<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, 1996
COMMISSION FILE NUMBER 0-14458
NATIONAL HOUSING PARTNERSHIP REALTY FUND TWO
(A MARYLAND LIMITED PARTNERSHIP)
(Exact name of registrant as specified in its charter)
MARYLAND 52-1365317
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
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,
1996 1995
------------- ------------
ASSETS
------
<S> <C> <C>
Cash and cash equivalents $ 26,910 $ 30,173
Deposits held by escrow agents 28 28
Investments in and advances to
Local Limited Partnerships (Note 2) 4,308,691 4,227,334
---------- ----------
$ 4,335,629 $ 4,257,535
========== ==========
<CAPTION>
LIABILITIES AND PARTNERS' DEFICIT
---------------------------------
<S> <C> <C>
Liabilities:
Due to General Partner (Note 3) $ 27,700 $ 27,700
Deferred acquisition notes
payable to General Partner 2,414,468 2,414,468
Accrued interest on deferred
acquisition notes payable to
General Partner 2,636,903 2,576,541
Accrued interest on Due to General Partner
(Note 3) 1,613 860
Administrative and reporting fees
payable to General Partner (Note 3) 995,046 960,734
Other accrued expenses 51,710 41,710
---------- ----------
6,127,440 6,022,013
---------- ----------
Partners' deficit:
General Partner -- The National
Housing Partnership (NHP) (173,007) (172,734)
Original Limited Partner --
1133 Fifteenth Street Two Associates (177,907) (177,634)
Other Limited Partners -- 18,300
investment units (1,440,897) (1,414,110)
---------- ----------
(1,791,811) (1,764,478)
---------- ----------
$ 4,335,629 $ 4,257,535
========== ==========
</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,
--------------------------------
1996 1995
-------------- -------------
<S> <C> <C>
REVENUES:
Share of income from Local Limited Partnerships $ 81,357 $ 87,318
Distributions and repayments received in excess
of investment in and advances to Local Limited
Partnerships - 7,449
Interest income 1,543 656
------- --------
82,900 95,423
------- --------
COSTS AND EXPENSES:
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 753 5,681
Other operating expenses 14,806 11,614
------- -------
110,233 111,969
------- -------
NET LOSS $(27,333) $(16,546)
======= =======
NET LOSS ASSIGNABLE TO LIMITED
PARTNERS $(26,787) $(16,216)
======= =======
NET LOSS PER LIMITED PARTNERSHIP
INTEREST $ (1) $ (1)
======= =======
</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, 1996 $(172,734) $(177,634) $(1,414,110) $(1,764,478)
Net loss -- three months
ended March 31, 1996 (273) (273) (26,787) (27,333)
-------- -------- ---------- ----------
Deficit at March 31, 1996 $(173,007) $(177,907) $(1,440,897) $(1,791,811)
======== ======== ========== ==========
Percentage interest at
March 31, 1996 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 1,299 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,
-----------------------------
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest received $ 1,543 $ 656
Operating expenses paid (4,806) (18,605)
------- -------
Net cash used in operating activities (3,263) (17,949)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Repayment of advances to Local Limited Partnerships - 7,449
------- -------
NET DECREASE IN CASH AND CASH EQUIVALENTS (3,263) (10,500)
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD 30,173 44,627
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 26,910 $ 34,127
======= =======
</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,
------------------------------
1996 1995
------------ -------------
<S> <C> <C>
RECONCILIATION OF NET LOSS TO NET CASH
USED IN OPERATING ACTIVITIES:
Net loss $(27,333) $(16,546)
------- -------
Adjustments to reconcile net loss to net cash used in
operating activities:
Repayment of advances to Local Limited Partnerships - (7,449)
Share of income from Local Limited Partnerships (81,357) (87,318)
Increase in accrued interest on deferred acquisition
notes 60,362 60,362
Increase in accrued interest on due to
General Partner 753 5,681
Increase in administrative and reporting fees payable 34,312 34,312
Increase (decrease) in accrued expenses 10,000 (6,991)
------- -------
Total adjustments 24,070 (1,403)
------- -------
Net cash used in operating activities $ (3,263) $(17,949)
======= =======
</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, 1995.
