<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1995
COMMISSION FILE NUMBER 0-14458
NATIONAL HOUSING PARTNERSHIP REALTY FUND TWO
(A MARYLAND LIMITED PARTNERSHIP)
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
MARYLAND 52-1365317
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
</TABLE>
1225 EYE STREET, N.W.
WASHINGTON, D.C. 20005
(Address of principal executive offices)
(Zip Code)
(202) 347-6247
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------- -------
<PAGE> 2
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
NATIONAL HOUSING PARTNERSHIP REALTY FUND TWO
(A MARYLAND LIMITED PARTNERSHIP)
STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
------------- ------------
<S> <C> <C>
ASSETS
------
Cash and cash equivalents $ 34,127 $ 44,627
Deposits held by escrow agents 28 28
Investments in and advances to
Local Limited Partnerships (Note 2) 4,072,342 3,985,024
------------ -----------
$ 4,106,497 $ 4,029,679
============ ===========
LIABILITIES AND PARTNERS' DEFICIT
---------------------------------
Liabilities:
Due to General Partner (Note 3) $ 197,811 $ 197,811
Deferred acquisition notes
payable to General Partner 2,414,468 2,414,468
Accrued interest on deferred
acquisition notes payable to
General Partner 2,395,456 2,335,094
Accrued interest on Due to
General Partner (Note 3) 15,869 10,188
Administrative and reporting fees
payable to General Partner
(Note 3) 857,798 823,486
Other accrued expenses 30,359 37,350
------------ -----------
5,911,761 5,818,397
------------ -----------
Partners' deficit:
General Partner -- The National
Housing Partnership (NHP) (173,141) (172,976)
Original Limited Partner --
1133 Fifteenth Street Two Associates (178,041) (177,876)
Other Limited Partners -- 18,300
investment units (1,454,082) (1,437,866)
------------ -----------
(1,805,264) (1,788,718)
------------ -----------
$ 4,106,497 $ 4,029,679
============ ===========
</TABLE>
See notes to financial statements.
-1-
<PAGE> 3
NATIONAL HOUSING PARTNERSHIP REALTY FUND TWO
(A MARYLAND LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months
Ended March 31,
---------------
1995 1994
---- ----
<S> <C> <C>
REVENUES:
Share of income from
Local Limited Partnerships $ 87,318 $ 27,465
Distributions and
repayments received in excess of
investment in and advances to
Local Limited Partnerships 7,449 6,961
Interest income 656 615
-------- --------
95,423 35,041
-------- --------
COSTS AND EXPENSES:
Loss on investment in Local
Limited Partnerships - 6,531
Administrative and reporting fees
to General Partner (Note 3) 34,312 34,312
Interest on deferred acquisition notes
to General Partner 60,362 60,362
Interest on due to General Partner 5,681 5,479
Other operating expenses 11,614 9,749
-------- --------
111,969 116,433
-------- --------
NET LOSS $(16,546) $(81,392)
======== ========
NET LOSS ASSIGNABLE
TO LIMITED PARTNERS $(16,216) $(79,764)
======== ========
NET LOSS PER LIMITED
PARTNERSHIP INTEREST $ (1) $ (4)
======== ========
</TABLE>
See notes to financial statements.
-2-
<PAGE> 4
NATIONAL HOUSING PARTNERSHIP REALTY FUND TWO
(A MARYLAND LIMITED PARTNERSHIP)
STATEMENT OF PARTNERS' DEFICIT
<TABLE>
<CAPTION>
The National 1133
Housing Fifteenth Other
Partnership Street Two Limited
(NHP) Associates Partners Total
------------ ---------- -------- -----
<S> <C> <C> <C> <C>
Deficit at January 1, 1995 $(172,976) $(177,876) $(1,437,866) $(1,788,718)
Net loss -- three months
ended March 31, 1995 (165) (165) (16,216) (16,546)
--------- --------- ----------- -----------
Deficit at March 31, 1995 $(173,141) $(178,041) $(1,454,082) $(1,805,264)
========= ========= =========== ===========
Percentage interest at
March 31, 1995 1% 1% 98% 100%
========= ========= =========== ===========
(A) (B) (C)
</TABLE>
(A) General Partner
(B) Original Limited Partner
(C) Consists of 18,300 investments units of 0.00536% held by 1,300
investors
See notes to financial statements.
