<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 or 15 (d)
of the Securities Exchange Act of 1934
for the quarter ended March 31, 1996
Commission File Number
0-17669
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NATIONAL HOUSING TRUST LIMITED PARTNERSHIP
(A Delaware Limited Partnership)
I.R.S. Employer Identification No. 04-2981989
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2335 North Bank Drive, Columbus, OH 43220
Registrant's Telephone Number, Including Area Code: (614) 451-9929
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
1
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NATIONAL HOUSING TRUST LIMITED PARTNERSHIP
A DELAWARE LIMITED PARTNERSHIP
MARCH 31, 1996 FORM 10-Q
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION PAGE NO.
- - ----------------------------- --------
<TABLE>
<CAPTION>
Item 1. Unaudited Combined Financial Statements
<S> <C>
Combined Balance Sheet..................... 3
Combined Statement of Operations........... 5
Combined Statement of Cash Flows........... 6
Notes to Combined Financial Statements..... 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results
of Operations......................... 8
PART II OTHER INFORMATION
- - --------------------------
Other Information.......................... 12
Signatures................................. 13
</TABLE>
2
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NATIONAL HOUSING TRUST LIMITED PARTNERSHIP
AND ITS SUBSTANTIALLY WHOLLY-OWNED OPERATING PARTNERSHIPS
COMBINED BALANCE SHEET MARCH 31, 1996 (UNAUDITED) AND DECEMBER 31, 1995
(In Thousands)
<TABLE>
<CAPTION>
March 31 December 31
ASSETS 1996 1995
- - ------ -------- -----------
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 714 $ 1,130
Tenants' security deposits 445 415
Mortgage escrow deposits 718 642
Prepaid expenses and other assets 962 724
-------- --------
Total current assets 2,839 2,911
-------- --------
Assets limited as to use 5,226 4,966
Rental property:
Buildings and improvements (Note B) 75,380 77,599
Furniture and equipment 2,439 2,428
-------- --------
77,819 80,027
Less accumulated depreciation (18,934) (18,235)
-------- --------
58,885 61,792
Land 4,269 4,269
-------- --------
63,154 66,061
-------- --------
Prepaid land leases, less current
maturities 101 101
-------- --------
Total assets $71,320 $74,039
======== ========
</TABLE>
The accompanying notes are an integral
part of the combined financial statements.
3
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NATIONAL HOUSING TRUST LIMITED PARTNERSHIP
AND ITS SUBSTANTIALLY WHOLLY-OWNED OPERATING PARTNERSHIPS
COMBINED BALANCE SHEET, CONTINUED
(In Thousands, except Investment Units)
<TABLE>
<CAPTION>
LIABILITIES AND PARTNERS' CAPITAL March 31, December 31,
1996 1996
- - --------------------------------- --------- ------------
(Unaudited)
<S> <C> <C>
Liabilities not subject to compromise:
Current liabilities:
Accounts payable and accrued $ 1,846 $ 1,791
expenses
Rents received in advance 37 25
Deposits held 443 462
Accrued interest on mortgage notes
payable 159 438
Current maturities of term debt 852 3,631
-------- --------
Total current liabilities 3,337 6,347
-------- --------
Term debt, less current maturities:
Mortgage notes payable 42,494 42,678
Promissory notes, including accrued
interest payable 23,199 23,217
-------- --------
65,693 65,895
-------- --------
Liabilities subject to compromise (Note 3,743 0
C):
Partners' capital:
General Partners:
NHT, Inc. (5) (2)
Other Operating General Partners (2) 54
Limited partners:
Issued and outstanding 1,014,668
investment units (1,446) 1,745
-------- --------
(1,453) 1,797
-------- --------
Total liabilities and
partners' capital $71,320 $74,039
======== ========
</TABLE>
The accompanying notes are an integral
part of the combined financial statements.
4
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NATIONAL HOUSING TRUST LIMITED PARTNERSHIP
AND ITS SUBSTANTIALLY WHOLLY-OWNED OPERATING PARTNERSHIPS
COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(In Thousands, except per Unit Amounts)
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995
------ ------
Rental revenues:
Rental revenues $ 3,090 $ 3,054
Other income 80 70
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Total revenues 3,170 3,124
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Rental expenses:
Administration 420 385
Operating and maintenance 668 678
Management fees 302 210
Utilities 512 493
Taxes and insurance 483 483
Depreciation and amortization 745 759
Impairment loss (Note B) 2,300 0
------- -------
Total expenses 5,430 3,008
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Income (loss) from operations (2,260) 116
------- -------
Other revenues and (expenses):
Interest income 21 37
Interest expense (912) (925)
Partnership management fees (75) (66)
------- -------
Net loss $(3,226) $ (838)
======= =======
Net loss per limited partnership unit $ (3.18) $ (0.82)
======= =======
</TABLE>
The accompanying notes are an integral
part of the combined financial statements.
