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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1998
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 twelve 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 ___
---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
or Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.(X)
The Exhibit Index is located on page 33 of this Report.
This Report contains 43 pages.
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NATIONAL HOUSING TRUST LIMITED PARTNERSHIP
A DELAWARE LIMITED PARTNERSHIP
1998 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
<TABLE>
<CAPTION>
Page
<S> <C>
Item 1. Business.............................................................................. 3
Item 2. Properties............................................................................ 4
Item 3. Legal proceedings..................................................................... 5
Item 4. Submission of matters to a vote of security holders................................... 5
PART II
Item 5. Market for the registrant's partnership interests and related partnership matters..... 5
Item 6. Selected financial data............................................................... 6
Item 7. Management's discussion and analysis of financial condition and results of operations. 7
Item 7A. Quantitative and qualitative disclosures about market risk............................ 12
Item 8. Financial statements and supplementary data........................................... 14
PART III
Item 9. Changes in and disagreements with accountants on accounting and financial disclosure.. 31
Item 10. Directors and executive officers of the registrant.................................... 31
Item 11. Executive compensation................................................................ 32
Item 12. Security ownership of certain beneficial owners and management........................ 32
Item 13. Certain relationships and related transactions........................................ 32
PART IV
Item 14. Exhibits, financial statement schedules and reports on Form 8-K........................ 33
</TABLE>
FORM 10-K AVAILABLE
A copy of the National Housing Trust Limited Partnership 1998 Form 10-K, Annual
Report to the Securities and Exchange Commission, is available free of charge to
any partner by writing to:
James A. Bowman
President
NHT, Inc.
2335 North Bank Drive
Columbus, OH 43220
2
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PART I
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ITEM 1 BUSINESS
National Housing Trust Limited Partnership (NHTLP), a Delaware limited
partnership (the "Investment Partnership"), was formed on July 9, 1987 to invest
in low-income housing developments (the "Properties") throughout the United
States through acquisition of a 98.9% limited partnership interest in project
specific operating Partnerships ("Operating Partnerships"). NHT, Inc. (The
"General Partner" or "NHT") serves as a General Partner of the Investment
Partnership and holds a .1% - 1.1% General Partner interest in each of the
Operating Partnerships. The Investment Partnership and the Operating
Partnerships are referred to collectively as the "Partnerships".
NHT, Inc., the sole General Partner of the Investment Partnership, is a Delaware
nonprofit corporation which holds a 1% General Partner's interest in the
Investment Partnership. Shearson Lehman Hutton Low-Income Housing, Inc., a
Delaware corporation, was a Special Limited Partner in the Investment
Partnership with a .01% limited partnership interest. Effective December 1,
1997, Shearson Lehman Hutton Low-Income Housing, Inc. sold its .01% limited
partnership interest to NHT, Inc.
National Affordable Housing Trust, Inc. (the "Trust"), a Maryland nonprofit
corporation, is the sole member of the General Partner. The Trust in turn has
three members: National Church Residences, an Ohio nonprofit corporation formed
in 1961, Retirement Housing Foundation, a California nonprofit corporation also
formed in 1961, and as of March 15, 1996 Volunteers of America, Inc., a New York
nonprofit corporation formed in 1896 (the "Trust Members").
The purpose of the Investment Partnership is to acquire, hold, dispose of and
otherwise deal with limited partnership interests in Operating Partnerships
which will acquire, maintain, operate and dispose of low-income housing
developments. Additionally, the purpose is to engage in any other activities
related and incidental to providing current tax benefits to Unit holders,
particularly the low income housing tax credit, to preserve and protect
Investment Partnership capital, and to cause the Properties to be sold to the
highest bidder who intends to preserve the Properties as affordable housing for
persons of low income.
On October 7, 1988, the Investment Partnership completed a public offering of
1,014,668 units of limited partnership interest ("Units") at $20.00 per unit,
from which the Investment Partnership received gross proceeds of approximately
$20,293,000. After paying Shearson Lehman Hutton, Inc. $2,079,000 for fees and
costs related to the offering and paying the Trust $965,000 for organizational
and offering expenses, the net proceeds of the offering available to invest in
Operating Partnerships amounted to $17,249,000.
