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 June 30, 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.)
55 Beattie Place, P.O. Box 1089
Greenville, South Carolina 29601
(Address of principal executive offices)
(864) 239-1000
(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)
June 30, 2000
(in thousands)
ASSETS
Investments in and advances to Local Limited
Partnerships (Note 2) $ 4,563
LIABILITIES AND PARTNERS' DEFICIT
Liabilities
Accrued expenses $ 35
Administrative and reporting fees payable to
General Partner 1,256
Notes payable to General Partner 2,414
Accrued interest on notes payable to General Partner 3,659
7,364
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 (2,431)
(2,801)
$ 4,563
See Accompanying Notes to Financial Statements
b)
NATIONAL HOUSING PARTNERSHIP REALTY FUND TWO
Statements of Operations
(Unaudited)
(in thousands, except unit data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
Revenues:
Share of profits from Local
<S> <C> <C> <C> <C>
Limited Partnership $ 27 $ 67 $ 29 $ 125
Distributions in excess of investment
in Local Limited Partnership 34 -- 34 --
Interest income from Local
Limited Partnership -- 124 -- 124
61 191 63 249
costs and Expenses:
Administrative and reporting fees
to General Partner 7 35 36 69
Interest on notes payable to
General Partner 61 60 117 121
Interest on partner loans -- -- -- 1
Other operating expenses 29 14 41 32
97 109 194 223
Net income (loss) $ (36) $ 82 $ (131) $ 26
allocation of net income (loss):
General Partner - NHP $ -- $ 1 $ (1) $ --
Original Limited Partner - 1133
Fifteenth Street Two Associates -- 1 (1) --
Other limited partners -
Investment units (36) 80 (129) 26
$ (36) $ 82 $ (131) $ 26
net income (loss) per limited partnership
interest $ (2) $ 4 $ (7) $ 1
See Accompanying Notes to Financial Statements
</TABLE>
c)
NATIONAL HOUSING PARTNERSHIP REALTY FUND TWO
Statement of Partners' 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> <C> <C>
Deficit at December 31, 1999 $ (182) $ (186) $(2,302) $(2,670)
Net loss - six months ended
June 30, 2000 (1) (1) (129) (131)
Deficit at June 30, 2000 $ (183) $ (187) $(2,431) $(2,801)
Percentage interest at
June 30, 2000 1% 1% 98% 100%
(A) (B) (C)
(A) General Partner
(B) Original Limited Partner
(C) Consists of 18,258 investment units
See Accompanying Notes to Financial Statements
</TABLE>
d)
NATIONAL HOUSING PARTNERSHIP REALTY FUND TWO
(A Maryland Limited Partnership)
Statements of Cash Flows
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Operating expenses paid $ (41) $ (48)
Interest income received from Local Limited -- 124
Partnership
Distributions received in excess of investment in
Local Limited Partnership 34 --
Payment of administrative reporting fees to General
Partner -- (97)
Payment of interest on partner loans -- (3)
Net cash used in operating activities (7) (24)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of advances from General Partner -- (34)
Cash flows from investing activities
Distributions from Local Limited Partnership 5 61
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (2) 3
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2 26
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ -- $ 29
RECONCILIATION OF NET (LOSS) INCOME TO NET CASH USED IN
OPERATING ACTIVITIES:
Net (loss) income $ (131) $ 26
Adjustments to reconcile net (loss) income to net
cash used in operating activities:
Share of profits from Local Limited Partnerships (29) (125)
Increase in accrued interest on deferred
acquisition notes 117 121
Decrease in accrued interest on Partner loans -- (1)
(Decrease) increase in administrative and
reporting fees payable 36 (29)
(Decrease) increase in other accrued expenses -- (16)
Total adjustments 124 (50)
Net cash used in operating activities $ (7) $ (24)
See Accompanying Notes to Financial Statements
</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. NHP is the general partner of 1133 Fifteenth Street Two Associates.
