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 0-16877
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.)
55 Beattie Place, PO Box 1089
Greenville, South Carolina 29602
(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 Exchange Act during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No___
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, 2000
<TABLE>
<CAPTION>
Assets
<S> <C> <C>
Cash and cash equivalents $ 1,080
Receivables and deposits 58
Restricted escrows 95
Other assets 254
Investment properties:
Land $ 3,119
Buildings and related personal property 18,738
21,857
Less accumulated depreciation (7,880) 13,977
$ 15,464
Liabilities and Partners' (Deficit) Capital
Liabilities
Accounts payable $ 41
Due to general partner 164
Tenant security deposit liabilities 44
Accrued property taxes 163
Other liabilities 114
Mortgage notes payable 10,316
Partners' (Deficit) Capital
General partner $ (290)
Limited partners (26,111 units issued and
outstanding) 4,912 4,622
$ 15,464
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
b)
FOX STRATEGIC HOUSING INCOME PARTNERS
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Ended
March 31,
2000 1999
Revenues:
Rental income $ 744 $ 688
Other income 28 50
Total revenues 772 738
Expenses:
Operating 226 228
General and administrative 53 58
Depreciation 173 163
Interest 179 183
Property taxes 70 50
Total expenses 701 682
Net income $ 71 $ 56
Net income allocated to general partner $ 14 $ 11
Net income allocated to limited partners 57 45
$ 71 $ 56
Net income per limited partnership unit $ 2.18 $ 1.72
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, 1999 26,111 $ (304) $ 4,855 $ 4,551
Net income for the three months
ended March 31, 2000 -- 14 57 71
Partners' (deficit) capital
at March 31, 2000 26,111 $ (290) $ 4,912 $ 4,622
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
d)
FOX STRATEGIC HOUSING INCOME PARTNERS
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
Cash flows from operating activities:
<S> <C> <C>
Net income $ 71 $ 56
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 173 163
Amortization of loan costs 8 9
Change in accounts:
Receivables and deposits 52 78
Other assets (6) 22
Accounts payable 20 (2)
Tenant security deposit liabilities 1 (1)
Accrued property taxes (12) (116)
Due to general partner (53) --
Other liabilities (18) (6)
Net cash provided by operating activities 236 203
Cash flows used in investing activities:
Property improvements and replacements (112) (40)
Cash flows used in financing activities:
Payments on mortgage notes payable (31) (29)
Net increase in cash and cash equivalents 93 134
Cash and cash equivalents at beginning of period 987 2,127
Cash and cash equivalents at end of period $ 1,080 $ 2,261
Supplemental disclosure of cash flow information:
Cash paid for interest $ 172 $ 174
At December 31, 1999 and March 31, 2000, property improvements and replacements
and accounts payable were both adjusted by approximately $69,000 for non-cash
activity.
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
e)
FOX STRATEGIC HOUSING INCOME PARTNERS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited consolidated financial statements of Fox Strategic
Housing Income Partners (the "Partnership" or "Registrant") 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, 2000, are not necessarily indicative of the results that
may be expected for the fiscal year ending December 31, 2000. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Partnership's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1999.
Principles of Consolidation: The consolidated financial statements include the
statements of the Partnership and Westlake East Associates, L.P., a limited
partnership in which the partnership owns a 99% interest. The general partner
may be removed by the Registrant; therefore, the consolidated partnership is
controlled and consolidated by the Registrant. All significant inter-partnership
transactions and balances have been eliminated.
Note B - Transfer of Control
Pursuant to a series of transactions which closed on October 1, 1998 and
February 26, 1999, Insignia Financial Group, Inc. and Insignia Properties Trust
merged into Apartment Investment and Management Company ("AIMCO"), a publicly
traded real estate investment trust with AIMCO being the surviving corporation
(the "Insignia Merger"). As a result, AIMCO acquired 100% ownership interest in
the Managing General Partner. The Managing General Partner does not believe that
this transaction has had or will have a material effect on the affairs and
operations of the Partnership.