After completion of the public offering, the Investment Partnership acquired a
98.9% limited partnership interest in 31 Operating Partnerships. The Operating
Partnerships acquire, maintain and operate the Properties, each of which
qualifies for an allocation of the low-income housing tax credit ("LIHTC")
established by the Tax Reform Act of 1986. Each Property is financed and/or
operated with one or more forms of rental or financial assistance from the U.S.
Department of Housing and Urban Development (HUD), the Rural Development
Authority (RD), or various state and local housing finance agencies.
The Investment Partnership does not have any employees. The General Partner
and/or its affiliates perform services for the Investment Partnership.
The principal executive offices of the Investment Partnership and NHT, Inc. are
located at 2335 North Bank Drive, Columbus, Ohio 43220, and their telephone
number is (614) 451-9929.
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ITEM 2 PROPERTIES
The Investment Partnership acquired a 98.9% interest in 31 Operating
Partnerships since the completion of the public offering in 1988. These
Operating Partnerships, and the states in which their respective properties are
located, the number of units and occupied units as of December 31, 1998, are
listed below:
<TABLE>
<CAPTION>
Number of Occupancy of
Partnership Name State Units Units
- -------------------------------------------------------------- -------- --------- ------------
<S> <C> <C> <C>
Aspen NHT Apartments Company Limited Partnership Michigan 48 42
Birch Lake NHT Apartments Company Limited Partnership Michigan 48 47
Century Place NHT Apartments Company Limited Partnership Michigan 96 90
Glendale NHT Apartments Company Limited Partnership Michigan 28 27
Lakeside NHT Apartments Company Limited Partnership Michigan 64 60
Park Terrace NHT Apartments Company Limited Partnership Michigan 48 45
Traverse Woods NHT Apartments Company Limited Partnership Michigan 48 46
Traverse Woods II NHT Apartments Company Limited Partnership Michigan 80 75
RP Limited Dividend Housing Association Limited Partnership Michigan 245 217
YM Limited Dividend Housing Association Limited Partnership Michigan 153 151
Bingham Terrace Limited Partnership Ohio 56 55
Griggs Village Limited Partnership Ohio 44 39
Hebron Village Limited Partnership Ohio 40 38
Melrose Village I Limited Partnership Ohio 56 51
Stygler Village Limited Partnership Ohio 150 147
Summit Square Limited Partnership Ohio 152 141
Washington Court House I Limited Partnership Ohio 60 60
Wildwood Village I Limited Partnership Ohio 94 86
Wildwood Village II Limited Partnership Ohio 86 85
Wildwood Village III Limited Partnership Ohio 92 92
W-C Apartments Limited Partnership Oklahoma 64 61
W-G Apartments Limited Partnership Oklahoma 47 43
W-P Apartments Limited Partnership Oklahoma 76 74
W-R Apartments Limited Partnership Oklahoma 76 75
Coal Township Limited Partnership Pennsylvania 101 101
Hazelwood Limited Partnership Pennsylvania 100 99
Mahanoy Limited Partnership Pennsylvania 125 122
West Allegheny Partners Limited Partnership Pennsylvania 45 40
Springchase Apartments Limited Partnership Texas 164 *
Trinidad Apartments Limited Partnership Texas 124 *
St. Martins Associates Washington 53 53
</TABLE>
*These two Operating Partnerships lost their Properties in a December 1997
foreclosure sale; therefore, the year-end occupancy is listed as -0-. These
Operating Partnerships were liquidated in 1998, having paid remaining Operating
Partnership liabilities out of available Operating Partnership cash. Any cash in
excess of liabilities was distributed to the Partnership. No distributions will
be made to Unit holders. These Operating Partnership are expected to be
dissolved once all legal suits are resolved (See MD&A Properties and Note 5 to
the Combined Financial Statements for more details.)