5
<PAGE>
NATIONAL HOUSING TRUST LIMITED PARTNERSHIP
AND ITS SUBSTANTIALLY WHOLLY-OWNED OPERATING PARTNERSHIPS
COMBINED STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(In Thousands)
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(3,226) $ (838)
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Impairment loss 2,300 0
Depreciation and amortization 745 759
Accrued interest on 424 349
promissory notes
Changes in operating assets and
liabilities:
Increase in deposits,
prepaids and other assets (390) (151)
(Decrease) Increase in accounts
payable and accrued expenses 307 (14)
(Decrease) Increase in other
current liabilities 21 (8)
------- --------
Cash provided by operations 181 97
------- -------
Investing activities:
Additions to buildings, furniture
and equipment, net (92) (282)
Withdrawals (Deposits) to assets
limited as to use, net (260) 124
------- -------
Cash used for investing
activities (352) (158)
------- -------
Financing Activities:
General partners cash distributions (24) -
Payments of term debt (221) (172)
------- --------
Net cash used for
financing activities (245) (172)
------- -------
Decrease in cash and cash
equivalents (416) (233)
Cash and cash equivalents beginning
of year 1,130 1,206
------- -------
Cash and cash equivalents end
of period $ 714 $ 973
======= =======
</TABLE>
The accompanying notes are an integral
part of the combined financial statements.
6
<PAGE>
NATIONAL HOUSING TRUST LIMITED PARTNERSHIP AND
ITS SUBSTANTIALLY WHOLLY OWNED OPERATING PARTNERSHIPS
(UNAUDITED)
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE A--BASIS OF PRESENTATION
The accompanying combined financial statements include the accounts of National
Housing Trust Limited Partnership (Investment Partnership) and the Operating
Partnerships in which it has acquired a significant limited partnership
interest.
The information furnished reflects all adjustments (all of which were of a
normal recurring nature) which are, in the opinion of management, necessary to
fairly present the combined financial position, results of operations, and cash
flows on a consistent basis.
The accompanying unaudited combined financial statements are presented in
accordance with the requirements for Form 10-Q and consequently do not include
all disclosures normally required by generally accepted accounting principles.
Reference should be made to the Partnership's 1995 Annual Report on Form 10-K
for additional disclosures including a summary of the Partnership's accounting
policies which are not significantly different.
NOTE B--IMPAIRMENT OF LONG-LIVED ASSETS
The Investor Partnership has two Fort Worth, Texas Operating Partnerships which
had been in default of their mortgage obligations for their two properties with
mortgages held by HUD.
In November 1995, the General Partner was notified that the mortgage loans on
these two properties had been acquired from HUD by a Texas bank, which demanded
that the mortgages be brought current immediately. On March 14, 1996 the bank
notified the General Partner that the properties would be foreclosed upon if the
related mortgages were not paid in full by April 2, 1996. On March 26 and 28,
1996 the General Partner filed a petition for relief under Chapter 11 of the
Bankruptcy Code for each of the two Operating Partnerships. The General Partner
does not currently anticipate that this action will have any significant impact
on the combined operations of the Investment Partnership.
In March 1995, the Financial Accounting Standards Board issued Statement No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of", which requires impairment losses to be recognized for
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows are not sufficient to recover the assets'
carrying amount. The impairment loss is measured by comparing the fair value of
the asset to its carrying amount. The Investment Partnership has adopted
Statement 121 in the first quarter of 1996. The fair value was based on the
purchase price of the mortgages of the two Operating Partnerships. The new
impairment rules resulted in the recognition of an impairment loss of $2.3
million related to the two properties referred to above that was charged against
operations in first quarter 1996.
Further, if the lender is successful in its foreclosure proceedings, the debt
and related accrued interest would be recorded as an extraordinary gain in the
period the foreclosure is consummated. A foreclosure or sale of the properties
would result in adverse tax consequences to the investors of the Investment
Partnership, including the recapture of a portion of the low income tax credits
allocated to these two properties as well as a reduction of tax credits in
future years.
