FORM 10-QSB--QUARTERLY OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Quarterly or Transitional Report
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _________to _________
Commission file number 0-14458
NATIONAL HOUSING PARTNERSHIP REALTY FUND TWO
(Exact name of small business issuer as specified in its charter)
Maryland 52-1365317
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9200 Keystone Crossing, Suite 500
Indianapolis, Indiana 46240-7602
(Address of principal executive offices)
(317) 817-7500
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 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
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a)
NATIONAL HOUSING PARTNERSHIP REALTY FUND TWO
Statement of Financial Position
(Unaudited)
March 31, 2000
(in thousands)
ASSETS
Cash and cash equivalents $ 1
Investments in and advances to Local Limited
Partnerships (Note 2) 4,540
$ 4,541
LIABILITIES AND PARTNERS' DEFICIT
Liabilities
Accrued expenses $ 45
Administrative and reporting fees payable to
General Partner 1,248
Notes payable to General Partner 2,414
Accrued interest on notes payable to General Partner 3,599
7,306
Partners' deficit
General Partner -- The National Housing
Partnership (NHP) (183)
Original Limited Partner -- 1133 Fifteenth
Street Two Associates (187)
Other Limited Partners -- 18,258 investment
units (2,395)
(2,765)
$ 4,541
b)
NATIONAL HOUSING PARTNERSHIP REALTY FUND TWO
Statements of Operations
(Unaudited)
(in thousands, except unit data)
Three Months Ended
March 31,
2000 1999
REVENUES:
Share of profits from Local Limited Partnerships $ 2 $ 58
2 58
COSTS AND EXPENSES:
Administrative and reporting fees to General 29 34
Partner
Interest on notes payable to General Partner 56 60
Interest on partner loans -- 1
Other operating expenses 12 19
97 114
Net loss $ (95) $ (56)
ALLOCATION OF NET LOSS:
General Partner - NHP $ (1) $ (1)
Original Limited Partner - 1133
Fifteenth Street Two Associates (1) (1)
Other limited partners (93) (54)
$ (95) $ (56)
NET LOSS PER LIMITED PARTNERSHIP INTEREST $ (5) $ (3)
c)
NATIONAL HOUSING PARTNERSHIP REALTY FUND TWO
Statement of Partner's Deficit
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
The National 1133
Housing Fifteenth Other
Partnership Street Two Limited
(NHP) Associates Partners Total
<S> <C> <C> <C> <C>
Deficit at December 31, 1999 $ (182) $ (186) $(2,302) $(2,670)
Net loss - three months ended
March 31, 2000 (1) (1) (93) (95)
Deficit at March 31, 2000 $ (183) $ (187) $(2,395) $(2,765)
Percentage interest at
March 31, 2000 1% 1% 98% 100%
(A) (B) (C)
(A) General Partner
(B) Original Limited Partner
(C) Consists of 18,258 investment units
</TABLE>
d)
NATIONAL HOUSING PARTNERSHIP REALTY FUND TWO
(A Maryland Limited Partnership)
Statements of Cash Flows
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Operating expenses paid $ (1) $ (1)
Net cash used in operating activities (1) (1)
NET DECREASE IN CASH AND CASH EQUIVALENTS (1) (1)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2 26
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1 $ 25
RECONCILIATION OF NET LOSS TO NET CASH USED IN OPERATING
ACTIVITIES:
Net loss $ (95) $ (56)
Adjustments to reconcile net loss to net
cash used in operating activities:
Share of profits from Local Limited Partnerships (2) (58)
CHANGE IN OTHER OPERATING ASSETS AND LIABILITIES:
Accrued interest on notes payable to General
Partner 56 60
Administrative and reporting fees payable to General
Partner 29 34
Accrued expenses 11 19
Total adjustments 94 55
Net cash used in operating activities $ (1) $ (1)
</TABLE>
e)
NATIONAL HOUSING PARTNERSHIP REALTY FUND TWO
(A Maryland Limited Partnership)
Notes to Financial Statements
(Unaudited)
(1) ACCOUNTING POLICIES
Organization
National Housing Partnership Realty Fund Two (the "Partnership" or the
"Registrant") is a limited partnership organized 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"). On April 30, 1985, the Partnership began raising capital
and acquiring interests in Local Limited Partnerships.