-3-
<PAGE> 5
NATIONAL HOUSING PARTNERSHIP REALTY FUND TWO
(A MARYLAND LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months
Ended March 31,
---------------
1995 1994
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest received $ 656 $ 615
Operating expenses paid (18,605) (10,708)
--------- ---------
Net cash used in operating activities (17,949) (10,093)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Advances to Local Limited Partnerships - (6,531)
Repayment of advances to Local Limited Partnerships 7,449 6,961
--------- ---------
Net cash provided by investing activities 7,449 430
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (10,500) (9,663)
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 44,627 35,583
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 34,127 $ 25,920
========= =========
</TABLE>
See notes to financial statements.
-4-
<PAGE> 6
NATIONAL HOUSING PARTNERSHIP REALTY FUND TWO
(A MARYLAND LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
---------------------
1995 1994
---- ----
<S> <C> <C>
RECONCILIATION OF NET LOSS TO NET CASH
--------------------------------------
USED IN OPERATING ACTIVITIES:
-----------------------------
Net loss $(16,546) $(81,392)
-------- --------
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Repayment of advances to Local Limited Partnerships (7,449) (6,961)
Loss on investment in Local Limited Partnerships - 6,531
Share of income from Local Limited Partnerships (87,318) (27,465)
Increase in accrued interest on deferred acquisition notes 60,362 60,362
Increase in accrued interest on due to General Partner 5,681 5,479
Increase in administrative and reporting fees payable 34,312 34,312
Decrease in accrued expenses (6,991) (959)
-------- --------
Total adjustments (1,403) 71,299
-------- --------
Net cash used in operating activities $(17,979) $(10,093)
======== ========
</TABLE>
See notes to financial statements.
-5-
<PAGE> 7
NATIONAL HOUSING PARTNERSHIP REALTY FUND TWO
(A MARYLAND LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
(1) ACCOUNTING POLICIES
ORGANIZATION
National Housing Partnership Realty Fund Two (the "Partnership") is a
limited partnership organized under the laws of the State of Maryland
under the Maryland Revised Uniform Limited Partnership Act on January
22, 1985. The Partnership was formed for the purpose of raising
capital by offering and selling limited partnership interests and then
investing in limited partnerships ("Local Limited Partnerships"), each
of which owns and operates an existing rental housing project which is
financed and/or operated with one or more forms of rental assistance
or financial assistance from the U.S. Department of Housing and Urban
Development ("HUD").
The General Partner raised capital for the Partnership by offering and
selling to additional limited partners 18,300 investment units at a
price of $1,000 per unit. The Partnership acquired limited
partnership interests of 94.5% (98% with respect to allocation of
losses) in twenty-one Local Limited Partnerships, nineteen of which
were organized to acquire and operate an existing rental housing
project. The remaining two Local Limited Partnerships were formed to
construct and operate rental housing projects.
BASIS OF PRESENTATION
The accompanying unaudited interim financial statements reflect all
adjustments which are, in the opinion of management, necessary to a
fair statement of the financial condition and results of operations
for the interim periods presented. All such adjustments are of a
normal and recurring nature.
While the General Partner believes that the disclosures presented are
adequate to make the information not misleading, it is suggested that
these financial statements be read in conjunction with the financial
statements and notes included in NHP Realty Fund Two's Annual Report
filed in Form 10-K, as amended, for the year ended December 31, 1994.
(2) INVESTMENTS IN AND ADVANCES TO LOCAL LIMITED PARTNERSHIPS
The Partnership owns a 94.5% limited partnership interest (98% with
respect to allocation of losses) in twenty-one Local Limited
Partnerships. Because the Partnership, as a limited partner, does not
exercise control over the activities of the Local Limited Partnerships
in accordance with the partnership agreements, the investments in
Local Limited Partnerships are accounted for using the equity method.
