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, 1998
[ ] 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 0-16877
FOX STRATEGIC HOUSING INCOME PARTNERS
(Exact name of small business issuer as specified in its charter)
California 94-3016373
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Insignia Financial Plaza
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
Issuer's telephone number
Check mark whether the issuer (1) filed all reports required to be filed by
Section 13 or 15 (d) of the 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) FOX STRATEGIC HOUSING INCOME PARTNERS
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
March 31, 1998
Assets
Cash and cash equivalents $ 5,301
Receivables and deposits 169
Other assets 18
Investment properties:
Land $ 3,119
Buildings and related personal property 18,274
21,393
Less accumulated depreciation (6,574) 14,819
$ 20,307
Liabilities and Partners' (Deficit) Capital
Liabilities
Accounts payable $ 11
Tenant security deposit liabilities 54
Accrued property taxes 152
Accrued interest 150
Other liabilities 47
Mortgage notes payable 8,263
Partners' (Deficit) Capital:
General partner $ (192)
Limited partners
(26,111 units issued and outstanding) 11,822 11,630
$ 20,307
See Accompanying Notes to Consolidated Financial Statements
b)
FOX STRATEGIC HOUSING INCOME PARTNERS
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Ended
March 31,
1998 1997
Revenues:
Rental income $ 714 $ 702
Other income 100 79
Total revenues 814 781
Expenses:
Operating 231 247
General and administrative 55 59
Depreciation 158 154
Interest 231 233
Property taxes 63 72
Total expenses 738 765
Net income $ 76 $ 16
Net income allocated to general partner $ 15 $ 3
Net income allocated to limited partners 61 13
$ 76 $ 16
Net income per limited partnership unit $ 2.33 $ .50
See Accompanying Notes to Consolidated Financial Statements
c) FOX STRATEGIC HOUSING INCOME PARTNERS
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' (DEFICIT) CAPITAL
(Unaudited)
(in thousands, except unit data)
<TABLE>
<CAPTION>
Limited
Partnership General Limited
Units Partner Partners Total
<S> <C> <C> <C> <C>
Original capital contributions 26,111 $ -- $ 26,111 $ 26,111
Partners' (deficit) capital at
December 31, 1997 26,111 $ (207) $ 11,761 $ 11,554
Net income for the three months
ended March 31, 1998 -- 15 61 76
Partners' (deficit) capital at
March 31, 1998 26,111 $ (192) $ 11,822 $ 11,630
<FN>
See Accompanying Notes to Consolidated Financial Statements
</FN>
</TABLE>
d)
FOX STRATEGIC HOUSING INCOME PARTNERS
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three Months Ended
March 31,
1998 1997
Cash flows from operating activities:
Net income $ 76 $ 16
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 158 154
Amortization of loan costs 10 10
Interest added to note payable principal 71 72
Change in accounts:
Receivables and deposits (63) 25
Other assets 6 (3)
Accounts payable (29) (4)
Tenant security deposit liabilities 5 (4)
Accrued property taxes (19) (8)
Accrued interest payable 150 151
Other liabilities (3) (4)
Net cash provided by operating activities 362 405
Cash flows from investing activities:
Property improvements and replacements (29) (34)
Net cash used in investing activities (29) (34)
Cash flows from financing activities: -- --
Net increase in cash and cash equivalents 333 371
Cash and cash equivalents at beginning of period 4,968 4,315
Cash and cash equivalents at end of period $ 5,301 $ 4,686
Supplemental information of non cash
financing activities:
Beginning accrued interest added to note
payable principal $ 356 $ 358
See Accompanying Notes to Consolidated Financial Statements
e)
FOX STRATEGIC HOUSING INCOME PARTNERS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited financial statements of Fox Strategic Housing Income
Partners (the "Partnership") have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-QSB and Item 310(b) of Regulation S-B. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of Fox Capital Management Corporation ("FCMC" or the "Managing General
Partner"), a California corporation, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three month period ended March 31, 1998,
are not necessarily indicative of the results that may be expected for the
fiscal year ending December 31, 1998. For further information, refer to the
financial statements and footnotes thereto included in the Partnership's annual
report on Form 10-KSB for the year ended December 31, 1997.
