308,425) (306,605)
Limited partners (5,459,494) (5,279,265)
------------ ------------
(5,767,919) (5,585,870)
------------ ------------
TOTAL LIABILITIES AND PARTNERS'
DEFICIENCY $ 15,021,358 $ 14,571,452
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 4
HOUSING PROGRAMS LIMITED
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
SIX AND THREE MONTHS ENDED JUNE 30, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
Six months Three months Six months Three months
ended ended ended ended
June 30, 1998 June 30, 1998 June 30, 1997 June 30, 1997
------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
INTEREST INCOME $ 29,665 $ 14,315 $ 24,996 $ 12,958
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Management fees - general partner (Note 4) 246,480 123,240 263,326 131,663
General and administrative (Note 4) 39,002 20,510 32,131 17,918
Legal and accounting (Note 4) 77,305 26,243 74,624 30,141
Interest (Notes 3 and 4) 411,812 205,906 505,563 252,781
----------- ----------- ----------- -----------
Total operating expenses 774,599 375,899 875,644 432,503
----------- ----------- ----------- -----------
LOSS FROM OPERATIONS (744,934) (361,584) (850,648) (419,545)
DISTRIBUTIONS FROM LIMITED
PARTNERSHIPS RECOGNIZED
AS INCOME 378,885 261,317 439,020 305,164
EQUITY IN INCOME OF LIMITED
PARTNERSHIPS AND AMORTIZATION
OF ACQUISITION COSTS (Note 2) 184,000 92,000 72,756 36,378
----------- ----------- ----------- -----------
NET LOSS BEFORE EXTRAORDINARY GAIN $ (182,049) $ (8,267) $ (338,872) $ (78,003)
=========== =========== =========== ===========
NET LOSS PER LIMITED PARTNERSHIP
INTEREST BEFORE EXTRAORDINARY GAIN $ (15) $ (1) $ (27) $ (6)
=========== =========== =========== ===========
EXTRAORDINARY GAIN -
DEBT FORGIVENESS (NOTE 3) -- -- 2,149,096 2,149,096
----------- ----------- ----------- -----------
NET INCOME (LOSS) AFTER EXTRAORDINARY GAIN $ (182,049) $ (8,267) $ 1,810,224 $ 2,071,093
=========== =========== =========== ===========
NET INCOME (LOSS) PER LIMITED PARTNERSHIP
INTEREST AFTER EXTRAORDINARY GAIN $ (15) $ (1) $ 146 $ 167
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 5
HOUSING PROGRAMS LIMITED
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' DEFICIENCY
SIX MONTHS ENDED JUNE 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
General Limited
Partners Partners Total
----------- ----------- -----------
<S> <C> <C> <C>
PARTNERSHIP INTERESTS 12,368
===========
DEFICIENCY, January 1, 1998 $ (306,605) $(5,279,265) $(5,585,870)
Net loss for the six months
ended June 30, 1998 (1,820) (180,229) (182,049)
----------- ----------- -----------
DEFICIENCY, June 30, 1998 $ (308,425) $(5,459,494) $(5,767,919)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 6
HOUSING PROGRAMS LIMITED
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (182,049) $ 1,810,224
Adjustments to reconcile net loss to net
cash provided by operating activities:
Equity in income of limited partnerships
and amortization of acquisition costs (184,000) (72,756)
Extraordinary gain - Debt forgiveness -- (2,149,096)
Increase in other assets (3,200) --
Increase in accrued interest payable 394,221 374,538
Increase in accrued fees and expenses due general partners 163,149 163,329
Increase (decrease) in accounts payable 74,585 (12,551)
----------- -----------
Net cash provided by operating activities 262,706 113,688
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Distributions from limited partnerships
recognized as a return of capital 35,039 205,101
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 297,745 318,789
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,162,398 948,476
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,460,143 $ 1,267,265
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 7
HOUSING PROGRAMS LIMITED
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
The information contained in the following notes to the financial
statements is condensed from that which would appear in the annual audited
financial statements; accordingly, the financial statements included
herein should be reviewed in conjunction with the financial statements and
related notes thereto contained in the Housing Programs Limited (the
"Partnership") annual report for the year ended December 31, 1997.