Thus, the investments (and the advances made to the Local Limited
Partnerships as discussed below) are carried at cost less the
Partnership's share of the Local Limited Partnerships' losses and
distributions. However, because the Partnership is not legally liable
for the obligations
-6-
<PAGE> 8
NATIONAL HOUSING PARTNERSHIP REALTY FUND TWO
(A MARYLAND LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
of the Local Limited Partnerships, and is not otherwise committed to
provide additional support to them, it does not recognize losses once
its investments, reduced for its share of losses and cash
distributions, reaches zero in each of the individual Local Limited
Partnerships. As of March 31, 1995 and December 31, 1994, investments
in nineteen of the twenty-one Local Limited Partnerships had been
reduced to zero. As a result, the Partnership did not recognize
$423,162 and $573,739 of losses from these nineteen Local Limited
Partnerships during the three months ended March 31, 1995 and 1994,
respectively. As of March 31, 1995 and December 31, 1994, the
Partnership has not recognized a total of $17,422,309 and $16,999,147,
respectively, of its allocated share of cumulative losses from the
Local Limited Partnerships in which its investment is zero.
Advances made by the Partnership to the individual Local Limited
Partnerships are considered part of the Partnership's investment in
Local Limited Partnerships. When advances are made, they are charged
to operations as a loss on investment in the Local Limited Partnership
using previously unrecognized cumulative losses. As discussed above,
due to the cumulative losses incurred by nineteen of the Local Limited
Partnerships, the aggregate balance of investments in and advances to
Local Limited Partnerships, for these nineteen Local Limited
Partnerships, has been reduced to zero at March 31, 1994 and December
31, 1993. To the extent these advances are repaid by the Local
Limited Partnerships in the future, the repayments will be credited as
distributions and repayments received in excess of investment in Local
Limited Partnerships. These advances are carried as a payable to the
Partnership by the Local Limited Partnerships.
During the three months ended March 31, 1994, the Partnership advanced
$6,531 in working capital to three Local Limited Partnerships. No
advances were made during the three months ended March 31, 1995.
These advances were charged to operations as loss on investment in
Local Limited Partnerships. Repayments of advances of $7,449 and
$6,961 were made to the Partnership during the three months ended
March 31, 1995 and 1994, respectively, and were credited as income
from operations. The combined amount carried as due to the
Partnership by the Local Limited Partnerships was $597,555 at March
31, 1995.
The following are combined statements of operations for the three
months ended March 31, 1995 and 1994, respectively, of the Local
Limited Partnerships in which the Partnership has invested. The
statements are compiled from financial statements of the Local Limited
Partnerships, prepared on the accrual basis of accounting, as supplied
by the management agents of the projects, and are unaudited.
-7-
<PAGE> 9
NATIONAL HOUSING PARTNERSHIP REALTY FUND TWO
(A MARYLAND LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months
Ended March 31,
---------------
1995 1994
---- ----
<S> <C> <C>
Rental income $3,585,963 $3,387,707
Other income 85,987 70,772
---------- ----------
Total income 3,671,950 3,458,479
---------- ----------
Operating expenses 2,319,687 2,404,804
Interest, taxes and insurance 1,127,703 1,089,250
Depreciation 563,959 521,846
---------- ----------
Total expenses 4,011,349 4,015,900
---------- ----------
Net loss $ (339,399) $ (557,421)
========== ==========
National Housing
Partnership Realty
Fund Two share of losses $ (335,844) $ (546,274)
========== ==========
</TABLE>
(3) TRANSACTIONS WITH THE GENERAL PARTNER
During the three month periods ended March 31, 1995 and 1994, the
Partnership accrued administrative and reporting fees payable to the
General Partner in the amount of $34,312 for services provided to the
Partnership. The Partnership did not make any payments to the General
Partner for these fees during each of the respective periods. The
amount due the General Partner by the Partnership was $857,798 and
$823,486 at March 31, 1995 and December 31, 1994, respectively.
During the three months ending March 31, 1995, no operating deficit
funding or repayment activity occurred between the General Partner and
the Partnership. The amount owed to the General Partner by the
Partnership was $197,811 as of March 31, 1995 and December 31, 1994.
