<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarter Ended Commission File No.
September 30, 1996 2-94249
HALL INSTITUTIONAL MORTGAGE FUND LIMITED PARTNERSHIP
(Exact name of Registrant as specified in its charter)
Arizona 75-1982134
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
4455 EAST CAMELBACK ROAD
SUITE A-200
PHOENIX, ARIZONA 85018
(Address of principal executive offices, zip code)
Registrant's telephone number, including area code: (602) 840-0060
Indicate by a 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> 2
PART I. FINANCIAL INFORMATION:
The financial statements and information included herein, except for
the balance sheet at December 31, 1995, are unaudited; however, they
reflect all adjustments which are, in the opinion of management,
necessary for a fair statement of the results for the interim periods
ended September 30, 1996 and 1995. These results may not be
indicative of the results which may be expected for the year ended
December 31, 1996, or any other period.
2
<PAGE> 3
HALL INSTITUTIONAL MORTGAGE FUND LIMITED PARTNERSHIP
BALANCE SHEETS
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995 (NOTE 1)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
---------------- ---------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents (Note 2) $ 2,077,172 $ 1,332,041
Mortgage notes receivable, net of an allowance for doubtful
receivables of $5,018,000 and $4,576,000 at September 30, 1996
and December 31, 1995, respectively (Note 4) - 1,094,683
Accrued interest receivable, net of deferred interest of
$4,849,164 and $3,928,180 at September 30, 1996 and
December 31, 1995, respectively (Note 2) 1,128,545 1,639,890
Deferred charges, net 150 1,950
----------- ------------
$ 3,205,867 $ 4,068,564
=========== ============
LIABILITIES AND PARTNERS' EQUITY
Accounts payable $ 10 $ 9
Deferred revenue - 2,338
----------- ------------
10 2,347
----------- ------------
Partners' equity:
Limited partners - 2,568 units outstanding
at September 30, 1996 and December 31, 1995 3,176,547 4,028,303
General partner 29,310 37,914
----------- ------------
3,205,857 4,066,217
----------- ------------
$ 3,205,867 $ 4,068,564
=========== ============
</TABLE>
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN
INTEGRAL PART OF THESE BALANCE SHEETS.
3
<PAGE> 4
HALL INSTITUTIONAL MORTGAGE FUND LIMITED PARTNERSHIP
UNAUDITED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (NOTE 1)
<TABLE>
<CAPTION>
For the Three For the Nine For the Three For the Nine
Months Ended Months Ended Months Ended Months Ended
Sept 30, 1996 Sept 30, 1996 Sept 30, 1995 Sept 30, 1995
--------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Interest (Note 2) $ 51,251 $ 147,897 $ 40,914 $ 113,347
Loan origination fees - 2,338 3,099 9,297
-------------- ------------- ------------- ----------
51,251 150,235 44,013 122,644
-------------- ------------- ------------- ----------
Expenses:
Operating 47,701 96,795 4,514 56,370
Bad Debt (Reversal) 442,000 912,000 ( 540,670) ( 540,670)
Amortization 600 1,800 600 1,800
-------------- ------------- ------------- ----------
490,301 1,010,595 ( 535,556) ( 482,500)
-------------- ------------- ------------- ----------
Net income (loss) $ ( 439,050) $ ( 860,360) $ 579,569 $ 605,144
============== ============= ============= ==========
Net income (loss) allocable to
limited partners $ ( 434,659) $ ( 851,756) $ 573,773 $ 599,093
Net income (loss) allocable to
general partner ( 4,391) ( 8,604) 5,796 6,051
-------------- ------------- ------------- ----------
Net income (loss) $ ( 439,050) $ ( 860,360) $ 579,569 $ 605,144
============== ============= ============= ==========
Net income (loss) per limited
partnership unit $ ( 168) $ ( 332) $ 223 $ 233
============== ============= ============= ==========
</TABLE>
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN
INTEGRAL PART OF THESE STATEMENTS.