4
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ITEM 3 LEGAL PROCEEDINGS
None.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
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ITEM 5 MARKET FOR THE REGISTRANT'S PARTNERSHIP INTERESTS AND RELATED
PARTNERSHIP MATTERS
At December 31, 1998, there were approximately 1,100 registered holders of units
of limited partnership interest in NHTLP ("Units"). The Units were sold through
a public offering underwritten by Shearson Lehman Hutton, Inc. The Units may be
transferred only if certain requirements are satisfied; a public market for the
purchase and sale of the Units has not developed to date, and no such market is
expected to develop. The General Partner does not anticipate that the Investment
Partnership will distribute cash to holders of Units in circumstances other than
refinancing or disposition of the Investment Partnership's investments in the
Operating Partnerships, and there can be no assurance of any distributions in
the event of refinancing or disposition.
5
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ITEM 6 SELECTED FINANCIAL DATA
The following information has been derived from the combined financial
statements of the Investment Partnership and its substantially wholly-owned
Operating Partnerships.
<TABLE>
<CAPTION>
(In thousands, except per Unit data)
1998 1997 1996 1995 1994
Restated (2) Restated (2) Restated (2) Restated (2)
--------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Combined Statement of Operations Data:
Revenues $ 12,174 $ 12,900 $ 12,699 $ 12,723 $ 12,566
Expenses (13,176) (9,921) (11,970) (9,475) (9,425)
Depreciation and amortization (2,993) (2,967) (2,995) (3,073) (3,025)
--------- ------------- -------------
Income (loss) from rental operations (3,995) 12 (2,266) 175 116
--------- ------------- ------------- ------------- -------------
Other revenues and expenses
Interest income 273 270 252 265 260
Interest expense (3,514) (3,434) (3,490) (3,627) (3,639)
--------- ------------- ------------- ------------- -------------
Net loss before extraordinary gain $ (7,236) $ (3,152) $ (5,504) $ (3,187) $ (3,263)
Extraordinary gain 200 2,196 - - -
--------- ------------- ------------- ------------- -------------
Net loss $ (7,036) $ (956) $ (5,504) $ (3,187) $ (3,263)
========= ============= ============= ============= =============
Net loss per unit before extraordinary gain $ (7.13) $ (3.10) $ (5.42) $ (3.14) $ (322)
Extraordinary gain per unit .20 2.16 - - -
Net loss per Unit $ (6.93) $ (.94) $ (5.42) $ (3.14) $ (322)
========= ============= ============= ============= =============
Combined Balance Sheet Data:
Total assets $ 61,509 $ 67,437 $ 70,416 $ 74,115 $ 76,506
========= ============= ============= ============= =============
Term debt (1) $ 70,041 $ 69,146 $ 70,824 $ 69,526 $ 68,761
========= ============= ============= ============= =============
Partners' capital $ (11,404) $ (4,353) $ (3,397) $ 2,093 $ 5,282
========= ============= ============= ============= =============
Cash dividends declared per Unit $ None $ None $ None $ None $ None
========= ============= ============= ============= =============
</TABLE>
(1) Includes current maturities of term debt.
(2) Partners' capital at the beginning of 1994 has been restated by three of the
Operating Partnerships by a total increase of $296,000 to reflect adjustments
relating to an increase in prepaid real estate taxes of $76,000, a decrease in
real estate tax payable of $163,000, and a decrease in fee distribution payable
of $57,000. There was no impact to the Combined Statement of Operations.
6
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ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
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In 1988, the Investment Partnership raised $20,293,000 in gross proceeds through
a public offering. After 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 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. Two Operating Partnerships (see Properties
below) are expected to be dissolved in 1999.
Each Operating Partnership's Property qualifies for the LIHTC. The LIHTC was
created by the 1986 Tax Reform Act and is governed by Section 42 of the Internal
Revenue Code. In order for a Property to qualify for the LIHTC, the Property
must be utilized as a low-income property for 15 years before it can be sold.
The General Partner anticipates the Properties will be sold in the years 2003
through 2008. 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 LIHTCs 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. 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 LIHTC 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.
An analysis of future tax credits anticipated based upon current information and
assuming no changes in the Operating Partnerships indicates an estimate of
future tax credits for the qualifying Unit holders who received the 1990
acceleration to be as follows: approximately $2.10 of credit per unit in 1999;
approximately $ .35 of credit per unit in 2000; and approximately $ .20 of
credit per unit in 2001.