NOTE C--LIABILITIES SUBJECT TO COMPROMISE
On March 26 and 28, 1996, the two Fort Worth, Texas Operating Partnerships (see
Note B) filed petitions for relief under Chapter 11 of the Bankruptcy Code in
the Northern District of Texas, Fort Worth Division.
7
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Under Chapter 11, certain claims (including the mortgage notes payable) against
each of the Operating Partnerships in existence prior to the filing are
automatically stayed while the Operating Partnerships continues business
operations as a debtor-in-possession. The claims have been reflected in the
accompanying balance sheet as "liabilities subject to compromise". Additional
claims may arise subsequent to the filing date resulting from various sources,
including a determination of allowed claims by the bankruptcy court. These
additional claims will be reflected as "liabilities subject to compromise" when
the likelihood of the claim is probable and the allowed claim can be reasonably
estimated.
As of the date of this report, the Operating Partnerships are formulating their
proposed Plans of Reorganization. It is indeterminable at this time what
impact, if any, the Plans of Reorganization will have on the Operating
Partnerships. Management believes that a Plan, once filed and approved, will
allow each of the Operating Partnerships to continue as a going concern; but
there can be no assurance that the court will approve such a plan.
Liabilities subject to compromise consist of the following as of March 31, 1996:
<TABLE>
<CAPTION>
<S> <C>
Mortgage notes payable $2,742,000
Accrued interest mortgage notes payable 368,000
Promissory notes 353,000
Accounts payable and accrued expenses 252,000
Deposits held 28,000
----------
$3,743,000
==========
</TABLE>
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
- - -------
In 1988, the Investment Partnership raised $20,293,000 in gross proceeds through
a public offering. Upon paying the selling, offering and organization expenses
of the offering the Investment Partnership had $17,249,000 in net proceeds. Of
the net proceeds, $260,000 was deposited in the Investment Partnership reserve
and $16,989,000 was invested in 31 Operating Partnerships. The 31 Operating
Partnerships that were acquired own low-income housing developments (the
"Properties") that were eligible for the low-income housing tax credit. One of
the Properties was also eligible for the historic rehabilitation tax credit.
The 31 acquisitions occurred from October 1988 through March 1990.
Each Operating Partnership's Property qualifies for the low-income housing tax
credit (LIHTC). The LIHTC was created by the 1986 Tax Reform Act and is
governed by Section 42 of the Internal Revenue Code. The Investment Partnership
serves as a conduit of the Operating Partnerships' tax credits, passive losses,
portfolio income and other tax information to the holders of Units of limited
partnership interest in the Investment Partnership (the "Unit holders"). The
tax credits are allocated to the Unit holders for 10 years after a property has
been placed in service and rented up. The tax credits were first allocated to
Unit holders in 1988 and are anticipated to continue until 2001. In addition,
in order for a Property to qualify for the tax credits, the Property must be
utilized as a low-income property for 15 years before it can be sold. The
General Partner anticipates the Properties to be sold between the years 2003
through 2008.
The Investment Partnership elected a special option available in 1990 to
accelerate the LIHTC for individuals who had an interest in the Investment
Partnership before October 26, 1990. Qualifying Unit holders received a tax
credit of 150% of the credit otherwise allowable for the first tax year ending
December 31, 1990. The remaining tax credit available for 1991 and subsequent
tax years is being reduced on a pro rata basis by the amount of the 1990
increased credit. Non-qualifying Unit holders will receive the original
unaccelerated tax credit for the remaining qualifying tax years of their
investment.
8
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Properties
- - ----------
Two properties located in Ft. Worth, Texas have experienced cash flow
difficulties and a decline in value (See Footnotes B and C of the Combined
Financial Statements). During 1993, the General Partner resolved a dispute with
a former Managing General Partner who had not made mortgage payments on one of
the properties and failed to comply with its Operating Deficit Guarantee. An
agreement completed in May 1993 ordered the former Managing General Partner to
make a lump sum payment of $20,000 and continue to pay an additional amount
totaling $40,000 over 36 months. The payments agreed to by the former Managing
General Partner have been received on time as of this date.
Due to the nonpayment of the two properties' mortgages by the former Managing
General Partner, the U.S. Department of Housing and Urban Development (HUD)
assumed the mortgages. In September 1995, HUD auctioned off the mortgage loans
for these properties. The General Partner bid on the mortgage loans, but a
Texas bank was the successful bidder. Due to HUD disclosure policies, the
General Partner did not learn who bought the mortgages until November 9, 1995.