4
<PAGE> 5
HALL INSTITUTIONAL MORTGAGE FUND LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND
FOR THE YEAR ENDED DECEMBER 31, 1995 (NOTE 1)
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
------------- ----------- ------------
<S> <C> <C> <C>
Balance, December 31, 1994 $ 20,237 $ 2,278,289 $ 2,298,526
Net income 17,677 1,750,014 1,767,691
------------- ----------- ------------
Balance, December 31, 1995 37,914 4,028,303 4,066,217
Net loss ( 8,604) ( 851,756) ( 860,360)
------------- ----------- ------------
Balance, September 30, 1996 $ 29,310 $ 3,176,547 $ 3,205,857
============= =========== ============
</TABLE>
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN
INTEGRAL PART OF THESE STATEMENTS.
5
<PAGE> 6
HALL INSTITUTIONAL MORTGAGE FUND LIMITED PARTNERSHIP
UNAUDITED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (NOTE 1)
<TABLE>
<CAPTION>
1996 1995
------------ --------
<S> <C> <C>
Cash Flows From Operating Activities
Receipt of interest on Specific Loans and
short-term investments $ 189,243 $ 577,516
Payment of operating costs (96,795) (51,885)
------------ ------------
Net cash provided by operating
activities, net of distributions 92,448 525,631
Cash Flows From Financing Activities
Loans to Affiliated Borrowers (442,000) -
Payment of Loans to Affiliated Borrowers 1,094,683 -
------------ ------------
Net cash from financing activities 652,683 -
------------ ------------
Cash and cash equivalents, beginning of
year 1,332,041 204,315
------------ ------------
Cash and cash equivalents, end of period $ 2,077,172 $ 729,946
============ ============
RECONCILIATION OF NET INCOME (LOSS) TO CASH PROVIDED BY
OPERATING ACTIVITIES:
Net income (loss) $ (860,360) $ 25,575
Adjustments to reconcile net income to
net cash provided by operating activities:
Amortization expense 1,800 1,200
Bad Debt Expense 442,000 -
Decrease in accrued interest receivable 511,345 505,084
Increase (decrease) in accounts payable 1 (30)
Decrease in deferred revenue (2,338) (6,198)
------------ ------------
Net cash provided by operating
activities, net of distributions $ 92,448 $ 525,631
============ ============
</TABLE>
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN
INTEGRAL PART OF THESE STATEMENTS.
6
<PAGE> 7
HALL INSTITUTIONAL MORTGAGE FUND LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(1) SIGNIFICANT ACCOUNTING POLICIES:
In the opinion of management, the accompanying audited and unaudited
financial statements contain all adjustments necessary to present fairly
the financial position of Hall Institutional Mortgage Fund Limited
Partnership (the "Partnership"), as of September 30, 1996 and December
31, 1995, and the results of operations and changes in financial
position for the nine months ended September 30, 1996 and 1995. The
general partner of the Partnership is Hall Pension Fund Associates and
the general partner of Hall Pension Fund Associates is Hall 1985
Management Associates (the "Managing General Partner").
For a summary of additional significant accounting policies and other
matters, see the notes to financial statements of the Partnership which
are included in the Annual Report of Form 10-K for the year ended
December 31, 1995.
(2) ACCRUED INTEREST RECEIVABLE:
The original loans made by the Partnership were to affiliated
partnerships ("Affiliated Borrowers") which at the time of origination
were secured only by a subordinate lien on the mortgaged real property
which was pledged as security ("Specific Loans"). All of the Specific
Loans have been modified and do not require payment of interest until
either sale or refinancing of the Affiliated Borrower's real property or
in some instances to the extent cash flow is available from the
Affiliated Borrowers after the payment in full of the Affiliated
Borrower's first lien mortgage or other amounts having priority. Certain
of the Partnership's loans, through restructure and reorganization of
Affiliated Borrowers, are in full or part subordinated to the return of
equity in addition to being subordinate to senior indebtedness of the
Affiliated Borrower. Accordingly, in the first nine, six and three
months of 1996, the Partnership accrued interest of $525,426, $351,745
and $178,064 respectively, of which $450,984, $300,656 and $150,328 was
deferred.