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 notes 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 $367,000
and $443,000 of losses from ten and thirteen Local Limited Partnerships during
the six months ended June 30, 2000 and 1999, respectively. During the six months
ended June 30, 2000, the Partnership's share of profits in one Local Limited
Partnerships in the amount of approximately $25,000 was offset against prior
years' losses not taken. As of June 30, 2000, the Partnership has not recognized
approximately $9,034,000 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 six months ended June 30, 2000 was
approximately $9,212,000.
No working capital advances or repayments were made between the Partnership and
the Local Limited Partnerships for the six months ended June 30, 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% (11.50% at June 30, 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 and six months
ended June 30, 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
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Rental income $ 1,940 $ 2,964 $ 3,927 $ 5,902
Other income 89 116 155 225
Total income 2,029 3,080 4,082 6,127
Operating expenses 1,161 1,831 2,556 3,732
Interest, taxes, and insurance 484 813 1,051 1,666
Depreciation 391 486 791 959
Total expense 2,036 3,130 4,398 6,357
Net loss $ (7) $ (50) $ (316) $ (230)
National Housing Partnership
Realty Fund Two share of losses $ (8) $ (55) $ (313) $ (234)
</TABLE>
(3) TRANSACTIONS WITH THE GENERAL PARTNER
During the six month periods ended June 30, 2000 and 1999, the Partnership
accrued administrative and reporting fees payable to the General Partner in the
amount of approximately $36,000 and $69,000, respectively, for services provided
to the Partnership. The amount of fees due to the General Partner by the
Partnership was approximately $1,256,000 at June 30, 2000.
No working capital advances or repayments were made during the six months ended
June 30, 2000. During the six months ended June 30, 1999, the Partnership paid
the General Partner approximately $34,000 and $3,000 for repayment of a working
capital advance and accrued interest on the advance, respectively.
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 June 30, 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 six months ended June 30, 2000. During
the six months ended June 30, 1999, the Partnership paid the General Partner
approximately $34,000 and $3,000 for repayment of a working capital advance and
accrued interest on the advance, respectively.
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 June 30, 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. Cash
distributions of approximately $5,000 and $61,000 from Local Limited Partnership
were received during the six months ended June 30, 2000 and 1999, respectively.
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. One of these investments, Harold House Limited Partnership, has a
deferred acquisition note that is in default. If the holder of the deferred
acquisition note exercises its option of foreclosure (see discussion below),
this investment will be reduced to zero.
Net cash used in operations for the six months ended June 30, 2000 and 1999 was
approximately $7,000 and $24,000, respectively.
The Partnership has no cash and cash equivalents at June 30, 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 and was partially offset
by distributions from Local Limited Partnership. The ability of the Partnership
to meet its on-going cash requirements in excess of cash on hand at June 30,
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 June
30, 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 $1,256,000 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 June 30, 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 June 30, 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 $131,000 for the six months
ended June 30, 2000, compared to net income of approximately $26,000 for the six
months ended June 30, 1999. The Partnership had a net loss of approximately
$36,000 for the three months ended June 30, 2000, compared to net income of
approximately $82,000 for the three months ended June 30, 1999. Net (loss)
income per unit of limited partnership is $(7) compared to $1 for the 18,285 and
18,300 units outstanding at June 30, 2000 and 1999, respectively. The increase
in net loss was primarily attributable to decreases in the share of profits from
Local Limited Partnerships and interest income from Local Limited Partnerships
partially offset by an increase in distributions in excess of investment in
Local Limited Partnerships and decreases in costs and expenses. The Partnership
did not recognize approximately $367,000 of its allocated share of losses from
ten Local Limited Partnerships for the six months ended June 30, 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
$25,000 of its allocated share of profits from one of the Local Limited
Partnerships for the six months ended June 30, 2000 as the Partnership had
cumulative unrecognized losses with respect to that one Local Limited
Partnerships. The Partnership's share of losses from the Local Limited
Partnerships, if not limited to its investment account balance, would have
decreased approximately $76,000 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 six months ended June 30, 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 June 30, 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: August 14, 2000
