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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q/A
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
--- ---
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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.
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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 - affiliates, 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) and net of loan
origination fees of $2,338 for 1995 - 1,092,345
Accrued interest receivable - affiliates, net of deferred interest of
$4,377,709 and $3,928,180 at September 30, 1996 and
December 31, 1995, respectively (Note 2) 1,600,000 1,639,890
Deferred charges, net 150 1,950
------------ ------------
$ 3,677,322 $ 4,066,226
============ ============
LIABILITIES AND PARTNERS' EQUITY
- --------------------------------
Accounts payable $ 10 $ 9
Partners' equity:
Limited partners - 2,568 units outstanding
at September 30, 1996 and December 31, 1995 3,643,287 4,028,303
General partner 34,025 37,914
------------ ------------
3,677,312 4,066,217
------------ ------------
$ 3,677,322 $ 4,066,226
============ ============
</TABLE>
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN
INTEGRAL PART OF THESE BALANCE SHEETS.
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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 and loan origination
fees from affiliates (Note 2) $ 51,251 $ 150,235 $ 44,013 $ 122,644
Expenses:
Operating 47,701 96,795 4,514 56,370
Bad Debt (Reversal) (29,455) 440,545 (540,670) (540,670)
Amortization 600 1,800 600 1,800
-------------- ------------- ------------- -----------
18,846 539,140 (535,556) (482,500)
-------------- ------------- ------------- -----------
Net income (loss) $ 32,405 $ (388,905) $ 579,569 $ 605,144
============== ============= ============= ===========
Net income (loss) allocable to
limited partners $ 32,081 $ (385,016) $ 573,773 $ 599,093
Net income (loss) allocable to
general partner 324 (3,889) 5,796 6,051
-------------- ------------- ------------- -----------
Net income (loss) $ 32,405 $ (388,905) $ 579,569 $ 605,144
============== ============= ============= ===========
Net income (loss) per limited
partnership unit $ 12 $ (149) $ 223 $ 233
============== ============= ============= ===========
</TABLE>
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN
INTEGRAL PART OF THESE STATEMENTS.
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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 (3,889) (385,016) (388,905)
----------- ----------- -----------
Balance, September 30, 1996 $ 34,025 $ 3,643,287 $ 3,677,312
=========== =========== ===========
</TABLE>
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN
INTEGRAL PART OF THESE STATEMENTS.
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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 $ 1,126,932
Payment of operating costs (96,795) (56,375)
------------ ------------
Net cash provided by operating
activities, net of distributions 92,448 1,070,557
Cash Flows From Investing 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 $ 1,274,872
============ ============
RECONCILIATION OF NET INCOME (LOSS) TO CASH PROVIDED BY
OPERATING ACTIVITIES:
Net income (loss) $ (388,905) $ 605,144
Adjustments to reconcile net income to
net cash provided by operating activities:
Amortization expense 1,800 1,800
Loan origination fees (2,338) (9,297)
Bad Debt Expense 440,545 -
Decrease in accrued interest receivable 41,345 472,916
Increase (decrease) in accounts payable 1 (6)
------------ ------------
Net cash provided by operating
activities, net of distributions $ 92,448 $ 1,070,557
============ ============
</TABLE>
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN
INTEGRAL PART OF THESE STATEMENTS.
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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 which are normal and
recurring 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 amount of the Operational Preference due at the end of each
calender quarter. In the event all of the Hall
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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:
Coachtree . . . . . . . . . . . . . . . . $177,960
Lanetree . . . . . . . . . . . . . . . . $1,167,626
Twintree . . . . . . . . . . . . . . . . . $381,815
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:
Coachtree . . . . . . . . . . . . . . . . $334,743
Lanetree . . . . . . . . . . . . . . . . $1,167,626
Twintree . . . . . . . . . . . . . . . . . $561,409
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. Then in the third quarter of 1996, management
decreased the reserve for accrued interest receivable by $471,455.
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(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.
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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.
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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 in the amount of not less than 1% of invested capital as defined which
was $72,400 and $73,400 at the end of the third quarters September 30, 1996 and
1995 respectively.
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 $(388,905), 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, and reversed $471,455 in bad debt expense related to the accrued
interest receivable from affiliates.
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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) None
(B) None
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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: January 17, 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: January 17, 1996
----------------------- ---------------------
Don Braun
President/Treasurer
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