In February 1995, three of the Affiliated Borrowers, along with 25 other
partnerships (collectively hereafter referred to as the "Hall LPs"),
entered into a transaction with affiliates of NHP, Inc., Paine Webber
and Hall Financial Group, Inc. whereby the properties were transferred
to separate limited partnerships (the "New LPs") by the respective
Affiliated Borrowers (the "NHP Transaction"). As a result of the NHP
Transaction, Lanetree Associates Limited Partnership, Twintree
Associates Limited Partnership and Coachtree Associates Limited
Partnership ("NHP Transaction Partnerships") each hold a limited
partnership interest in its respective New LP in which affiliates of
NHP, Inc. and Paine Webber are general partners. As part of the NHP
Transaction, the senior mortgage for each property involved in the NHP
Transaction was paid in full. In addition, as part of the NHP
Transaction, each Hall LP (including the NHP Transaction Partnerships)
received cash at closing, and is entitled to a defined priority equity
amount in the New LPs (the "Preferred Equity") and an annual return on
the Preferred Equity of 6% per annum (the "Operational Preference")
provided that all of the Hall LPs have been paid the full amountof the
Operational Preference due at the end of each calender quarter.
7
<PAGE> 8
In the event all of the Hall LP's have not bee paid the amount of the
Operational Preference due at the end of each calender quarter, the
annual return on the Preferred Equity in calculating the Operational
Participation increases to 9% per annum (hereafter referred to as a
"Non-Major Default"). A Non-Major Default occurred in April 1996, and
is continuing. In addition to Operational Preference, each NHP
Transaction Partnership is entitled to a priority return of the
Preferred Equity and any accrued and unpaid Operational Preference upon
refinancing or sale of the properties over other equity classes and a
20% participation in net proceeds available from sale or refinancing
after payment of the Preferred Equity and any accrued and unpaid
Operational Preference ("Sale or Refinancing Participation Proceeds").
As a condition of the NHP Transaction, the Partnership was required to
release its second lien positions and retain unsecured loans from the
NHP Transaction Partnerships for the remaining balances on their
respective Specific Loans. The remaining balances on the NHP Transaction
Partnerships' Specific Loans have the same economic and payment terms as
prior to the NHP Transaction. Lanetree Associates Limited Partnership
distributed $569,419 to the Partnership in March 1995 in partial payment
of its loan obligation to the Partnership from proceeds it received at
closing of the NHP Transaction. There were not sufficient proceeds at
closing (after the payment of priority repayments) to distribute funds
to the Partnership from Coachtree Associates Limited Partnership or
Twintree Associates Limited Partnership. However, the NHP Transaction
Partnerships remain obligated to the Partnership pursuant to each
partnership's Bankruptcy Plan. The terms of the Preferred Equity held by
the NHP Transaction Partnerships provide that defined amounts be paid
not later than December 10, 2000. NHP, Inc. has the option to pay the
Preferred Equity amounts due the NHP Transaction Partnerships at an
earlier date at a discounted amount. If NHP, Inc. exercises its option
within twenty-one months of the original transaction date, or November
7, 1996, it would result in the following estimated payments, excluding
Sale or Refinancing Participation Proceeds and assuming a Non-Major
Default had not occurred, to the Partnership from each of the NHP
Transaction Partnerships:
<TABLE>
<S> <C>
Coachtree . . . . . . . . . . . . . . . . $177,960
Lanetree . . . . . . . . . . . . . . . . $1,167,626
Twintree . . . . . . . . . . . . . . . . . $381,815
</TABLE>
The amounts the Partnership would receive on December 10, 2000,
excluding Sale or Refinancing Participation Proceeds and assuming a
Non-Major Default had not occurred, is estimated to be:
<TABLE>
<S> <C>
Coachtree . . . . . . . . . . . . . . . . $334,743
Lanetree . . . . . . . . . . . . . . . . $1,167,626
Twintree . . . . . . . . . . . . . . . . . $561,409
</TABLE>
During the first three months of 1996, two Affiliated Borrowers,
Lanetree Associates Limited Partnership and Hall Seven Trails Associates
("Arrowtree"), repaid accrued interest to the Partnership of $71,512 and
$44,274, respectively. In the second quarter of 1996, based on an
updated analysis, management increased the reserve for accrued interest
receivable by $470,000.
8
<PAGE> 9
(3) DISTRIBUTIONS TO PARTNERS:
There were no partner distributions paid during the first nine months
of 1996.