Interest is charged on borrowings at the Chase Manhattan Bank rate of
prime plus 2%. Accrued interest on this loan as of March 31, 1995 and
December 31, 1994, totalled $15,869 and $10,188, respectively.
The advances and accrued administrative and reporting fees payable to
the General Partner will be paid only as cash flow permits or from the
sale or refinancing of one or more of the underlying properties of the
Local Limited Partnerships.
-8-
<PAGE> 10
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
NATIONAL HOUSING PARTNERSHIP REALTY FUND TWO
(A MARYLAND LIMITED PARTNERSHIP)
LIQUIDITY AND CAPITAL RESOURCES
The properties in which the Partnership has invested, through its investments
in the Local Limited Partnerships, receive one or more forms of assistance from
Federal, state or local governments or agencies. As a result, the Local
Limited Partnerships' ability to transfer funds either to the Partnership or
among themselves in the form of cash distributions, loans or advances is
generally restricted by these government-assistance programs. These
restrictions, however, are not expected to impact the Partnership's ability to
meet its cash obligations.
Net cash used in operations for the three months ended March 31, 1995 was
$17,949 as compared to net cash used in operations of $10,093 for the three
months ended March 31, 1994. The increase in cash used in operations resulted
from an increase in operating expenses paid during the three months ended March
31, 1995 compared to the three months ended March 31, 1994.
During the three months ended March 31, 1995, the Partnership made no working
capital advances compared to $6,531 advanced to three of the Local Limited
Partnerships during the three months ended March 31, 1994. Advances of $7,449
and $6,961 were repaid to the Partnership during the three months ended March
31, 1995 and 1994, respectively. As of March 31, 1995, the combined amount
carried by the Local Limited Partnerships, as due to the Partnership, amounted
to $597,555. Future advances made will be charged to operations; likewise,
future repayments will be credited to operations.
Distributions received from Local Limited Partnerships represent the
Partnership's proportionate share of the excess cash available for distribution
from the Local Limited Partnerships. As a result of the use of the equity
method of accounting for the Partnership's investments, as of March 31, 1995,
investments in nineteen Local Limited Partnerships had been reduced to zero.
For these investments, cash distributions received are recorded in income as
distributions received in excess of investment in Local Limited Partnerships.
For those investments not reduced to zero, distributions received are recorded
as distributions from Local Limited Partnerships. There were no cash
distributions during the three months ended March 31, 1995 and 1994. The
receipt of distributions in future quarters is dependent upon the operations of
the underlying properties of the Local Limited Partnerships.
Cash and cash equivalents amounted to $34,127 at March 31, 1995. The ability
of the Partnership to meet its on-going cash requirements, in excess of cash on
hand at March 31, 1995, is dependent upon the future receipt of distributions
from the Local Limited Partnerships or proceeds from sales or refinancings of
one or more of the underlying properties of the Local Limited Partnerships.
Cash on hand at March 31, 1995, plus any distributions from the
-9-
<PAGE> 11
NATIONAL HOUSING PARTNERSHIP REALTY FUND TWO
(A MARYLAND LIMITED PARTNERSHIP)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
underlying operations of the combined Local Limited Partnerships is expected to
adequately fund the operations of the Partnership in the current year.
The Partnership currently owes the General Partner $857,798 for administrative
and reporting services performed in addition to $197,811 advanced from the
General Partner to fund working capital needs. The payment of these unpaid
administrative and reporting fees as well as the advances, will most likely
result from the sale or refinancing of the underlying properties of the Local
Limited Partnerships, rather than through recurring operations.
Some of the Properties in which the Partnership has invested may be eligible to
participate in the Low Income Housing Preservation and Resident Homeownership
Act of 1990 (LIHPRHA). LIHPRHA creates a procedure under which properties
assisted under the HUD Section 236 or 221(d)(3) programs may be eligible to
receive financial incentives in return for agreeing to extend their property's
use as low income housing. Nineteen of the Local Limited Partnerships in which
the Partnership has invested carry deferred acquisition notes due to the
original owners of the Properties. In the event of a default on these notes,
the noteholders would re-assume both NHP's and the Partnership's interests in
the Local Limited Partnerships. All of the notes have final maturity dates
between 1996 and 1999. Due to the weakness in the rental markets where the
Properties are located, the General Partner currently believes the amounts due
on the acquisition notes will likely exceed the value to be obtained through
the Properties' participation in LIHPRHA or other refinancing opportunities.