(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
-6-
<PAGE> 8
NATIONAL HOUSING PARTNERSHIP REALTY FUND TWO
(A MARYLAND LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
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 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, 1996 and December 31,
1995, investments in nineteen of the twenty-one Local Limited
Partnerships had been reduced to zero. As a result, the Partnership
did not recognize $409,671 and $423,162 of losses from these nineteen
Local Limited Partnerships during the three months ended March 31,
1996 and 1995, respectively. As of March 31, 1996 and December 31,
1995, the Partnership has not recognized a total of $18,279,838 and
$17,870,167, 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, 1996 and December
31, 1995. 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.
No working capital advances were made during the three months ended
March 31, 1996 and 1995. Repayments of advances of $7,449 were made to
the Partnership during the three months ended March 31, 1995, and were
credited as income from operations. No repayments of advances were
made during the three months ended March 31, 1996. The combined amount
carried as due to the Partnership by the Local Limited Partnerships
was $596,365 at March 31, 1996.
The following are combined statements of operations for the three
months ended March 31, 1996 and 1995, 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,
------------------------------------
1996 1995
--------------- -----------------
<S> <C> <C>
Rental income $3,664,956 $3,585,963
Other income 93,573 85,987
----------- ---------
Total income 3,758,529 3,671,950
----------- ---------
Operating expenses 2,423,485 2,319,687
Interest, taxes and
insurance 1,091,910 1,127,703
Depreciation 573,390 563,959
----------- ---------
Total expenses 4,088,785 4,011,349
----------- ---------
Net loss $ (330,256) $ (339,399)
========= =========
National Housing
Partnership Realty
Fund Two share of
losses $ (328,314) $ (335,844)
========= =========
</TABLE>
(3) TRANSACTIONS WITH THE GENERAL PARTNER
During the three month periods ended March 31, 1996 and 1995, 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 $995,046 and
$960,734 at March 31, 1996 and December 31, 1995, respectively.
During the three month periods ended March 31, 1996 and 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 $27,700 as of March 31, 1996 and
December 31, 1995. Interest is charged on borrowings at the Chase
Manhattan
-8-
<PAGE> 10
NATIONAL HOUSING PARTNERSHIP REALTY FUND TWO
(A MARYLAND LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
Bank rate of prime plus 2%. Accrued interest on this loan as of March
31, 1996 and December 31, 1995, totaled $1,613 and $860, 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.
-9-
<PAGE> 11
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, 1996 was
$3,263 as compared to $17,949 for the three months ended March 31, 1995. The
decrease in cash used in operations resulted from a decrease in operating
expenses paid during the three months ended March 31, 1996 compared to the
three months ended March 31, 1995.
No working capital advances were made to the Local Limited Partnerships during
the three months ended March 31, 1996 and 1995. Repayments of advances of
$7,449 were made by one Local Limited Partnership to the Partnership during the
three months ended March 31, 1995, and were credited as income from operations.
No repayments of advances were made during the three months ended March 31,
1996. The combined amount carried as due to the Partnership by the Local
Limited Partnerships was $596,365 at March 31, 1996. Future advances made to
the nineteen Local Limited Partnerships' properties whose investments have been
reduced to zero, will be charged to operations; likewise, future repayments
from these properties 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, 1996,
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 March 31, 1996 and 1995. 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 $26,910 at March 31, 1996. The ability of
the Partnership to meet its on-going cash requirements, in excess of cash on
hand at March 31, 1996, is dependent upon the future receipt of distributions
from the Local Limited Partnerships or proceeds from sales
-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
or refinancings of one or more of the underlying properties of the Local
Limited Partnerships. Cash on hand at March 31, 1996, plus any distributions
from the underlying operations of the combined Local Limited Partnerships is
expected to adequately fund the operations of the Partnership in the current
year. However, there can be no assurance that future distributions will be
adequate to fund the operations beyond the current year.
The Partnership currently owes the General Partner $995,046 for administrative
and reporting services performed in addition to $27,700 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.