(4) MORTGAGE NOTES RECEIVABLE:
In January 1996, Northtree Associates Limited Partnership
("Candlewick"), an Affiliated Borrower, refinanced the Candlewick
apartments' mortgages. The property was refinanced with a new $5.0
million first lien mortgage which accrues interest at 7.58% with
principal and interest payments due monthly based on a 22-year
amortization schedule through maturity on February 1, 2003. As a
condition of the refinancing agreement, the Partnership was required to
release its second lien position and retain an unsecured recourse
promissory note from Candlewick for the remaining balance on
Candlewick's Specific Loan. The remaining balance on the Candlewick
Specific Loan has the same economic terms as prior to the refinancing.
The Partnership believes it was in its best interest to release its
second lien position to allow the refinancing to be consummated, thereby
decreasing Candlewick's first lien mortgage interest rate and extending
the maturity date.
During the first quarter of 1996, Arrowtree refinanced its mortgages. As
part of the overall refinancing, the property was transferred to
Arrowtree Properties, Ltd. ("New Arrowtree"), with Arrowtree retaining a
99% interest in New Arrowtree. The property was refinanced with a new
$2.75 million first lien mortgage which accrues interest at 7.57% with
principal and interest payments due monthly. The refinancing allowed
Arrowtree to repay the Partnership in full the $181,000 of principal and
$44,274 of accrued interest on a loan the Partnership made to Arrowtree
pursuant to the 1994 restructuring of Arrowtree's first lien mortgage.
Arrowtree also made a partial payment of $914,000 on Arrowtree's
Specific Loan. As a condition of the refinancing agreement, the
Partnership was required to release its second lien position and retain
an unsecured recourse promissory note from Arrowtree for the remaining
balance on Arrowtree's Specific Loan. The remaining balance on the
Arrowtree Specific Loan has the same economic and payment terms as prior
to the refinancing.
In August 1996, Hall Brambletree Associates Limited Partnership
("Brambletree"), an Affiliated Borrower, refinanced the Brambletree
apartments' mortgages. The property was refinanced with a new $6.105
million first lien mortgage which accrues interest at 8.245% with
principal and interest payments due monthly based on a 30- year
amortization schedule through maturity on September 1, 2006. As a
condition of the refinancing, the Partnership was required to loan
Brambletree an additional $442,000 with the same terms as the
Brambletree Specific Loan. Along with the additional loan, the
Partnership was required to release its second lien position and retain
an unsecured recourse promissory note from Brambletree for the remaining
balance on Brambletree's Specific Loan. The remaining balance on the
Brambletree Specific Loan has the same economic terms as prior to the
refinancing. The Partnership believes it was in its best interest to
release its second lien position to allow the refinancing to be
consummated, thereby decreasing Brambletree's first lien mortgage
interest rate and extending the maturity date.
9
<PAGE> 10
The Partnership updated an analysis of the collectibility of its
mortgage notes receivable at December 31, 1995. The Partnership
reversed bad debt reserves totaling $1,653,386 during 1995 primarily
based on interest payments received during 1995 the principal and
interest payments received in connection with the Arrowtree refinancing
discussed above. During the third quarter of 1996, the Partnership
reserved the $442,000 advanced to Brambletree.
(5) INVESTMENT ACT OF 1940:
The accompanying financial statements have been prepared assuming that
the Partnership will continue as a going concern. In February 1996, the
Partnership's attorneys advised the Partnership that the release of the
second lien positions on certain of the loan receivables could cause the
Partnership to be treated as an investment company under the 1940
Investment Company Act (the "1940 Act") by the Securities and Exchange
Commission. The Partnership cannot become an investment company under
the 1940 Act because it is in conflict with its partnership agreement
and the purpose of the original offering. Certain securities
regulations which may be applicable to the Partnership complicate the
determination of the best alternative for future operations of the
Partnership. Although there can be no assurances with respect to the
outcome, the Partnership intends to use its best efforts to implement
the alternative that provides the maximum benefit to its limited
partners, while maintaining compliance with all applicable securities
regulations. The alternatives currently being evaluated, if implemented,
may require the Partnership to seek limited partner approval. If such
limited partner approval is required, proxy statements will be sent to
the limited partners which will request their votes regarding certain
aspects of the alternative proposed.