National Partnership Investments Corp. ("NAPICO") is a general partner for
the Partnership. Accounting measurements at interim dates inherently
involve greater reliance on estimates than at year end. The results of
operations for the interim period presented are not necessarily indicative
of the results for the entire year.
In the opinion of NAPICO, the accompanying unaudited financial statements
contain all adjustments (consisting primarily of normal recurring
accruals) necessary to present fairly the financial position of the
Partnership at June 30, 1998 and the results of operations for the six and
three months then ended and changes in cash flows for the six months then
ended.
ORGANIZATION
The Partnership is a limited partnership which was formed under the laws
of the State of California on May 15, 1984. On September 12, 1984, the
Partnership offered 3,000 units consisting of 6,000 limited partnership
interests and warrants to purchase a maximum of 6,000 additional limited
partnership interests through a public offering .
The general partners of the Partnership are NAPICO, Housing Programs
Corporation II and Coast Housing Investment Associates ("CHIA"). LBI Group
Inc. owns 100 percent of the stock of Housing Programs Corporation II.
NAPICO is a wholly owned subsidiary of Casden Investment Corporation,
which is wholly owned by Alan I. Casden. CHIA is a limited partnership
formed under the California Limited Partnership Act and consists of
Messrs. Nicholas G. Ciriello, an unrelated individual, as general partner
and Charles H. Boxenbaum, as limited partner.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
5
<PAGE> 8
HOUSING PROGRAMS LIMITED
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
METHOD OF ACCOUNTING FOR INVESTMENT IN LIMITED PARTNERSHIPS
The investments in local limited partnerships are accounted for on the
equity method. Acquisition, selection fees and other costs related to the
acquisition of the projects have been capitalized to the investment
account and amortized on a straight line basis over the estimated lives of
the underlying assets.
NET LOSS PER LIMITED PARTNERSHIP INTEREST
Net income (loss) per limited partnership interest was computed by
dividing the limited partners' share of net income (loss) by the number of
limited partnership interests outstanding during the year. The number of
limited partnership interests was 12,368 for all years presented.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and bank certificates of deposit
with an original maturity of three months or less. The Partnership has its
cash and cash equivalents on deposit primarily with one money market
mutual fund. Such cash and cash equivalents are uninsured.
INCOME TAXES
No provision has been made for income taxes in the accompanying financial
statements since such taxes, if any, are the liability of the individual
partners.
IMPAIRMENT OF LONG-LIVED ASSETS
The Partnership reviews long-lived assets to determine if there has been
any permanent impairment whenever events or changes in circumstances
indicate that the carrying amount of the asset may not be recoverable. If
the sum of the expected future cash flows is less than the carrying amount
of the assets, the Partnership recognizes an impairment loss.
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS
The Partnership currently holds limited partnership interests in 17
limited partnerships. The 17 lower-tier limited partnerships own
residential rental projects consisting of a total of 2,542 apartment
units. The mortgage loans encumbering these projects are insured by United
States Department of Housing and Urban Development ("HUD") or state
governmental agencies.
6
<PAGE> 9
HOUSING PROGRAMS LIMITED
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)
The Partnership, as a limited partner, is entitled to 99 percent of the
income and losses of the lower-tier limited partnerships.
Equity in losses of limited partnerships is recognized in the financial
statements until the limited partnership investment account is reduced to
a zero balance. Losses incurred after the investment account is reduced to
zero are not recognized.
Distributions from the limited partnerships are recognized as a reduction
of capital until the investment balance has been reduced to zero or a
negative amount equal to future capital contributions required.
Subsequent distributions are recognized as income.
The following is a summary of the Partnership's investment in lower-tier
limited partnerships for the six and three months ended June 30, 1998:
<TABLE>
<S> <C>
Balance, beginning of period $13,409,054
Amortization of acquisition costs (16,000)
Equity in income of limited partnerships 200,000
Distribution recognized as return of capital (35,039)
-----------
Balance, end of period $13,558,015
===========
</TABLE>
The difference between the investment per the accompanying balance sheets
at June 30, 1998 and December 31, 1997, and the deficiency per the
unaudited combined estimated statements of operations is due primarily to
cumulative unrecognized equity in losses of certain limited partnerships,
costs capitalized to the investment account and cumulative distributions
recognized as income.