The General Partner intends to continue negotiations with the noteholders to
either extend the maturity dates of the notes or structure an arrangement where
both the noteholders and partners can benefit financially from participation in
LIHPRHA. Such an arrangement was reached with the noteholder associated with
Tinker Creek. If NHP can process a sale under LIHPRHA, the noteholder will
accept a discounted pay-off.
The General Partner is currently investigating the ability of Caroline Arms and
Meadows East to participate in LIHPRHA. San Juan del Centro is unable to
participate in LIHPRHA under conditions set forth in its mortgage note.
Studies are still in process to determine if the other properties are likely
candidates to participate in LIHPRHA.
Congress and the Administration are currently considering various proposals to
significantly reduce or eliminate funding for the LIHPRHA program and to
restructure various federal housing programs under the jurisdiction of the
Department of Housing and Urban Development. NHP is actively working to affect
the policy decisions being made and to limit any detrimental effect on its
portfolio. Depending on the final outcome of this process, however, operations
at the Properties and/or the ability to sell or refinance under LIHPRHA could
be affected.
-10-
<PAGE> 12
NATIONAL HOUSING PARTNERSHIP REALTY FUND TWO
(A MARYLAND LIMITED PARTNERSHIP)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Partnership has invested as a limited partner in Local Limited Partnerships
which operate twenty-one rental housing properties. In prior years, results of
operations of NHP Realty Fund Two were significantly impacted by the
Partnership's share of the losses of the Local Limited Partnerships. These
losses included depreciation and accrued deferred acquisition note interest
expense which are noncash in nature. Nineteen of the twenty-one investments in
Local Limited Partnership's have been reduced to zero. As a result, the
Partnership's operations are no longer being materially affected by its share
of the operations from these nineteen partnerships. The Partnership has
recorded its share of income in the remaining two Local Limited Partnership's
which amounted to $87,318 and $27,465 for the three months ended March 31, 1995
and 1994, respectively.
The Partnership's net loss decreased to $16,546 for the three months ended
March 31, 1995 from a net loss of $81,392 for the three months ended March 31,
1994. Net loss per unit of limited partnership interest decreased to $1 from
$4 for the 18,300 units outstanding throughout both periods. The decrease in
net loss was primarily due to an increase in the Partnership's share of income
from the Local Limited Partnerships. The Partnership did not recognize
$423,162 of its allocated share of losses from nineteen Local Limited
Partnerships for the three months ended March 31, 1995, as the Partnership's
net carrying basis in these Partnerships had been reduced to zero. The
Partnership's share of losses from the Local Limited Partnerships, if not
limited to its investment account balance, would have decreased $210,430
between periods, primarily due to an increase in rental income.
-11-
<PAGE> 13
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.
NATIONAL HOUSING PARTNERSHIP REALTY FUND TWO
--------------------------------------------
(Registrant)
By: The National Housing Partnership,
its sole General Partner
By: National Corporation for Housing
Partnerships, its sole General Partner
May 15, 1995 By: /s/ John M. Novack
- - - - - - - ------------ -------------------------------------------------
John M. Novack
As Senior Vice President, Finance and Accounting,
and Chief Accounting Officer
-12-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 34,155
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 34,155
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,106,497
<CURRENT-LIABILITIES> 1,101,837
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> (1,805,264)
<TOTAL-LIABILITY-AND-EQUITY> 4,106,497
<SALES> 0
<TOTAL-REVENUES> 94,423
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 45,926
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 66,043
<INCOME-PRETAX> (16,546)
<INCOME-TAX> 0
<INCOME-CONTINUING> (16,546)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (16,546)
<EPS-PRIMARY> (1)
<EPS-DILUTED> (1)
</TABLE>