Certain reclassifications have been made to the 1997 information to conform to
the 1998 presentation.
NOTE B - TRANSACTIONS WITH AFFILIATED PARTIES
The Partnership has no employees and is dependent on the Managing General
Partner and its affiliates for the management and administration of all
partnership activities. The Managing General Partner is wholly-owned by Insignia
Properties Trust ("IPT"), an affiliate of Insignia Financial Group, Inc.
("Insignia"). The Partnership Agreement provides for certain payments to
affiliates for services and as reimbursement of certain expenses incurred by
affiliates on behalf of the Partnership.
Fox Partners VIII, a California general partnership, is the General Partner.
The general partners of Fox Partners VIII are FCMC and Fox Realty Investors
("FRI"), a California general partnership.
The following transactions with the Managing General Partner and its affiliates
were incurred during the three month periods ended March 31, 1998 and 1997 (in
thousands):
1998 1997
Property management fees (included in operating
expenses) $ 38 $ 38
Reimbursement for services of affiliates (included
in general and administrative and operating
expenses) 16 26
For the period from January 1, 1997, to August 31, 1997, the Partnership insured
its properties under a master policy through an agency affiliated with the
Managing General Partner with an insurer unaffiliated with the Managing General
Partner. An affiliate of the Managing General Partner acquired, in the
acquisition of a business, certain financial obligations from an insurance
agency which was later acquired by the agent who placed the current year's
master policy. The agent assumed the financial obligations to the affiliate of
the Managing General Partner which received payment on these obligations from
the agent. The amount of the Partnership's insurance premiums accruing to the
benefit of the affiliate of the Managing General Partner by virtue of the
agent's obligations was not significant.
On August 28, 1997, an Insignia affiliate (the "Purchaser") commenced tender
offers for limited partnership interests in six real estate limited partnerships
(including the Partnership) in which various Insignia affiliates act as general
partner. The Purchaser offered to purchase up to 11,750 of the outstanding
units of limited partnership interest in the Partnership at $260.00 per Unit,
net to the seller in cash, upon the terms and subject to the conditions set
forth in the Offer to Purchase dated August 28, 1997 (the "Offer to Purchase")
and the related Assignment of Partnership Interest attached as Exhibits (a)(1)
and (a)(2), respectively, to the Tender Offer Statement on Schedule 14D-1
originally filed with the Securities and Exchange Commission on August 28, 1997.
Because of the existing and potential future conflicts of interest (described in
the Partnership's Statements on Schedule 14D-9 filed with the Securities and
Exchange Commission), neither the Partnership nor the General Partner expressed
any opinion as to the Offer to Purchase and made no recommendation as to whether
unit holders should tender their units in response to the Offer to Purchase. As
a result of the tender offer, an Insignia affiliate purchased 3,919 of the
outstanding limited partner units of the Partnership.
On March 17, 1998, Insignia entered into an agreement to merge its national
residential property management operations, and its controlling interest in IPT,
with Apartment Investment and Management Company ("AIMCO"), a publicly traded
real estate investment trust. The closing, which is anticipated to happen in
the third quarter of 1998, is subject to customary conditions, including
government approvals and the approval of Insignia's shareholders. If the
closing occurs, AIMCO will then control the Managing General Partner of the
Partnership.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The Partnership's investment properties consist of two apartment complexes. The
following table sets forth the average occupancy of the properties for the three
months ended March 31, 1998 and 1997:
Average
Occupancy
Property 1998 1997
Barrington Place Apartments
Westlake, Ohio 92% 96%
Wood View Apartments
Atlanta, Georgia 92% 92%
The Managing General Partner attributes the decrease in occupancy at Barrington
Place to competitors' increase in concessions and to development of new homes in
the area.
The Partnership reported net income for the three months ended March 31, 1998 of
approximately $76,000 as compared to net income of approximately $16,000 for the
corresponding period of 1997. The increase in net income is attributed to
increases in rental income and other income and a decrease in operating expense.