NCHP was a significant participant in the drafting and passage of the Low
Income Housing Preservation and Resident Homeownership Act of 1990 (LIHPRHA).
LIHPRHA creates a procedure under which owners of properties assisted under the
HUD Section 236 or 221(d)(3) program may be eligible to receive financial
incentives in return for agreeing to extend their property's use as low income
housing. Virtually all of the Local Limited Partnership Properties may be
eligible for these incentives; however, not all may benefit from the particular
incentives provided for under LIHPRHA. The appropriation for the Department of
Housing and Urban Development (which administers LIHPRHA) for the 1996 fiscal
year was recently approved and funding for LIHPRHA is limited. Management
expects that funding for LIHPRHA is unlikely to be renewed in future fiscal
years. Anticipating these developments, Notices of Intent to participate in the
LIHPRHA program have been filed for Anderson Gardens, Esbro, Gulfway Manor,
Holly Oak Park, Kimberton, Mayfair Manor, Meadows, Meadows East, Menlo Park,
Rockwell Manor, Royal Oak Gardens, Tinker Creek and West Oak Village. However,
with the exception of Gulfway Manor, Holly Oak Park, Kimberton, Rockwell Manor
and Tinker Creek, all of the properties are in the early stages of processing
under LIHPRHA and are not expected to receive incentives under the program. Of
the properties which are in advanced stage of processing (Gulfway Manor, Holly
Oak Park, Kimberton, Rockwell Manor and Tinker Creek), NHP is working to see if
these can receive incentives under LIHPRHA, but there can be no assurances that
these efforts will be successful. The ability of the Partnership to sell or
refinance any of the Local Limited Partnership properties under LIHPRHA could
be adversely affected by the aforementioned events (lack of program funding and
likely termination of the LIHPRHA program after fiscal year 1996).
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 interest in the Local Limited
Partnerships. The note related to the acquisition of West Oak Village has a
final maturity date in 1996. All of the other notes have final maturity
-11-
<PAGE> 13
NATIONAL HOUSING PARTNERSHIP REALTY FUND TWO
(A MARYLAND LIMITED PARTNERSHIP)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
dates between 1997 and 1999. The West Oak Village note finally matures on
November 30, 1996. The General Partner is preparing to begin negotiating with
the noteholders to extend the maturity date of the note. The General Partner
has filed Notice of Intent to have West Oak Village participate in LIHPRHA. A
loss of interests in this Local Limited Partnership may cause the partners in
the Partnership to incur adverse tax consequences. The impact of the tax
consequences is dependent upon each partner's individual tax situation. There
can be no assurance that the General Partner will be successful in its efforts
to renegotiate the terms of this note.
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 $81,357 and $87,318 for the three months ended March 31, 1996
and 1995, respectively.
The Partnership's net loss increased to $27,333 for the three months ended
March 31, 1996 from a net loss of $16,546 for the three months ended March 31,
1995. Net loss per unit of limited partnership was $1 for the 18,300 units
outstanding throughout both periods. The increase in net loss was primarily due
to a decrease in the Partnership's share of income from the Local Limited
Partnerships and a decrease in distributions and repayments received in excess
of investment in and advances to Local Limited Partnerships. The Partnership
did not recognize $409,671 of its allocated share of losses from nineteen Local
Limited Partnerships for the three months ended March 31, 1996, 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 $7,530
between periods, primarily due to an increase in rental income, partially
offset by an increase in operating expenses.
-12-
<PAGE> 14
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 13, 1996 By: /s/
- ------------ ---------------------------------------------
Jeffrey J. Ochs
As Vice President, Finance and Accounting,
and Chief Accounting Officer
-13-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 26,938
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 26,938
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,335,629
<CURRENT-LIABILITIES> 1,076,069
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (1,791,811)
<TOTAL-LIABILITY-AND-EQUITY> 4,335,629
<SALES> 0
<TOTAL-REVENUES> 82,900
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 49,118
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 61,115
<INCOME-PRETAX> (27,333)
<INCOME-TAX> 0
<INCOME-CONTINUING> (27,333)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (27,333)
<EPS-PRIMARY> (1)
<EPS-DILUTED> (1)
</TABLE>