The National Housing Partnership, a District of Columbia limited partnership
("NHP" or the "General Partner"), was authorized to raise capital for the
Partnership by offering and selling to additional limited partners not more than
18,300 interests at a price of $1,000 per unit. During 1985, the sale of
interests was closed after the sale of 18,300 interests to limited partners.
Apartment Investment and Management Company ("AIMCO") and its affiliates
ultimately control the General Partner. The original Limited Partner of the
Partnership is 1133 Fifteenth Street Two Associates, whose limited partners were
key employees of the general partner of NHP at the time the Partnership was
formed. The general partner of 1133 Fifteenth Street Two Associates is NHP.
Basis of Presentation
The accompanying unaudited interim financial statements reflect all adjustments
which are, in the opinion of management, necessary for 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 the Partnership's Annual Report filed on Form 10-KSB for the year
ended December 31, 1999.
Certain reclassifications have been made to the 1999 information to conform with
the 2000 presentation.
(2) INVESTMENTS IN AND ADVANCES TO LOCAL LIMITED PARTNERSHIPS
During 1985, the Partnership acquired a 94.5% limited partnership interest (98%
with respect to allocation of losses) in twenty-one Local Limited Partnerships:
Meadows Apartments Limited Partnership, Esbro Limited Partnership, Rodeo Drive
Limited Partnership, Menlo Limited Partnership, Mayfair Manor Limited
Partnership, Hurbell I Limited Partnership, Hurbell II Limited Partnership,
Hurbell III Limited Partnership, Tinker Creek Limited Partnership, Rockwell
Limited Partnership, Meadows East Apartments Limited Partnership, Kimberton
Apartments Limited Partnership, San Juan del Centro Limited Partnership, Gulfway
Limited Partnership, Caroline Arms Limited Partnership, Hilltop Limited
Partnership, Harold House Limited Partnership, Park Avenue West I Limited
Partnership, West Oak Village Limited Partnership, Park Avenue West II Limited
Partnership, and Windsor Apartments Associates Limited Partnership. During 1998,
the Partnership's interest in Gulfway Limited Partnership, Menlo Limited
Partnership and Rockwell Limited Partnership were foreclosed upon and Tinker
Creek Limited Partnerhsip sold its property. During 1999, the Partnership's
interest in Meadows East Apartments Limited Partnership and Meadows Apartments
Limited Partnership were foreclosed upon. During the first quarter of 2000, the
Partnership's interest in Esbro Limited Partnership, Mayfair Manor Limited
Partnership, Park Avenue West I Limited Partnership, Park Avenue West II Limited
Partnership, and Rodeo Drive Limited Partnership was foreclosed upon.
Meadows Apartments and Meadows East Apartments Limited Partnerships both had
notes payable which were due on December 12, 1997. The Local Limited
Partnerships did not have the resources to pay the amounts due. Effective August
5, 1999 and December 1, 1999, Meadows Apartments and Meadows East Apartments
Limited Partnership notes were foreclosed upon. Pursuant to the security
agreement of the note payable, the note holder was substituted as the sole
limited partner of the Local Limited Partnership in place of the Partnership and
the note holder's assignee was substituted as the general partner. No gain or
loss has been recorded as a result of the transfer of this partnership interest.
With the loss of the Partnership's interest in Meadows Apartments and Meadows
East Apartments to the note holders, the Partnership will not receive any future
benefits from these Local Limited Partnerships.