The Properties are subject to substantial debt, in many cases including seller
financing on which interest has accrued since the Investment Partnership
invested in the Properties. Most of the Properties are dependent upon continuing
government subsidies. In addition, many of the Properties are located in market
areas that would not support current rents. Finally, most of the Properties are
subject to use restrictions that limit their use to low-income housing beyond
the end of the tax credit compliance period. For these and other reasons, there
can be no assurance that the sale of the Properties will produce sales proceeds
to the Operating Partnerships in excess of the debt financing and the expenses
of sale; nor can there be any assurance that distributions of the sales
proceeds, if any, from the Operating Partnerships to the Investment Partnership
will exceed the Investment Partnership's accumulated liabilities. Accordingly,
upon sale of the Properties, there can be no assurance that any funds will be
distributed to unit holders or, if funds are distributed, that the funds will be
sufficient to enable Unit holders to pay taxes arising from such sales.
The Investment Partnership recognizes the importance of minimizing the number
and seriousness of any disruptions that may occur as a result of Year 2000 and
has adopted a compliance program. The Investment Partnership has completed the
inventory of its information technology and other electronic assets (such as,
but not limited to, data network equipment, non-information technology systems,
including embedded systems that operate security systems, phone systems, fax
systems, energy management systems and other systems) used in the Investment
Partnership's business that may be affected by Year 2000 issues and the related
assessment of those assets Year 2000 compliance. The Investment Partnership has
completed its assessment of its primary information technology infrastructure
and has completed the inventory and assessment of 60% of the technology
infrastructure of the Operating Partnerships. The Investment Partnership expects
to complete the inventory and assessment of the rest of the Operating
Partnerships by May 1, 1999.
7
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The Investment Partnership completed an analysis of its vendors and service
providers that are critical to the Investment Partnership's business to
determine whether they are Year 2000 compliant. The Investment Partnership has
requested a survey from all the Operating Partnerships, but cannot guarantee
that all vendors or service providers of the Operating Partnerships will respond
to the Operating Partnership's surveys, and therefore the Investment Partnership
may not be able to determine Year 2000 compliance of those vendors or service
providers. At that time, the Operating Partnerships will determine the extent to
which the Operating Partnerships will be able to replace non-compliant vendors.
Due to the lack of alternative sources, there may be instances in which the
Operating Partnerships will have no alternative but to remain with non-compliant
vendors or service providers.
The Investment Partnership believes that its upgrading and systems replacement
will be implemented and tested by June 30, 1999. The Investment Partnership
believes that this should provide adequate time to further correct any problems
that did not surface during the implementation and testing for those systems.
In addition to those systems within the Investment Partnership's control, the
Operating Partnerships' control and the control of their vendors and suppliers,
there are other systems that could have an impact on the Investment
Partnership's and Operating Partnerships' businesses and which may not be Year
2000 compliant by January 1, 2000. Those systems could affect the operations of
the multi-family rental real estate industry or the economy as a whole. These
systems are outside of the Investment Partnerships' control or influence and
their compliance may not be verified by the Partnerships; however, these systems
could adversely affect the Partnerships' financial condition or results of
operations.
If the Investment Partnership or Operating Partnerships are not successful in
implementing their Year 2000 compliance plan, the Investment Partnership may
suffer a material adverse impact on its combined results of operations and
financial condition. Because of the importance of addressing the Year 2000
problem, the Investment Partnership expects to develop contingency plans if it
determines that the compliance plans will not be implemented by June 30, 1999.
To date, the Investment Partnership estimates the cost not to exceed $50,000 to
update its information technology and other electronic assets. Upon receipt of
all the Operating Partnerships' surveys, an estimation of the cost to become
Year 2000 compliant will be made.
Properties
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As of December 31, 1998, average occupancy of the Properties was 95%.