Note C - 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 Partnership Agreement provides for certain payments
to affiliates for services and as reimbursement of certain expenses incurred by
affiliates on behalf of the Partnership. The following transactions with the
Managing General Partner and/or its affiliates were incurred during the three
months ended March 31, 2000 and 1999:
2000 1999
(in thousands)
Property management fees (included in operating expenses) $ 39 $ 36
Reimbursement for services of affiliates (included in
investment properties and general and administrative
expenses) 15 15
During the three months ended March 31, 2000 and 1999, affiliates of the
Managing General Partner were entitled to receive 5% of gross receipts from both
of the Partnership's properties as compensation for providing property
management services. The Partnership paid to such affiliates approximately
$39,000 and $36,000 for the three months ended March 31, 2000 and 1999,
respectively.
An affiliate of the Managing General Partner received reimbursements of
accountable administrative expenses amounting to approximately $15,000 for each
of the three month periods ended March 31, 2000 and 1999.
AIMCO and its affiliates currently own 8,882 limited partnership units in the
Partnership representing approximately 34.02% of the outstanding units. A number
of these units were acquired pursuant to tender offers made by AIMCO or its
affiliates. It is possible that AIMCO or its affiliates will make one or more
additional offers to acquire additional limited partnership interests in the
Partnership for cash or in exchange for units in the operating partnership of
AIMCO. Under the Partnership Agreement, unitholders holding a majority of the
Units are entitled to take action with respect to a variety of matters. When
voting on matters, AIMCO would in all likelihood vote the Units it acquired in a
manner favorable to the interest of the Managing General Partner because of
their affiliation with the Managing General Partner.
Note D - Segment Information
Description of the types of products and services from which the reportable
segment derives its revenues: The Partnership has one reportable segment:
residential properties. The Partnership's residential property segment consists
of two apartment complexes one located in Ohio and the other in Georgia. The
Partnership rents apartment units to tenants for terms that are typically twelve
months or less.
Measurement of segment profit or loss: The Partnership evaluates performance
based on segment profit (loss) before depreciation. The accounting policies of
the reportable segment are the same as those of the Partnership as described in
Partnership's Annual Report on Form 10-KSB for the year ended December 31, 1999.
Factors management used to identify the enterprise's reportable segment: The
Partnership's reportable segment consists of investment properties that offer
similar products and services. Although each of the investment properties is
managed separately, they have been aggregated into one segment as they provide
services with similar types of products and customers.
Segment information for the three months ended March 31, 2000 and 1999, is shown
in the following tables below. The "Other" column includes Partnership
administration related items and income and expense not allocated to the
reportable segment.
2000 Residential Other Totals
(in thousands)
Rental income $ 744 $ -- $ 744
Other income 26 2 28
Interest expense 179 -- 179
Depreciation 173 -- 173
General and administrative expense -- 53 53
Segment profit (loss) 122 (51) 71
Total assets 15,010 454 15,464
Capital expenditures for investment
properties 43 -- 43
1999 Residential Other Totals
(in thousands)
Rental income $ 688 $ -- $ 688
Other income 49 1 50
Interest expense 183 -- 183
Depreciation 163 -- 163
General and administrative expense -- 58 58
Segment profit (loss) 113 (57) 56
Total assets 16,912 245 17,157
Capital expenditures for investment
properties 40 -- 40
Note E - Legal Proceedings
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 action 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 Financial Group, Inc.
("Insignia") and entities which were, at one time, affiliates of Insignia
("Insignia 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 and the Insignia Merger (see
"Note B - Transfer of Control"). The plaintiffs seek monetary damages and
equitable relief, including judicial dissolution of the Partnership. On June 25,
1998, the Managing General Partner filed a motion seeking dismissal of the
action. In lieu of responding to the motion, the plaintiffs have filed an
amended complaint. The Managing General Partner filed demurrers to the amended
complaint which were heard February 1999. Pending the ruling on such demurrers,
settlement negotiations commenced. On November 2, 1999, the parties executed and
filed a Stipulation of Settlement, settling claims, subject to final court
approval, on behalf of the Partnership and all limited partners who own units as
of November 3, 1999. Preliminary approval of the settlement was obtained on
November 3, 1999 from the Superior Court of the State of California, County of
San Mateo, at which time the Court set a final approval hearing for December 10,
1999. Prior to the December 10, 1999 hearing the Court received various
objections to the settlement, including a challenge to the Court's preliminary
approval based upon the alleged lack of authority of class plaintiffs' counsel
to enter the settlement. On December 14, 1999, the Managing General Partner and
its affiliates terminated the proposed settlement. Certain plaintiffs have filed
a motion to disqualify some of the plaintiffs' counsel in the action. The
Managing General Partner does not anticipate that costs associated with this
case will be material to the Partnership's overall operations.