Esbro, Mayfair Manor, Park Avenue West I, Park Avenue West II and Rodeo Drive
Limited Partnership all had notes payable which were due October 15, 1997,
October 15, 1997, December 20, 1999, December 20, 1999 and December 6, 1997,
respectively. The Local Limited Partnerships did not have the resources to pay
the amounts due. During January 2000, the holders of the notes payable relating
to Esbro, Mayfair Manor, Park Avenue West I, Park Avenue West II and Rodeo Drive
Limited Partnership properties exercised their remedies under the security
agreement with respect to such note payable, and were substituted as the sole
limited partner of the applicable Local Limited Partnership in place of the
Partnership and such note holder's assignee was substituted as the general
partner. No gain or loss has been recorded as a result of the transfer of this
partnership interest. With the loss of the Partnership's interest in Esbro,
Mayfair Manor, Park Avenue West I, Park Avenue West II and Rodeo Drive to the
note holders, the Partnership will not receive any future benefits from these
Local Limited Partnerships and taxable income through the date of foreclosure
will be generated and allocated to the Partnership's investors without any
distributable cash. The specific impact of the tax consequence is dependent upon
each specific partner's individual tax situation.
In addition Caroline Arms, Harold House, Hilltop, Hurbell I, Hurbell II, Hurbell
III, and San Juan Del Cantro Limited Partnerships all have notes payable which
are currently in default and accordingly, the Local Limited Partnership
interests are subject to potential foreclosure. Continuation of the Local
Limited Partnerships' operations in the present form is dependent on its ability
to extend the maturity date of the respective notes, or to repay or refinance
their note. The financial statements do not include any adjustments which might
result from the outcome of this uncertainty.
Since the Partnership, as a limited partner, does not exercise control over the
activities of the Local Limited Partnerships in accordance with the partnership
agreements, these investments are accounted for using the equity method. Thus,
the investments are carried at cost less the Partnership's share of the Local
Limited Partnerships' losses and distributions plus the Partnership's share of
Local Limited Partnerships' profits. However, since 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 investment in each of the individual Local Limited Partnerships
reduced for its share of losses and cash distributions, reaches zero. Once an
investment account has been reduced to zero, profits reported by a Local Limited
Partnership are not recognized by the Partnership until such profits equal
losses not recognized plus distributions received and previously recognized as
revenue. As a result, the Partnership did not recognize approximately $320,000
and $205,000 of losses from nine and seventeen Local Limited Partnerships during
the three months ended March 31, 2000 and 1999, respectively. During the three
months ended March 31, 2000, the Partnership's share of profits in two Local
Limited Partnerships in the amount of approximately $13,000 was offset against
prior year losses not taken. As of March 31, 2000, the Partnership has not
recognized approximately $8,999,000 of its allocated cumulative share of losses
from seven Local Limited Partnerships in which its investment has been reduced
to zero. The Partnership's allocated cumulative share of losses in the five
Local Limited Partnerships foreclosed on during the three months ended March 31,
2000 was $9,912,000.
No working capital advances or repayments were made between the Partnership and
the Local Limited Partnerships for the three months ended March 31, 2000 and
1999. During 1993, the Partnership re-evaluated the timing of the collectibility
of the advances and determined, based on the Local Limited Partnerships'
operations, that such advances are not likely to be collected. For accounting
purposes, the Partnership treated the advance balance as additional investments
in the Local Limited Partnerships. The balance was then reduced to zero, with a
corresponding charge to operations to reflect a portion of the previously
unrecognized losses on investments.
Advances to the Local Limited Partnership remain due and payable to the
Partnership. Interest is calculated at the Chase Manhattan Bank prime rate plus
2% (10.83% at March 31, 2000). Payment of principal and interest is contingent
upon the Local Limited Partnerships having available surplus cash, as defined by
HUD regulations, from operations or from the sale or refinancing of the Local
Limited Partnership properties. Any future repayment of advances or interest
will be reflected as Partnership income when received.