Rental income increased at both investment properties due to rental rate
increases over the past year and to a decrease in concessions at Wood View
Apartments. The increase in rental rates more than offset the reduction in
average occupancy at Barrington Place Apartments. Other income increased
primarily due to an increase in corporate unit income at Barrington Place. In
addition, other income increased due to an increase in interest income due to a
higher average cash balance for the three month period ended March 31, 1998
compared to the corresponding period in 1997. Operating expenses decreased in
1998 due to decreases in maintenance and property expenses. Contributing to the
decrease in property expenses were savings in personnel costs at Wood View due
to job sharing. There were no major repairs and maintenance included in
operating expenses during the three month periods ended March 31, 1998 and 1997.
As part of the ongoing business plan of the Partnership, the Managing General
Partner monitors the rental market environment of its investment properties to
assess the feasibility of increasing rents, maintaining or increasing occupancy
levels and protecting the Partnership from increases in expense. As part of
this plan, the Managing General Partner attempts to protect the Partnership from
the burden of inflation-related increases in expenses by increasing rents and
maintaining a high overall occupancy level. However, due to changing market
conditions, which can result in the use of rental concessions and rental
reductions to offset softening market conditions, there is no guarantee that the
Managing General Partner will be able to sustain such a plan.
At March 31, 1998, the Partnership had cash and cash equivalents of
approximately $5,301,000 compared to approximately $4,686,000 for the
corresponding period of 1997. The net increase in cash and cash equivalents for
the three months ended March 31, 1998 and 1997 is approximately $333,000 and
approximately $371,000, respectively. Net cash provided by operating activities
decreased primarily due to an increase in receivables and deposits and a
decrease in accounts payable due to the timing of payments. This decrease was
partially offset by the increase in net income as discussed above. Net cash
used in investing activities decreased due to a decrease in property
improvements and replacements in 1998 as compared to 1997.
The Partnership's properties are cross-collateralized by a zero coupon first
mortgage which secures the entire amount of the note payable. Interest accrues
on the amount borrowed at a contract rate of 10.9 percent per annum, with the
interest accrued added to principal each January and July. As of March 31,
1998, approximately $6,073,000 in accrued interest has been added to the
principal of this note. The Partnership was required to repay a specified
percentage of the then outstanding original principal amount of the loan as
follows: 20 percent in August 1995, 20 percent in August 1996, and 30 percent
in August 1997. In addition, provided that the Partnership generated income in
an amount as defined in the note agreement, it was required to repay a specified
percentage of the then outstanding accrued interest added to principal as
follows: 20 percent in August 1995, 20 percent in August 1996, and 30 percent
in August 1997. The remaining principal balance plus all accrued and unpaid
interest is due in August 1998. In August 1995, the Partnership paid
approximately $1,947,000 (which included $970,000 of accrued interest added to
principal). In August 1996, the Partnership paid $782,000, which was 20 percent
of the then outstanding original principal balance (no additional payment of
accrued interest was required). In August 1997, the Partnership paid
approximately $938,000 of principal, which was 30 percent of the then
outstanding original principal balance (no additional payment of accrued
interest was required), resulting in principal plus accrued interest due in
August 1998 of approximately $8,713,000.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the properties to adequately maintain the physical
assets and other operating needs of the Partnership. The mortgage indebtedness
and accrued interest mature August 1, 1998, at which time the properties will
either be refinanced or sold. The Managing General Partner is currently seeking
to refinance the maturing debt and believes that it will be successful based on
the past performance of the Partnership's investment properties. However, there
can be no assurance that this course of action will succeed and that the
Partnership will have sufficient funds to meet its 1998 debt obligations.
Future cash distributions will depend on the levels of net cash generated from
operations, property sales, refinancings, and the availability of cash reserves.
No cash distributions were paid during either of the three month periods ended
March 31, 1998 or 1997. However, the Managing General Partner anticipates
making cash distributions during the second and fourth quarters of 1998.