The following are unaudited combined estimated statements of operations
for the six and three months ended June 30, 1998 and 1997 for the limited
partnerships in which the Partnership has investments:
<TABLE>
<CAPTION>
Six months Three months Six months Three months
ended ended ended ended
June 30, 1998 June 30, 1998 June 30, 1997 June 30, 1997
------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
INCOME
Rental and Other $ 8,816,000 $ 4,408,000 $ 8,968,000 $ 4,484,000
----------- ----------- ----------- -----------
EXPENSES
Depreciation 1,720,000 860,000 1,766,000 883,000
Interest 1,724,000 862,000 1,820,000 910,000
Operating 5,618,000 2,809,000 5,964,000 2,982,000
----------- ----------- ----------- -----------
Total expenses 9,062,000 4,531,000 9,550,000 4,775,000
----------- ----------- ----------- -----------
NET LOSS $ (246,000) $ (123,000) $ (582,000) $ (291,000)
=========== =========== =========== ===========
</TABLE>
7
<PAGE> 10
HOUSING PROGRAMS LIMITED
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)
Under recently adopted law and policy, HUD has determined not to renew HAP
contracts on their existing terms. In connection with renewals of the
housing assistance payments contracts ("HAP Contracts") under such new law
and policy, the amount of rental assistance payments under renewed HAP
Contracts will be based on market rentals instead of above market rentals,
which was generally the case under existing HAP Contracts. As a result,
existing HAP Contracts that are renewed in the future on projects insured
by the Federal Housing Administrative of HUD ("FHA") will not provide
sufficient cash flow to permit owners of properties to meet the debt
service requirements of these existing FHA-insured mortgages. In order to
address the reduction in payments under HAP Contracts as a result of this
new policy, the Multi-family Assisted Housing Reform and Affordability Act
of 1997 ("MAHRAA"), which was adopted in October 1997, provides for the
restructuring of mortgage loans insured by the FHA with respect to
properties subject to HAP Contracts that have been renewed under the new
policy. The restructured loans will be held by the current lender or
another lender. Under MAHRAA, an FHA-insured mortgage loan can be
restructured to reduce the annual debt service on such loan. There can be
no assurance that the Partnership will be permitted to restructure its
mortgage indebtedness pursuant to the new HUD rules implementing MAHRAA or
that the Partnership would choose to restructure such mortgage
indebtedness if it were eligible to participate in the MAHRAA program. It
should be noted that there are uncertainties as to the economic impact on
the Partnership of the combination of the reduced payments under the HAP
Contracts and the restructuring of the existing FHA-insured mortgage loans
under MAHRAA. Accordingly, the General Partners are unable to predict with
certainty their impact on the Partnership's future cash flow.
A real estate investment trust ("REIT") organized by affiliates of NAPICO
has advised the Partnership that it intends to make a proposal to purchase
from the Partnership certain of the limited partnership interests held for
investment by the Partnership.
The REIT proposes to purchase such limited partnership interests for cash,
which it plans to raise in connection with a private placement of its
equity securities. The purchase is subject to, among other things, (i)
consummation of such private placement by the REIT; (ii) the purchase of
the general partnership interests in the local limited partnerships by the
REIT; (iii) the approval of HUD and certain state housing finance
agencies; (iv) the consent of the limited partners to the sale of the
local limited partnership interests held for investment by the
Partnership; and (v) the consummation of a minimum number of purchase
transactions with other NAPICO affiliated partnerships. As of June 30,
1998, the REIT had completed buy-out negotiations with a majority of the
general partners of the local limited partnerships it proposes to
purchase.
A consent solicitation statement will be sent to the limited partners
setting forth the terms and conditions of the purchase of the limited
partners' interests held for investment by the Partnership, together with
certain amendments to the Partnership Agreement and other disclosures of
various conflicts of interest in connection with the proposed transaction.
