<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.
June 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 June 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
JUNE 30, 1996 AND DECEMBER 31, 1995 (NOTE 1)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
---------------- ---------------
(Unaudited)
<S> <C> <C>
ASSETS
- ------
Cash and cash equivalents (Note 2) $ 2,540,468 $ 1,332,041
Mortgage notes receivable, net of an allowance for doubtful
receivables of $4,576,000 and $4,576,000 at June 30, 1996
and December 31, 1995, respectively (Note 3) - 1,094,683
Accrued interest receivable, net of deferred interest of
$4,698,836 and $3,928,180 at June 30, 1996 and
December 31, 1995, respectively (Note 3) 1,105,192 1,639,890
Deferred charges, net 750 1,950
----------- ------------
$ 3,646,410 $ 4,068,564
=========== ============
LIABILITIES AND PARTNERS' EQUITY
- --------------------------------
Accounts payable $ 1,503 $ 9
Deferred revenue (Notes 1 and 4) - 2,338
----------- ------------
1,503 2,347
----------- ------------
Partners' equity:
Limited partners - 2,568 units outstanding
at June 30, 1996 and December 31, 1995 3,611,206 4,028,303
General partner 33,701 37,914
----------- ------------
3,644,907 4,066,217
----------- ------------
$ 3,646,410 $ 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 JUNE 30, 1996 AND 1995 (NOTE 1)
<TABLE>
<CAPTION>
For the Three For the Six For the Three For the Six
Months Ended Months Ended Months Ended Months Ended
June 30, 1996 June 30, 1996 June 30, 1995 June 30, 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Interest (Note 2) $ 63,232 $ 96,646 $ 39,415 $ 72,433
Loan origination fees - 2,338 3,099 6,198
------------- ------------- ------------- ----------
63,232 98,984 42,514 78,631
------------- ------------- ------------- ----------
Expenses:
Operating 43,154 49,094 47,166 51,856
Bad Debt 470,000 470,000 - -
Amortization 600 1,200 600 1,200
------------- ------------- ------------- ----------
513,754 520,294 47,766 53,056
------------- ------------- ------------- ----------
Net income (loss) $ (450,522) $ (421,310) $ (5,252) $ 25,575
============= ============= ============= ==========
Net income (loss) allocable to
limited partners $ (446,017) $ (417,097) $ (5,199) $ 25,319
Net income (loss) allocable to
general partner (4,505) (4,213) (53) 256
------------- ------------- ------------- ----------
Net income (loss) $ (450,522) $ (421,310) $ (5,252) $ 25,575
============= ============= ============= ==========
Net income (loss) per limited
partnership unit $ (175) $ (164) $ (2) $ 9
============= ============= ============= ==========
</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 SIX MONTHS ENDED JUNE 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 income (4,213) (417,097) (421,310)
------------- ----------- ------------
Balance, June 30, 1996 $ 33,701 $ 3,611,206 $ 3,644,907
============= =========== ============
</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 SIX MONTHS ENDED JUNE 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 $ 161,344 $ 577,516
Payment of operating costs (47,600) (51,885)
------------ ------------
Net cash provided by operating
activities, net of distributions 113,744 525,631
Cash Flows From Financing Activities
Payment of Loans to Affiliated Borrowers 1,094,683 -
------------ ------------
Net cash from financing activities 1,094,683 -
------------ ------------
Cash and cash equivalents, beginning of
year 1,332,041 204,315
------------ ------------
Cash and cash equivalents, end of period $ 2,540,468 $ 729,946
============ ============
RECONCILIATION OF NET INCOME TO CASH PROVIDED BY
OPERATING ACTIVITIES:
Net income $ (421,310) $ 25,575
Adjustments to reconcile net income to
net cash provided by operating activities:
Amortization expense 1,200 1,200
Decrease in accrued interest receivable 534,698 505,084
Increase (decrease) in accounts payable 1,494 (30)
Decrease in deferred revenue (2,338) (6,198)
------------ ------------
Net cash provided by operating
activities, net of distributions $ 113,744 $ 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 June 30, 1996 and December 31,
1995, and the results of operations and changes in financial position for
the six months ended June 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 six and three months of 1996, the
Partnership accrued interest of $351,745 and $178,064 respectively, of
which $300,656 and $150,328 was deferred.
In February 1995, three of the Affiliated Borrowers 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 NHP Transaction Partnership 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 provided that all of the New LPS have been paid in
full at the end of each calender quarter ("Operational Participation
Proceeds"). In the event all of the New LPS have not bee paid in full
7
<PAGE> 8
for Operational Participation Proceeds at the end of each calender
quarter, the annual return on the Preferred Equity in calculating
Operational Participation Proceeds increases to 9% per annum (hereafter
referred to as a "Non-Major Default"). In addition to Operational
Participation Proceeds, each NHP Transaction Partnership is entitled to a
priority return of the Preferred Equity and any accrued and unpaid
Operational Participation Proceeds 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 Participation Proceeds
("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 has 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 has not occurred, is estimated to be:
<TABLE>
<S> <C>
Coachtree . . . . . . . . . . . . . . . $334,743
Lanetree . . . . . . . . . . . . . . . . $1,167,626
Twintree . . . . . . . . . . . . . . . . $561,409
</TABLE>
In April 1996, a Non-Major Default had occurred in the NHP Transaction.
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 six 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 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.
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.
(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
9
<PAGE> 10
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 June 30, 1996, certain of the
Affiliated Borrowers were not making payments to the Partnership. Accordingly,
during the first six and three months of 1996, the Partnership deferred
$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 $(421,310), and $25,575 for
the six months ended June 30, 1996 and 1995, respectively. During the first
six and three months of 1996, $45,557 and $5,678 respectively of interest
income was earned on short-term investments. In the three month period ending
June 30, 1996, the Partnership incurred professional fees of approximately
$31,000 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.
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) 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: August 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: August 14, 1996
---------------------------- ----------------------------
Don Braun
President/Treasurer
13
<PAGE> 14
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 2,540,468
<SECURITIES> 0
<RECEIVABLES> 10,380,028
<ALLOWANCES> 9,274,836
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,646,410
<CURRENT-LIABILITIES> 1,503
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 3,644,907
<TOTAL-LIABILITY-AND-EQUITY> 3,646,410
<SALES> 0
<TOTAL-REVENUES> 98,984
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 50,294
<LOSS-PROVISION> 470,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (421,310)
<INCOME-TAX> 0
<INCOME-CONTINUING> (421,310)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (421,310)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