With respect to one property, the bank demanded by letter received November 13,
1995, that the loan be brought current by December 4, 1995 and threatened to
foreclose if payment was not received by that date. The Operating Partnerships
did not have sufficient capital to bring the mortgages current. By letter
proposal on November 22, 1995, the General Partner commenced negotiation with
the bank seeking a consensual agreement to restructure the debt. The bank
responded with a counter proposal on February 22, 1996. The General Partner
evaluated the bank's proposal, found it unworkable, and responded with a counter
proposal on March 14, 1996. The General Partner received notice later that same
day, by letter dated March 12, 1996, that the bank accelerated the maturity of
the indebtedness under the Notes, demanded payment in full and gave notice that
if the indebtedness is not paid in full, the bank would cause the trustee under
the deeds of trust securing the Notes to conduct a foreclosure sale on April 2,
1996. The consequences of foreclosure would include a recapture of a portion of
the tax credits previously received by the investors and the reduction of tax
credits in future years. A foreclosure in 1996 could result in a reduction of
an investor's return from approximately 14% to approximately 10% in 1996 and to
approximately 13% each year thereafter through the year 2000. The General
Partner will employ all actions to minimize the effect to the investors. As
part of its strategy, the General Partner filed on March 26, 1996 for Trinidad
Apartments Limited Partnership and on March 28, 1996 for Springchase Apartments
Limited Partnership in the Northern District of Texas, Fort Worth Division, Case
#496-41284 and Case #496-4136 respectfully, petitions for relief under Chapter
11 to enable the Operating Partnerships to reorganize. However, there can be no
assurance as to the outcome at this time.
In January 1994, the General Partner removed a Managing General Partner from its
management responsibilities at a Property located in Philadelphia, Pennsylvania.
The removal was due to nonpayment of the mortgage and failure to fulfill the
operating deficit guarantee. During 1994, the General Partner completed a debt
restructure with the Pennsylvania Housing Finance Agency (PHFA). The
restructuring required the Investment Partnership to loan money to the Operating
Partnership in order to pay off part of the first mortgage. PHFA provided funds
to pay off the remaining balance. In total, the Investment Partnership has
loaned $283,000 to the Operating Partnership for operations and debt
restructuring. Due to the debt restructuring the Property is not required to
service any debt unless there is sufficient cash flow after expenses relating to
the Property. The Property is expected to break-even. All of the units are
operational and available to rent to qualifying tenants. An agreement was
entered into in December, 1995 between the City of Philadelphia, through the
Offices of Services to the Homeless and Adults (OSHA) and the Operating
Partnership to provide project-based rental units for the shelter plus care
program. These 14 units are to be utilized by designated homeless individuals.
As of March 31, 1996, average occupancy of the Properties was 96%.
Results of Operations
- - ---------------------
The March 31, 1996, net loss of $3,226,000 increased 284% from the March 31,
1995, net loss of $838,000. The reasons for the difference are discussed below.
9
<PAGE>
An impairment loss of $2,300,000 was recorded in first quarter 1996 for the two
Fort Worth, Texas properties as required by FAS 121 (see Note B).
Total revenue increased $46,000 or 1.5% when comparing the quarters ended March
31, 1996 and 1995.
Total rental expenses exclusive of depreciation and impairment loss for the
quarter ended March 31, 1996 and 1995 are $2,385,000 and $2,249,000,
respectively. The $136,000 (6%) increase in rental expenses between 1996 and
1995 was due primarily to a $35,000 (9.1%) increase in administration expense,
$19,000 (3.9%) increase in utilities expense, and a $92,000 (44%) increase in
management fee expense.
The increase in administrative costs is due to lower than normal costs in first
quarter 1995. The utility expense increase is primarily due to increases in the
cost of utilities at the Texas and Pennsylvania Properties. The management fee
increase is primarily related to the payment of incentive management fees for
six of the properties in first quarter 1996.
To date, inflation has not had a significant impact on the Partnerships'
combined operations. However, rent levels of the Properties are generally
limited by the requirements of the low-income housing tax credit and are subject
to strict governmental regulation. In the event of significant inflation, the
Operating Partnerships may be unable to increase rents sufficiently to
compensate for increases in expenses. Due to the proposed changes in HUD
programs future increases in subsidy income may be limited. Overall, the
Properties are in good physical condition after taking into account the planned
repairs and maintenance discussed above, are producing positive cash flow and
the managing general partners and management companies are consistently seeking
means to improve operational results.