8
<PAGE> 11
HOUSING PROGRAMS LIMITED
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
NOTE 3 - NOTES PAYABLE
Certain of the Partnership's investments involved purchases of partnership
interests from partners who subsequently withdrew from the operating
partnership. The Partnership is obligated for non-recourse notes payable
of $8,669,743 to the sellers of the partnership interests, bearing
interest at 9.5 percent per annum to the various sellers of the
partnership interests. The notes have principal maturity dates ranging
from December 31, 1999 to December 2001 or upon sale or refinancing of the
underlying partnership properties. These obligations and the related
interest are collateralized by the Partnership's investment in the
investee limited partnerships and are payable only out of cash
distributions from the investee partnerships, as defined in the notes.
Unpaid interest is due at maturity of the notes.
During 1997, the lower-tier partnership that owns Deep Lake Hermitage
Apartments ("Deep Lake") consummated the sale of the apartment complex for
$4,800,000. There were two notes payable by the Partnership to sellers of
interests in the lower-tier partnership that owns the Deep Lake property
in the aggregate principal amount of $1,500,000, which were secured by the
Partnership's interest in the local limited partnership. The notes had
accrued interest of $1,650,696, for a total amount due of $3,150,696. The
Partnership entered into an agreement with the note holders, who accepted
a reduced payment of $1,001,600 in full satisfaction of all obligations,
in order to enable the sale of property. This was paid by the lower tier
partnership from proceeds of the sale, and approximated the Partnership's
investment balance in Deep Lake. In addition, the apartment complex had a
first mortgage note of approximately $3,500,000 which was paid off from
proceeds of the sale. In 1997, the Partnership recognized an extraordinary
gain of $2,149,096 from the forgiveness of the debt.
NOTE 4 - FEES AND EXPENSES DUE TO GENERAL PARTNERS
Under the terms of the Restated Certificate and Agreement of the Limited
Partnership, the Partnership is obligated to the general partners for an
annual management fee equal to 0.5 percent of the original invested assets
of the limited partnerships. Invested assets is defined as the costs of
acquiring project interests including the proportionate amount of the
mortgage loans related to the Partnership's interests in the capital
accounts of the respective limited partnerships.
As of June 30, 1998, the fees and expenses due the general partners
exceeded the Partnership's cash. The general partners, during the
forthcoming year, will not demand payment of amounts due in excess of such
cash or such that the Partnership would not have sufficient operating
cash; however, the Partnership will remain liable for all such amounts.
NOTE 5 - CONTINGENCIES
NAPICO is a plaintiff in various lawsuits and has also been named as
defendant in other lawsuits arising from transactions in the ordinary
course of business. In the opinion of NAPICO, the claims will not result
in any material liability to the Partnership.
9
<PAGE> 12
HOUSING PROGRAMS LIMITED
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
NOTE 5 - CONTINGENCIES (CONTINUED)
The Partnership has assessed the potential impact of the Year 2000
computer systems issue on its operations. The Partnership believes that no
significant actions are required to be taken by the Partnership to address
the issue and that the impact of the Year 2000 computer systems issue will
not materially affect the Partnership's future operating results or
financial condition.
NOTE 6 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosure about
Fair Value of Financial Instruments," requires disclosure of fair value
information about financial instruments, when it is practicable to
estimate that value. The notes payable are collateralized by the
Partnership's investments in investee limited partnerships and are payable
only out of cash distributions from the investee partnerships. The cash
flow generated by operations of the investee limited partnerships, which
account for the Partnership's primary source of revenues, are subject to
various government rules, regulations and restrictions which make it
impracticable to estimate the fair value of the notes payable and related
accrued interest. The carrying amount of other assets and liabilities
reported on the balance sheets that require such disclosure approximates
fair value due to their short-term maturity.
10
<PAGE> 13
HOUSING PROGRAMS LIMITED
(A CALIFORNIA LIMITED PARTNERSHIP)
JUNE 30, 1998
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's primary sources of funds include interest income on
money market accounts and certificates of deposit and distributions from
limited partnerships in which the Partnership has invested. It is not
expected that any of the local limited partnerships in which the
Partnership has invested will generate cash flow sufficient to provide for
distributions to the Partnership's limited partners in any material
amount.