The following are combined statements of operations for the three months ended
March 31, 2000 and 1999, 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 managing agents of the projects, and are
unaudited.
COMBINED STATEMENTS OF OPERATIONS
Three Months Ended
March 31,
2000 1999
(in thousands)
Rental income $ 1,986 $ 2,938
Other income 66 109
Total income 2,052 3,047
Operating expenses 1,395 1,901
Interest, taxes, and insurance 567 853
Depreciation 400 473
Total expense 2,362 3,227
Net loss $ (310) $ (180)
National Housing Partnership
Realty Fund Two share of losses $ (305) $ (179)
(3) TRANSACTIONS WITH THE GENERAL PARTNER
During the three month periods ended March 31, 2000 and 1999, the Partnership
accrued administrative and reporting fees payable to the General Partner in the
amount of approximately $29,000 and $34,000, respectively for services provided
to the Partnership. The amount of fees due to the General Partner by the
Partnership was approximately $1,248,000 at March 31, 2000.
No working capital advances or repayments were made during the three months
ended March 31, 2000 and 1999.
The accrued administrative and reporting fees payable to the General Partner
will be paid as cash flow permits or from the sale or refinancing of one or more
of the underlying properties of the Local Limited Partnerships.
(4) NOTES PAYABLE
The notes payable by the Partnership bear simple interest at a rate of 10% per
annum. The notes are payable to NHP in the same amount and same terms as notes
executed by NHP to former project owners, are nonrecourse, and are
collateralized by the Partnership's interests in Windsor Apartments Associates
Limited Partnership and Kimberton Apartments Associates Limited Partnership. The
notes were both due on October 24, 1999. The Partnership is currently in default
of these notes and has received notification from the holders of the notes of
their intent to initiate foreclosure proceedings.
(5) SEGMENT INFORMATION
The Partnership has only one reportable segment. Due to the very nature of the
Partnership's operations, the General Partner believes that segment-based
disclosures will not result in a more meaningful presentation than the financial
statements as currently presented.
(6) LEGAL PROCEEDINGS
In 1997, NHP received subpoenas from the HUD Inspector General ("IG") requesting
documents relating to arrangements whereby NHP or any of its affiliates provided
compensation to owners of HUD-assisted or HUD-insured multi-family projects in
exchange for or in connection with property management of a HUD project. In July
1999, NHP received a grand jury subpoena requesting documents relating to the
same subject matter as the HUD IG subpoenas and NHP's operation of a group
purchasing program created by NHP, known as Buyers Access. To date, neither the
HUD IG nor the grand jury has initiated any action against NHP or Apartment
Investment and Management Company ("AIMCO"), the ultimate controlling entity of
NHP or, to NHP's or AIMCO's knowledge, any owner of a HUD property managed by
NHP. AIMCO believes that NHP's operations and programs are in compliance, in all
material respects, with all laws, rules and regulations relating to HUD-assisted
or HUD-insured properties. NHP and AIMCO are cooperating with the investigations
and do not believe that the investigations will result in a material adverse
impact on their operations. However, as with any similar investigation, there
can be no assurance that these will not result in material fines, penalties or
other costs.
The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature arising in the ordinary course of business.
(7) GOING CONCERN
The Partnership's note payable and certain of the Local Partnership's notes
payable are past due (see Notes 2 and 4). Continuation of the Local
Partnerships' operations in the present form is dependent on its ability to
extend the maturity date of these notes, or to repay or to refinance the notes.
These conditions raise substantial doubt about their ability to continue as a
going concern. The financial statements do not include any adjustments which
might result from the outcome of this uncertainty.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The matters discussed in this Form 10-QSB contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the
disclosures contained in this Form 10-QSB and the other filings with the
Securities and Exchange Commission made by the Registrant from time to time. The
discussion of the Registrant's business and results of operations, including
forward-looking statements pertaining to such matters, does not take into
account the effects of any changes to the Registrant's business and results of
operations. Accordingly, actual results could differ materially from those
projected in the forward-looking statements as a result of a number of factors,
including those identified herein.