Capital Resources and Liquidity
- - -------------------------------
Liquidity is defined as an Operating Partnership's ability to meet its current
and long-term financial obligations. If a Property were to lose its governmental
rent, interest subsidy or mortgage insurance, the Operating Partnership holding
such Property might be unable to fund expenses on an ongoing basis.
Liquidity shortfalls might be covered by new federal governmental subsidy
programs, by state and local agencies, by funds from the Investment Partnership
reserve, or general partner operating deficit guarantees, although there is no
assurance that such sources would be available or, if available, sufficient to
cover any liquidity shortfall. A liquidity shortfall, for whatever reason, might
result in a sale, refinancing, or foreclosure of the property, any one of which
could have material adverse tax consequences to a Unit holder, including a
partial recapture of previously allocated low-income housing tax credits.
The U.S. Department of Housing and Urban Development (HUD) is subject to being
restructured. One of the proposed changes to HUD is consolidating the Section 8
program into a tenant certificate program. Currently the Section 8 program
provides subsidy either to a specific property or to specific low-income
individuals and/or families. Many of the Properties are supported by property-
specific subsidy. The proposed restructuring also calls for restructuring debt
on assisted housing to reflect current market values. The ramifications of
these proposed changes could affect demand for and cash flow of many of the
Properties. The General Partner is monitoring and preparing for the potential
impact of the proposed HUD restructuring, as well as the potential impact of
other proposals to restructure HUD that could be adopted. The General Partner
is unable to predict with specificity the impact on the Partnerships, of any of
the proposals to restructure HUD, but it is possible that a restructuring could
have a material adverse effect on one or more of the Properties, which in turn
could have a material adverse effect on the Investment Partnership.
At March 31, 1996 assets limited as to use were $5,226,000. The assets were
composed of the Investment Partnership reserve of $435,000 and Operating
Partnership reserves of $4,791,000. The Investment Partnership reserves are
available to fund repairs and maintenance as well as operational expenses, while
the reserves maintained by an Operating Partnership are typically available only
for the Property owned by
10
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such Operating Partnership. Historically, the Investment Partnership reserve has
been available to fund obligations of the Investment Partnership, including the
management fee payable by the Investment Partnership to the General Partner. In
1995 the General Partner deferred payment of $43,000 of its Management Fee due
to a reduced level of the Investment Partnership Reserve. In light of the
current level, the General Partner is again considering deferring payment of a
portion of its fee in 1996 and future years to maintain an appropriate level of
Investment Partnership reserve. There can be no assurance, however, that the
Investment Partnership reserve will be sufficient to satisfy the liquidity
requirements of any given Operating Partnership in the event that the reserves
of such Operating Partnership are insufficient for this purpose. The deposits
and withdrawals from the Operating Partnership reserves are generally regulated
by a governing federal, state or local agency.
Low-income housing projects frequently generate limited cash flow and,
therefore, the potential of cash flow deficits exist. Accordingly, as discussed
above, the General Partner believes it is prudent not to deplete the Investment
Partnership reserve below a certain level unless no alternatives are, in the
judgment of the General Partner, reasonably available. The General Partner does
not anticipate that the Investment Partnership will distribute cash to Unit
holders in circumstances other than refinancing or disposition of its
investments in the Operating Partnerships.
11
<PAGE>
PART II. OTHER INFORMATION
- - ---------------------------
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None
12
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized
National Housing Trust Limited Partnership
------------------------------------------
(Registrant)
Date May 14 1996 By /s/ Charles R. Santer
----------- --------------------------------
Charles R. Santer
President, NHT, Inc.
Date May 14 1996 By /s/ Susan E. Basting
----------- ---------------------------------
Susan E. Basting
Treasurer, NHT, Inc.
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 714
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,839
<PP&E> 77,819
<DEPRECIATION> 18,934
<TOTAL-ASSETS> 71,320
<CURRENT-LIABILITIES> 3,337
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (1,453)
<TOTAL-LIABILITY-AND-EQUITY> 11,320
<SALES> 3,090
<TOTAL-REVENUES> 3,170
<CGS> 0
<TOTAL-COSTS> 5,430
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 912
<INCOME-PRETAX> (3,226)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,226)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,226)
<EPS-PRIMARY> (3.18)
<EPS-DILUTED> (3.18)
</TABLE>