The accompanying financial statements have not been prepared on the
liquidation basis of accounting, as it is not determinable if an
immediate liquidation of the Partnership will be required. This
uncertainty raises substantial doubt about the Partnership's ability to
continue as a going concern. The accompanying financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
10
<PAGE> 11
HALL INSTITUTIONAL MORTGAGE FUND LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
CAPITAL RESOURCES AND LIQUIDITY -
The Partnership's primary sources of liquidity are repayments of
principal and interest from the NHP Transaction Partnerships and
repayments of principal and interest from Affiliated Borrowers that have
refinanced their mortgages. Liquidity is also maintained with cash the
Partnership holds as working capital reserves.
The Partnership's ability to pay distributions to the general and
limited partners was, prior to the NHP Transaction, materially affected
by the non-payment of interest on the loans owed by Affiliated
Borrowers. It has not yet been determined whether there will be
distributions from operations in 1996 as a result of the NHP Transaction
and certain Affiliated Borrowers' refinancing of their underlying debts.
As of September 30, 1996, certain of the Affiliated Borrowers were not
making payments to the Partnership. Accordingly, during the first nine,
six and three months of 1996, the Partnership deferred $450,984,
$300,656 and $150,328 respectively of accrued interest income. The
Partnership expects to continue to defer a majority of the accrued
interest quarterly through December 31, 1996. Interest accrued on
Lanetree Associates Limited Partnership is being recognized as income as
a result of the December 31, 1995 analysis of collectibility of mortgage
notes receivable and the NHP Transaction.
RESULTS OF OPERATIONS -
The Partnership recorded net (loss) and income of $(860,360), and
$605,144 for the nine months ended September 30, 1996 and 1995,
respectively. During the first nine, six and three months of 1996,
$73,456, $45,557 and $5,678 respectively of interest income was earned
on short-term investments. In the six and three month period ending
September 30, 1996, and June 30, 1996, the Partnership incurred
professional fees of approximately $72,097 and $31,000 respectively
related to analyzing the value of the mortgage receivables (see Note 5).
Accounting fees of approximately $5,500 relating to the December 31,
1995, audit were also incurred in the second quarter of 1996. Due to an
updated analysis, the Partnership recorded $470,000 as bad debt expense
in the second quarter of 1996. In the third quarter of 1996, the
Partnership recorded as bad debt expense, the $442,000 advance made in
connection with Brambletree's refinancing.
11
<PAGE> 12
PART II. OTHER INFORMATION:
ITEM 1. LEGAL PROCEEDINGS
The Partnership is not a party to any material legal proceedings.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibit 27 - Financial Data Schedule
(B) None
12
<PAGE> 13
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.
HALL INSTITUTIONAL MORTGAGE FUND LIMITED PARTNERSHIP
By: Hall Pension Fund Associates,
its General Partner
By: Hall 1985 Management Associates Limited Partnership
its General Partner
By: Hall Apartment Associates, Inc.,
its Managing General Partner
By: /s/ Don Braun Date: September 14, 1996
------------------------ -------------------------
Don Braun
President/Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following person in the capacities
indicated of the Managing General Partner, on behalf of the registrant on the
date indicated.
By: Hall Apartment Associates, Inc., the Managing General Partner of
Hall 1985 Management Associates Limited Partnership, the General
Partner of Hall Pension Fund Associates, the General Partner of
Hall Institutional Mortgage Fund Limited Partnership
By: /s/ Don Braun Date: September 14, 1996
------------------------ -------------------------
Don Braun
President/Treasurer
13
<PAGE> 14
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27 - Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 2,077,172
<SECURITIES> 0
<RECEIVABLES> 10,995,709
<ALLOWANCES> 9,867,164
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,205,867
<CURRENT-LIABILITIES> 10
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 3,205,857
<TOTAL-LIABILITY-AND-EQUITY> 3,205,857
<SALES> 0
<TOTAL-REVENUES> 150,235
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 98,595
<LOSS-PROVISION> 912,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (860,360)
<INCOME-TAX> 0
<INCOME-CONTINUING> (860,360)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (860,360)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