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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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 Partnership from time to time.
The discussion of the Partnership'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 Partnership's business and
results of operation. 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.
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, 2000 and 1999
Average Occupancy
Property 2000 1999
Barrington Place Apartments 91% 77%
Westlake, Ohio
Wood View Apartments 97% 95%
Atlanta, Georgia
The Managing General Partner attributes the increase in occupancy at Barrington
Place to the implementation of a more aggressive marketing campaign and a
reduction in average rental rates to be more competitive with other complexes
within the market.
Results of Operations
The Partnership's net income for the three months ended March 31, 2000, was
approximately $71,000 as compared to net income of approximately $56,000 for the
three months ended March 31, 1999. The increase in net income for the three
months ended March 31, 2000 is attributable to an increase in total revenues
partially offset by an increase in total expenses. Total revenues increased
primarily due to an increase in rental income, partially offset by a decrease in
other income. The increase in rental income is due to an increase in occupancy
at Barrington Place Apartments, as discussed above, as well as an increase in
occupancy and rental rates at Wood View Apartments. The decrease in other income
is primarily due to a decrease in interest income due to lower average cash
balances held in interest bearing accounts. Other income also decreased due to a
decrease in lease cancellation fees as well as a decrease in cleaning and damage
fees.
The increase in total expenses is primarily attributable to increases in
property tax expense and depreciation expense, partially offset by a decrease in
general and administrative expenses. The increase in property tax expense is due
primarily to an increased assessed value at Barrington Place Apartments.
Depreciation expense increased primarily due to capital improvements put into
service during the last twelve months. General and administrative expenses
decreased primarily due to the settlement of a lawsuit in 1999 as discussed in
the Partnership's Form 10-QSB at March 31, 1999. Included in general and
administrative expenses for the three months ended March 31, 2000 and 1999, are
reimbursements to the Managing General Partner allowed under the Partnership
Agreement associated with its management of the Partnership. In addition, costs
associated with the quarterly and annual communications with investors and
regulatory agencies and the annual audit required by the Partnership Agreement
are also included.
As part of the ongoing business plan of the Partnership, the Managing General
Partner monitors the rental market environment of each of its investment
properties to assess the feasibility of increasing rents, maintaining or
increasing occupancy levels and protecting the Partnership from increases in
expenses. 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.
Liquidity and Capital Resources
At March 31, 2000, the Partnership had cash and cash equivalents of
approximately $1,080,000 as compared to approximately $2,261,000 at March 31,
1999. The net increase in cash and cash equivalents for the three months ended
March 31, 2000 is approximately $93,000 from the Partnership's year ended
December 31, 1999. The increase is due to approximately $236,000 of cash
provided by operating activities, partially offset by approximately $112,000 of
cash used in investing activities and approximately $31,000 of cash used in
financing activities. Cash used in investing activities consisted of property
improvements and replacements. Cash used in financing activities consisted of
payments of principal made on the mortgages encumbering the Partnership's
properties. The Partnership invests its working capital reserves in money market
accounts.
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 and to comply with Federal,
state, and local legal and regulatory requirements. Capital improvements planned
for each of the Partnership's properties are detailed below.
Barrington Place
During the three months ended March 31, 2000, the Partnership expended
approximately $4,000 for budgeted capital improvements at Barrington Place
primarily consisting of heating upgrades and water heater replacements. These
improvements were funded from operating cash flow. Capital improvements budgeted
for 2000 are expected to cost approximately $125,000, which include, but are not
limited to, carpet replacement, exterior painting, heating upgrades, swimming
pool improvements and appliance replacements.
Wood View
During the three months ended March 31, 2000, the Partnership expended
approximately $39,000 for budgeted capital improvements at Wood View primarily
consisting of a submetering project, a water conservation project, and carpet
and vinyl replacement. These improvements were funded from operating cash flow.