This item should be read in conjunction with the financial statements and other
items contained elsewhere in this report.
Liquidity and Capital Resources
As of March 31, 2000, the Partnership retained an interest in ten of its
original twenty-one Local Limited Partnerships. The properties in which the
Local Limited Partnerships have invested receive one or more forms of assistance
from the Federal Government. 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 could impact the
Partnership's ability to meet its cash obligations given the low level of
reserves at the Partnership level.
No working capital advances or repayments were made between the Partnership and
the Local Limited Partnerships during the three months ended March 31, 2000 and
1999.
Distributions received in excess of investment in 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, investments in
seven of the remaining ten Local Limited Partnerships had been reduced to zero
as of March 31, 2000. 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. No cash
distributions from Local Limited Partnerships were received during the three
months ended March 31, 2000 and 1999. The receipt of distributions in future
quarters and years is dependent upon the operations of the underlying properties
of the Local Limited Partnerships to generate sufficient cash for distribution
in accordance with applicable HUD regulations.
Net cash used in operations for both the three months ended March 31, 2000 and
1999 was approximately $1,000.
Cash and cash equivalents amounted to approximately $1,000 at March 31, 2000 as
compared to approximately $2,000 at December 31, 1999. The decrease in cash and
cash equivalents is due to cash used in operating activities. The ability of the
Partnership to meet its on-going cash requirements in excess of cash on hand at
March 31, 2000 is dependent upon the future receipt of distributions from the
Local Limited Partnerships or proceeds from sales or refinancing of one or more
of the underlying properties of the Local Limited Partnerships. Cash on hand at
March 31, 2000 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 approximately $1,248,000 for
administrative and reporting services performed. The payment of the unpaid
administrative and reporting fees will most likely result, if at all, from the
sale or refinancing of the underlying properties of the Local Limited
Partnerships, rather than through recurring operations.
Each Local Limited Partnership with the exception of Kimberton Apartments
Associates Limited Partnership and Windsor Apartments Associates Limited
Partnership in which the Partnership currently holds an interest has a note
payable due to the original owner of each Property. With the exception of West
Oak Village Limited Partnership, these notes are all past due and are currently
in default. West Oak Village Limited Partnership is currently in default due to
non-payment of required annual interest payments for 1999 (see below). The notes
related to Kimberton Apartments Associates and Windsor Apartments Associates of
approximately $1,254,000 and $1,160,000, respectively, are collateralized by the
Partnership's interest in these two Local Limited Partnerships and were due on
October 24, 1999. The Partnership is currently in default on these notes and has
received notification from the holders of the notes of their intent to initiate
foreclosure proceedings. These notes are secured by both the Partnership's and
NHP's interests in the applicable Local Limited Partnerships. In the event of a
default on the notes, the note holders would be able to assume NHP's and the
Partnership's interests in the Local Limited Partnerships.
The West Oak Village Limited Partnership note bears interest at the rate of 9%
per annum. The note is nonrecourse and is secured by a security interest in the
Partnership's interest in the Local Limited Partnership. During 1997, the
noteholders entered into an agreement with the Partnership, under which the
maturity date of the note was extended until November 2013, assuming annual
payments of interest are made to the noteholders. Under the terms of the
agreement, payments are to be made equal to the annual interest at a variable
rate based on the prior year's interest rate payment multiplied by the most
recent Consumer Price Index rate, with any increase subject to a floor of 2% and
a ceiling of 5%. At any time prior to the note's maturity, the Partnership has
the option to pay off the acquisition note at a discount equal to 70% of the
property's annual scheduled rent but not less than $700,000. The required annual
installment of interest for 1999, pursuant to the agreement with the
noteholders, was not made. Accordingly, the Local Limited Partnership is
currently in default on the required annual interest payments and the
Partnership interests are subject to potential foreclosure. The Local Limited
Partnership is actively attempting to sell its net assets.