Two Fort Worth Texas Properties
- -------------------------------
Two properties located in Ft. Worth, Texas had experienced cash flow
difficulties and a decline in value (See Notes 1 and 5 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. Due to the
nonpayment of the two properties' mortgages by the former Managing General
Partner, the mortgages were assigned to the U.S. Department of Housing and Urban
Development (HUD). 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. The General Partner attempted to negotiate with
the bank, seeking a consensual agreement to restructure the debt. The bank
responded with a notice dated March 12, 1996 accelerating the maturity of the
indebtedness under the Notes, demanding payment in full and giving notice that
if the indebtedness was 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 General Partner, after evaluating the consequences of foreclosure and as
part of a strategy to minimize the effect to the investors, filed, on March 26,
1996 with respect to Trinidad Apartments Limited Partnership and on March 28,
1996 with respect to Springchase Apartments Limited Partnership, in the United
States District Court for the Northern District of Texas, Fort Worth Division
(the"Court"), Case #496-41284 and Case #496-4136 respectively, petitions for
relief under Chapter 11 to enable the Operating Partnerships to reorganize. On
October 22, 1997, the Court entered an order denying confirmation of the plans
of reorganization and granted the bank relief
8
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from the automatic stay of foreclosure. On December 2, 1997, a foreclosure sale
was held and the Properties were transferred to the bank.
Because each investor's tax situation is different, the consequences of the
foreclosure was different based upon each investor's previous use of tax credits
and passive losses. However, in general, the foreclosure caused a recapture of a
portion of the LIHTCs previously received by the investors, the reduction of
LIHTCs in future years, an interest charge under the Internal Revenue Code on
LIHTCs recaptured, and a tax gain on disposition of the property as a result of
the foreclosure. The Schedule K-1 for the year ended December 31, 1997 included
a $.48 per Unit recapture of tax credits with a corresponding estimated interest
charge of $.23 per unit. The passive gain relating to the disposition of the two
Properties as a result of foreclosure was less than the 1997 passive losses
passed through from the remaining 29 Operating Partnerships. In addition tax
credits will be reduced in each of 1998, 1999, 2000, and 2001 by the loss of the
two Properties' credits. This reduction is estimated to be approximately $.19
per unit. (For an estimate of future credits after this reduction see General
above in the MD&A).
A hearing to dismiss the bankruptcy was held on March 26, 1998. The Court
entered an order denying the bank's motion for payment of cash collateral and
granted motions to dismiss the bankruptcy. The bank filed an appeal to preserve
its rights to file an appeal. The Court has dismissed the bank's appeal with
respect to Springchase Operating Partnership. The bank also filed suit against
Springchase Operating Partnership in the State District Court in Dallas County
Texas and sought an injunction against Springchase Operating Partnership. The
injunction was denied by the State District Court. An appeal with respect to the
Trinidad Operating Partnership is still in process. There can be no assurance as
to how these matters will be resolved. These partnerships were liquidated in
1998, having paid remaining Operating Partnership liabilities out of available
Operating Partnership cash. Any cash in excess of liabilities was distributed to
the Investment Partnership. No distributions will be made to Unit holders.
A Detroit, Michigan Property
- ----------------------------
During 1998, an impairment loss in the amount of $4,100,000 was recorded with
respect to the Research Park project in Detroit, Michigan, which is owned by one
of the Operating Partnerships. The loss was recorded under the requirements of
Financial Accounting Standards Board Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of".
FAS No. 121 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. Indicators present during 1998 for this Operating Partnership include
cash flow from operations that was less than the debt service on the property;
however, debt service was paid by allowing trade payables to become larger and
more delinquent. Therefore, an assessment was done to evaluate the undiscounted
cash flows, which were not sufficient to recover the assets' carrying amount.
Based on this assessment, an impairment loss of $4,100,000 was recognized to
reduce the carrying amount of the property to its estimated fair value of
$4,300,000. The Managing General Partner is in negotiations with the Michigan
State Housing Development Authority to work out a solution to enable the
property to generate positive cash flow. At this time, there is no assurance as
to how these matters will be resolved.
A Greenville, Michigan Property
- -------------------------------
At December 31, 1998 a Greenville, Michigan Property has experienced continuing
cash flow deficits. The property has not funded reserves for taxes, insurance
and replacement reserves adequately and is deficient in the payment of real
estate taxes. The managing general partner has been working with the RD to
resolve the cash flow problems; however, there can be no assurance as to how
these matters will be resolved.
Other Property Issues
- ---------------------
At December 31, 1998, three other Properties have cash flow difficulties. Two of
the three had increased operating and maintenance costs in 1998 due to property
improvements. The other property had difficulty adequately funding the tax and
escrow reserve account. However, the Property performed better financially in
1998 than it has in previous years.