RESULTS OF OPERATIONS
Partnership revenues consist primarily of interest income earned on
certificates of deposit and other temporary investment of funds. The
Partnership also receives distributions from the lower-tier limited
partnerships in which it has invested.
Distributions received from limited partnerships are recognized as return
of capital until the investment balance has been reduced to zero or to a
negative amount equal to future capital contributions required.
Subsequent distributions received are recognized as income.
Except for certificates of deposit and money market funds, the
Partnership's investments consist entirely of interests in other limited
partnerships owning government assisted housing projects. Available cash
is invested to provide interest income as reflected in the statements of
operations. These funds can be converted to cash to meet obligations as
they arise. The Partnership intends to continue investing available funds
in this manner.
A recurring partnership expense is the annual management fee. The fee is
payable to the General Partners of the Partnership and is calculated at .5
percent of the Partnership's invested assets. The management fee is paid
to the General Partners for their continuing management of partnership
affairs. The fee is payable beginning with the month following the
Partnership's initial investment in a local limited partnership.
Management fees were $246,480 and $263,326 for the six months ended June
30, 1998 and 1997, respectively. The fees have decreased due to the sale
of a property owned by a local partnership in 1997, which reduced the
invested assets.
The Partnership is obligated on non-recourse notes payable of $8,669,743
at June 30, 1998 and December 31, 1997, which bear interest at 9.5 percent
per annum and have principal maturities ranging from December 1999 to
December 2001. Effective January 1, 1995, the interest rate for two notes
totaling $1,500,000 changed from 9.5 percent to 12.5 percent per the terms
of the notes, and the note holders accepted a reduced payment of
$1,000,000 in full satisfaction of all obligations in 1997 in connection
with the sale of the related property. The notes and related interest are
payable from cash flow generated from operations of the related rental
properties as defined in the notes. These obligations are collateralized
by the Partnership's investments in the limited partnerships. Unpaid
interest is due at maturity of the notes.
11
<PAGE> 14
HOUSING PROGRAMS LIMITED
(A CALIFORNIA LIMITED PARTNERSHIP)
JUNE 30, 1998
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATION (CONTINUED)
Operating expenses, other than management fees and interest expense,
consist of legal and accounting fees for services rendered to the
Partnership and administrative expenses, which were generally consistent
for periods presented. Legal and accounting fees were $77,300 and $74,600
for the six months ended June 30, 1998 and 1997, respectively. General and
administrative expenses were $39,000 and $32,100 for the periods ended
June 30, 1998 and 1997, respectively.
The Partnership accounts for its investments in the local limited
partnerships on the equity method, thereby adjusting its investment
balance by its proportionate share of the income or loss of the local
limited partnerships. Losses incurred after the limited partnership
investment account is reduced to zero are not recognized.
During the year ended December 31, 1997, the lower-tier partnership that
owns Deep Lake consummated the sale of the apartment complex for
$4,800,000. There were two notes payable by the Partnership to sellers of
interests in the lower-tier partnership that owns the Deep Lake property
in the aggregate principal amount of $1,500,000, which were secured by the
Partnership's interest in the local limited partnership. The notes had
accrued interest of $1,650,696, for a total amount due of $3,150,696. The
Partnership entered into an agreement with the note holders, who accepted
a reduced payment of $1,001,600 in full satisfaction of all obligations,
in order to enable the sale of property. This was paid by the lower tier
partnership from proceeds of the sale, and approximated the Partnership's
investment balance in Deep Lake. In addition, the apartment complex had a
first mortgage note of approximately $3,500,000 which was paid off from
proceeds of the sale. The Partnership recognized an extraordinary gain of
$2,149,096 from the forgiveness of the debt in the second quarter of 1997.