Caroline Arms, Harold House, Hilltop, Hurbell I, Hurbell II, Hurbell III and San
Juan Del Centro Limited Partnerships all have notes which were executed by the
respective Local Limited Partnerships with the seller as part of the acquisition
of the property by the Local Limited Partnership. The notes were nonrecourse
notes secured by a security interest in all Partnership interests in the Local
Limited Partnership and are subordinated to the respective mortgage notes on
each property for as long as the mortgage notes are insured by HUD. Any payments
due from project income are payable from surplus cash, as defined by the HUD
Regulatory Agreement. Neither the Limited Partnership nor any partners thereof,
present or future assume any personal liability for the payment of the notes.
The notes were due November, 15, 1999, November 15, 1999, November 2, 1999,
December 19, 1999, November 2, 1999, December 19, 1999 and December 20, 1999,
respectively. Each note is in default and the Local Limited Partnership
interests are subject to potential foreclosure. Continuation of the Local
Limited Partnerships' operations in the present form is dependent on its ability
to extend the maturity date of their respective notes, or to repay or refinance
their note. Caroline Arms, Harold House, Hilltop and Hurbell I Local Limited
Partnerships are all actively attempting to sell their respective net assets.
Esbro, Mayfair Manor, Park Avenue West I, Park Avenue West II and Rodeo Drive
Limited Partnership all had notes payable which were due October 15, 1997,
October 15, 1997, December 20, 1999, December 20, 1999 and December 6, 1997,
respectively. The Local Limited Partnerships did not have the resources to pay
the amounts due. During January 2000, the holders of the notes payable relating
to Esbro, Mayfair Manor, Park Avenue West I, Park Avenue West II and Rodeo Drive
Limited Partnership properties exercised their remedies under the security
agreement with respect to such note payable, and were substituted as the sole
limited partner of the applicable Local Limited Partnership in place of the
Partnership and such note holder's assignee was substituted as the general
partner. No gain or loss has been recorded as a result of the transfer of this
partnership interest. With the loss of the Partnership's interest in Esbro,
Mayfair Manor, Park Avenue West I, Park Avenue West II and Rodeo Drive to the
note holders, the Partnership will not receive any future benefits from these
Local Limited Partnerships and taxable income through the date of foreclosure
will be generated and allocated to the Partnership's investors without any
distributable cash. The specific impact of the tax consequence is dependent upon
each specific partner's individual tax situation.
Meadows Apartments and Meadows East Apartments Limited Partnerships both had
notes payable which were due on December 12, 1997. The Local Limited
Partnerships did not have the resources to pay the amounts due. Effective August
5, 1999 and December 1, 1999, Meadows Apartments and Meadows East Apartments
Limited Partnership properties were foreclosed upon. Pursuant to the security
agreement of the note payable, the note holder was substituted as the sole
limited partner of the Local Limited Partnership in place of the Partnership and
the note holder's assignee was substituted as the general partner. No gain or
loss has been recorded as a result of the transfer of this partnership interest.
With the loss of the Partnership's interest in Meadows Apartments and Meadows
East Apartments to the note holders, the Partnership will not receive any future
benefits from these Local Limited Partnerships.
As a result of the above, there is substantial doubt about the Partnership's
ability to continue as a going concern. The financial statements do not include
any adjustments to reflect the possible effects on the recoverability and
classification of assets or amounts and classifications of liabilities that may
result from these uncertainties.
Results of Operations
The Partnership invested as a limited partner in Local Limited Partnerships
which operated twenty-one rental housing properties. At March 31, 2000, the
Partnership continued to hold an interest in ten Local Limited Partnerships. To
the extent the Partnership still has a carrying basis in a respective Local
Limited Partnership, results of operations are significantly impacted by the
Partnership's share of the profits or losses in the Local Limited Partnership.