Year 2000
The Partnership is dependent upon the Managing General Partner and Insignia for
management and administrative services. Insignia has completed an assessment
and will have to modify or replace portions of its software so that its computer
systems will function properly with respect to dates in the year 2000 and
thereafter (the "Year 2000 Issue"). The project is estimated to be completed
not later than December 31, 1998, which is prior to any anticipated impact on
its operating systems. The Managing General Partner believes that with
modifications to existing software and conversions to new software, the Year
2000 Issue will not pose significant operational problems for its computer
systems. However, if such modifications and conversions are not made, or are not
completed timely, the Year 2000 Issue could have a material impact on the
operations of the Partnership.
Other
Certain items discussed in this quarterly report may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 (the "Reform Act") and as such may involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Partnership to be materially different from future
results, performance or achievements expressed or implied by such forward-
looking statements. Such forward-looking statements speak only as of the date
of this quarterly report. The Partnership expressly disclaims any obligation or
undertaking to release publicly any updates or revisions to any forward-looking
statements contained herein to reflect any change in the Partnership's
expectations with regard thereto or any change in events, conditions or
circumstances on which any such statement is based.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The three lawsuits described in the Partnership's 1997 Annual Report on Form 10-
KSB relating to the August 1997 tender offers made by Insignia affiliates (see
discussion of the KLINE, CITY PARTNERSHIPS and HELLER complaints in Item 3 -
Legal Proceedings) have each been voluntarily discontinued by their respective
plaintiffs with no material affect on the financial condition or operations of
the Partnership.
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled ROSALIE NUANES, ET AL. V. INSIGNIA
FINANCIAL GROUP, INC., ET AL. in the Superior Court of the State of California
for the County of San Mateo. The plaintiffs named as defendants, among others,
the Partnership, the Managing General Partner and several of their affiliated
partnerships and corporate entities. The complaint purports to assert claims on
behalf of a class of limited partners and derivatively on behalf of a number of
limited partnerships (including the Partnership) which are named as nominal
defendants, challenging the acquisition by Insignia and its affiliates of
interests in certain general partner entities, past tender offers by Insignia
affiliates to acquire limited partnership units, the management of partnerships
by Insignia affiliates as well as a recently announced agreement between
Insignia and Apartment Investment and Management Company. The complaint seeks
monetary damages and equitable relief, including judicial dissolution of the
Partnership. The Managing General Partner was only recently served with the
complaint which it believes to be without merit, and intends to vigorously
defend the action.
In April 1998, a limited partner of the Partnership commenced an action in the
Circuit Court for Jackson County, Missouri entitled BOND PURCHASE LLC V. FOX
STRATEGIC HOUSING INCOME PARTNERS, ET AL. The complaint claims that the
Partnership and the Managing General Partner breached certain contractual and
fiduciary duties allegedly owned to the claimant and seeks damages and
injunctive relief. The Managing General Partner believes the claims to be
without merit and intends to vigorously defend the claims.
The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature. The Managing General Partner believes that all such
other matters are adequately covered by insurance and will be resolved without a
material adverse effect upon the business, financial condition, results of
operations, or liquidity of the Partnership.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibit 27, Financial Data Schedule, is filed as an exhibit to this
report.
b) Reports on Form 8-K: None filed during the quarter ended March 31,
1998.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
FOX STRATEGIC HOUSING INCOME PARTNERS
By: FOX PARTNERS VIII
Its General Partner
By: FOX CAPITAL MANAGEMENT CORPORATION
Its Managing General Partner
By: /s/William H. Jarrard, Jr.
William H. Jarrard, Jr.
President and Director
By: /s/Ronald Uretta
Ronald Uretta
Vice President and Treasurer
Date: May 12, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Fox Strategic Housing Income Partners 1998 First Quarter 10-QSB
and is qualified in its entirety by reference to such 10-QSB filing.
</LEGEND>
<CIK> 0000800080
<NAME> FOX STRATEGIC HOUSING INCOME PARTNERS
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 5,301
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 21,393
<DEPRECIATION> (6,574)
<TOTAL-ASSETS> 20,307
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 8,263
0
0
<COMMON> 0
<OTHER-SE> 11,630
<TOTAL-LIABILITY-AND-EQUITY> 20,307
<SALES> 0
<TOTAL-REVENUES> 814
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 738
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 231
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 76
<EPS-PRIMARY> 2.33<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