Capital improvements budgeted for 2000 are expected to cost approximately
$59,000 which include, but are not limited to, carpet and vinyl replacement,
wall covering replacement, and air conditioning unit replacement.
The additional capital expenditures will be incurred only if cash is available
from operations or from Partnership reserves. To the extent that such budgeted
capital improvements are completed, the Partnership's distributable cash flow,
if any, may be adversely affected at least in the short term.
The Partnership's current assets are thought to be sufficient for any near-term
needs (exclusive of capital improvements) of the Partnership. At December 31,
1999, mortgage indebtedness was approximately $10,316,000. The loan on the Wood
View Apartments in the amount of approximately $5,502,000, bears interest at a
rate of 6.64% per annum. The mortgage encumbering Barrington Place Apartments in
the amount of $4,814,000, bears interest at a rate of 6.65%. Both mortgage loans
mature on August 1, 2008, with balloon payments due, at which time the
properties will need to be refinanced or sold. If the properties cannot be
refinanced and/or sold for a sufficient amount, the Partnership will risk losing
such properties through foreclosure.
No distributions were declared or paid during either of the three month periods
ended March 31, 2000 and 1999. Future cash distributions will depend on the
levels of net cash generated from operations, the availability of cash reserves,
and the timing of debt maturities, refinancings and/or property sales. The
Partnership's distribution policy is reviewed on a semi-annual basis. There can
be no assurance, however, that the Partnership will generate sufficient funds
from operations after required capital expenditures to permit distributions to
its partners during the remainder of 2000 or subsequent periods.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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 action 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 Financial Group, Inc.
("Insignia") and entities which were, at one time, affiliates of Insignia
("Insignia 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 and the Insignia Merger (see
"Part 1 - Financial Information, Item 1. Financial Statements, Note B - Transfer
of Control"). The plaintiffs seek monetary damages and equitable relief,
including judicial dissolution of the Partnership. On June 25, 1998, the
Managing General Partner filed a motion seeking dismissal of the action. In lieu
of responding to the motion, the plaintiffs have filed an amended complaint. The
Managing General Partner filed demurrers to the amended complaint which were
heard February 1999. Pending the ruling on such demurrers, settlement
negotiations commenced. On November 2, 1999, the parties executed and filed a
Stipulation of Settlement, settling claims, subject to final court approval, on
behalf of the Partnership and all limited partners who own units as of November
3, 1999. Preliminary approval of the settlement was obtained on November 3, 1999
from the Superior Court of the State of California, County of San Mateo, at
which time the Court set a final approval hearing for December 10, 1999. Prior
to the December 10, 1999 hearing the Court received various objections to the
settlement, including a challenge to the Court's preliminary approval based upon
the alleged lack of authority of class plaintiffs' counsel to enter the
settlement. On December 14, 1999, the Managing General Partner and its
affiliates terminated the proposed settlement. Certain plaintiffs have filed a
motion to disqualify some of the plaintiffs' counsel in the action. The Managing
General Partner does not anticipate that costs associated with this case will be
material to the Partnership's overall operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
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, 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.
FOX STRATEGIC HOUSING INCOME PARTNERS
(a California Limited Partnership)
By: FOX PARTNERS VIII
Its General Partner
By: Fox Capital Management Corporation
Its Managing General Partner
By: /s/Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/Martha L. Long
Martha L. Long
Senior Vice President and
Controller
Date: May 12, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from FOX
STRATEGIC HOUSING INCOME PARTNERS 2000 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-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,080
<SECURITIES> 0
<RECEIVABLES> 58
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0 <F1>
<PP&E> 21,857
<DEPRECIATION> 7,880
<TOTAL-ASSETS> 15,464
<CURRENT-LIABILITIES> 0 <F1>
<BONDS> 10,316
0
0
<COMMON> 0
<OTHER-SE> 4,622
<TOTAL-LIABILITY-AND-EQUITY> 15,464
<SALES> 0
<TOTAL-REVENUES> 772
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 701
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 179
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 71
<EPS-BASIC> 2.18 <F2>
<EPS-DILUTED> 0
<FN>
<F1> Registrant has an unclassified balance sheet. <F2> Multiplier is 1.
</FN>
</TABLE>