Under recently adopted law and policy, HUD has determined not to renew HAP
contracts on their existing terms. In connection with renewals of the
housing assistance payments contracts ("HAP Contracts") under such new law
and policy, the amount of rental assistance payments under renewed HAP
Contracts will be based on market rentals instead of above market rentals,
which was generally the case under existing HAP Contracts. As a result,
existing HAP Contracts that are renewed in the future on projects insured
by the Federal Housing Administrative of HUD ("FHA") will not provide
sufficient cash flow to permit owners of properties to meet the debt
service requirements of these existing FHA-insured mortgages. In order to
address the reduction in payments under HAP Contracts as a result of this
new policy, the Multi-family Assisted Housing Reform and Affordability Act
of 1997 ("MAHRAA"), which was adopted in October 1997, provides for the
restructuring of mortgage loans insured by the FHA with respect to
properties subject to HAP Contracts that have been renewed under the new
policy. The restructured loans will be held by the current lender or
another lender. Under MAHRAA, an FHA-insured mortgage loan can be
restructured to reduce the annual debt service on such loan. There
12
<PAGE> 15
HOUSING PROGRAMS LIMITED
(A CALIFORNIA LIMITED PARTNERSHIP)
JUNE 30, 1998
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RESULTS OF OPERATION (CONTINUED)
can be no assurance that the Partnership will be permitted to restructure
its mortgage indebtedness pursuant to the new HUD rules implementing
MAHRAA or that the Partnership would choose to restructure such mortgage
indebtedness if it were eligible to participate in the MAHRAA program. It
should be noted that there are uncertainties as to the economic impact on
the Partnership of the combination of the reduced payments under the HAP
Contracts and the restructuring of the existing FHA-insured mortgage loans
under MAHRAA. Accordingly, the General Partners are unable to predict with
certainty their impact on the Partnership's future cash flow.
A real estate investment trust ("REIT") organized by affiliates of NAPICO
has advised the Partnership that it intends to make a proposal to purchase
from the Partnership certain of the limited partnership interests held for
investment by the Partnership.
The REIT proposes to purchase such limited partnership interests for cash,
which it plans to raise in connection with a private placement of its
equity securities. The purchase is subject to, among other things, (i)
consummation of such private placement by the REIT; (ii) the purchase of
the general partnership interests in the local limited partnerships by the
REIT; (iii) the approval of HUD and certain state housing finance
agencies; (iv) the consent of the limited partners to the sale of the
local limited partnership interests held for investment by the
Partnership; and (v) the consummation of a minimum number of purchase
transactions with other NAPICO affiliated partnerships. As of June 30,
1998, the REIT had completed buy-out negotiations with a majority of the
general partners of the local limited partnerships it proposes to
purchase.
A consent solicitation statement will be sent to the limited partners
setting forth the terms and conditions of the purchase of the limited
partners' interests held for investment by the Partnership, together with
certain amendments to the Partnership Agreement and other disclosures of
various conflicts of interest in connection with the proposed transaction.
13
<PAGE> 16
HOUSING PROGRAMS LIMITED
(A CALIFORNIA LIMITED PARTNERSHIP)
JUNE 30, 1998
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As of June 30, 1998, NAPICO was a plaintiff or defendant in several lawsuits.
None of these suits are related to the Partnership. In the opinion of NAPICO,
the claims will not result in any material liability to the Partnership.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) No reports on Form 8-K were filed during the quarter ended
June 30, 1998.
14
<PAGE> 17
HOUSING PROGRAMS LIMITED
(A CALIFORNIA LIMITED PARTNERSHIP)
JUNE 30, 1998
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HOUSING PROGRAMS LIMITED
(a California limited partnership)
By: National Partnership Investments Corp.
General Partner
/s/ BRUCE NELSON
--------------------------------------
Bruce Nelson
President
Date: 8/14/98
---------------------------------------
/s/ CHARLES H. BOXENBAUM
--------------------------------------
Charles H. Boxenbaum
Chief Executive Officer
Date: 8/14/98
---------------------------------------
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
PARTNERSHIP'S STATEMENTS OF EARNINGS AND BALANCE SHEETS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,445,878
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,449,078
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 15,007,093
<CURRENT-LIABILITIES> 78,440
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (5,782,184)
<TOTAL-LIABILITY-AND-EQUITY> 15,007,093
<SALES> 0
<TOTAL-REVENUES> 578,285
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 362,787
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 411,812
<INCOME-PRETAX> (196,314)
<INCOME-TAX> 0
<INCOME-CONTINUING> (196,314)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (196,314)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