These profits or losses include depreciation and accrued note payable interest
expense which are noncash in nature. As of March 31, 2000, the Partnership had
no carrying basis in seven of the Local Limited Partnerships and therefore
reflected no results of operations, for its share of losses for these Local
Limited Partnerships.
The Partnership had a net loss of approximately $95,000 for the three months
ended March 31, 2000, compared to a net loss of approximately $56,000 for the
three months ended March 31, 1999. Net loss per unit of limited partnership
increased to $(5) from $(3) for the 18,258 and 18,300 units outstanding at March
31, 2000 and 1999, respectively. The increase in net loss was primarily
attributable to a decrease in the share of profits from Local Limited
Partnerships. The Partnership did not recognize approximately $320,000 of its
allocated share of losses from nine Local Limited Partnerships for the three
months ended March 31, 2000, as the Partnership's net carrying basis in these
Local Limited Partnerships had been reduced to zero. In addition the Partnership
did not recognize approximately $13,000 of its allocated share of profits from
two of the Local Limited Partnerships for the three months ended March 31, 2000
as the Partnership had cumulative unrecognized losses with respect to these two
Local Limited Partnerships. The Partnership's share of losses from the Local
Limited Partnerships, if not limited to its investment account balance, would
have increased approximately $115,000 between periods. The decrease is primarily
the result of the loss of the Partnership's interests in the Meadows Apartments
and Meadows East Apartments Limited Partnerships in 1999 and Esbro, Mayfair,
Park Avenue West I, Park Avenue West II and Rodeo Drive Limited Partnerships
during the three months ended March 31, 2000 due to foreclosures.
PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
In 1997, NHP received subpoenas from the HUD Inspector General ("IG") requesting
documents relating to arrangements whereby NHP or any of its affiliates provided
compensation to owners of HUD-assisted or HUD-insured multi-family projects in
exchange for or in connection with property management of a HUD project. In July
1999, NHP received a grand jury subpoena requesting documents relating to the
same subject matter as the HUD IG subpoenas and NHP's operation of a group
purchasing program created by NHP, known as Buyers Access. To date, neither the
HUD IG nor the grand jury has initiated any action against NHP or Apartment
Investment and Management Company ("AIMCO"), the ultimate controlling entity of
NHP or, to NHP's or AIMCO's knowledge, any owner of a HUD property managed by
NHP. AIMCO believes that NHP's operations and programs are in compliance, in all
material respects, with all laws, rules and regulations relating to HUD-assisted
or HUD-insured properties. NHP and AIMCO are cooperating with the investigations
and do not believe that the investigations will result in a material adverse
impact on their operations. However, as with any similar investigation, there
can be no assurance that these will not result in material fines, penalties or
other costs.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
Exhibit 27, Financial Data Schedule
b) Reports on Form 8-K:
None filed during the quarter ended March 31, 2000.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant 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
By: /s/Patrick J. Foye
Patrick J. Foye
President
By: /s/Martha L. Long
Martha L. Long
Senior Vice President and
Controller
Date: May 19, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from National
Housing Partnership Realty Fund Two 2000 First Quarter 10-QSB and is qualified
in its entirety by reference to such 10-QSB filing.
</LEGEND>
<CIK> 0000762859
<NAME> National Housing Partnership Realty Fund Two
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 1
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0 <F1>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,541
<CURRENT-LIABILITIES> 0 <F1>
<BONDS> 2,414
0
0
<COMMON> 0
<OTHER-SE> (2,765)
<TOTAL-LIABILITY-AND-EQUITY> 4,541
<SALES> 0
<TOTAL-REVENUES> 2
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 97
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 56
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (95)
<EPS-BASIC> (5.00) <F2>
<EPS-DILUTED> 0
<FN>
<F1> Registrant has an unclassified balance sheet. <F2> Multiplier is 1.
</FN>
</TABLE>