Liquidity and Capital Resources
- -------------------------------
Liquidity is defined as an entity'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.
9
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Liquidity shortfalls might be covered by federal governmental subsidy programs,
by state and local agencies, or by funds from the Investment Partnership
reserves, 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 LIHTCs.
Material changes have been made and additional changes have been proposed by
various Members of Congress and the Clinton Administration in the programs of
the U.S. Department of Housing and Urban Development. The Multifamily Assisted
Housing Reform and Affordability Act of 1997, Public Law 105-65, effective
October 1, 1997, continued for fiscal year 1998 (October 1, 1997 through
September 30, 1998) a debt restructuring demonstration first enacted for fiscal
year 1997. With certain modifications, the demonstration program became a
permanent program in fiscal year 1999, applicable to all projects with rents
above those of comparable properties in local markets. Under the program,
subsided rent levels generally are reduced to market levels and the debt may be
restructured into two mortgages. The first mortgage is set at a level
supportable by the lower subsidized rents, and the second mortgage is payable
only out of cash flow after other approved expenses and sale or refinancing
proceeds. In many cases, rent subsidies will become tenant-based, meaning that
the subsidies may move with the tenants. However, for certain projects, such as
those that predominately serve elderly or disabled families or are located in
markets with an inadequate supply of affordable housing, the rent subsidies may
continue to be project-based.
HUD has entered into contracts to carry out the restructuring with state housing
finance agencies and others ("Participating Administrative Entities" or "PAEs").
The PAEs have authority to set rents above the comparable rents for only 20% of
their inventory each year. These rents will be based on approved project
budgets, and are capped at 120% of FMRs, except for up to 5% of the inventory,
which can have budget-based rents above 120% of FMRs based on a showing of
special need. Owners who have engaged in adverse financial or managerial actions
are barred from participating in the restructuring program.
The Operating Partnerships own sixteen Properties whose Section 8 contracts have
expired or will expire in fiscal year 1999 or 2000, and are not subject to
optional renewal by the owner. The General Partner expects that Section 8
contracts for all of these fifteen Properties will be renewed by HUD at current
levels until at least the end of fiscal year 1999, although there can be
assurance that HUD will do so. Seven of these properties have rents in excess of
100% of HUD-established fair market rents. The rents at some or all of these
Properties may also be above comparable rents as determined by HUD and therefore
could be subject to HUD restructuring. The General Partner will work with the
general partners of the Operating Partnerships to seek to renew all expiring
Section 8 contracts, and if required or appropriate, to participate in the
program to restructure loans and rent subsidies. Of the Investment Partnership's
remaining total LIHTCs approximately 20% is allocated to these Operating
Partnerships.
Restructuring could affect demand for and cash flow of many of the Properties,
as well as potentially create debt forgiveness taxable income. Moreover, a shift
to tenant-based subsidies could lead over time to lower occupancies and lower
rents, adversely affecting cash flow. The General Partner is preparing for the
potential impact of the restructuring of HUD programs and is monitoring the
development of HUD policy guidance and legislation. The General Partner is
unable to predict with certainty the impact of HUD program restructuring on the
Operating Partnerships, but it is possible that a restructuring could have a
material adverse effect on one or more of the Operating Partnerships, which in
turn could have a material adverse effect on the Investment Partnership.
At December 31, 1998 restricted cash was $5,829,000. The restricted cash was
composed of the Investment Partnership reserve of $421,000 and Operating
Partnership reserves of $5,408,000. Deposits and withdrawals from Operating
Partnership reserves are generally regulated by a governing federal, state or
local agency. 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
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. As
of December 31, 1998 the General Partner voluntarily deferred payment of
$443,000 of its Management Fee. There can be no assurance, however, that the
Investment Partnership reserve will be sufficient to satisfy the liquidity
10
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requirements of any given Operating Partnership in the event that the reserves
of such Operating Partnership are insufficient for this purpose.
Low-income housing projects frequently generate limited cash flow and,
therefore, the potential for cash flow deficits exists. 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. Moreover, especially in light of the
reduced availability of subsidies, there can be no assurance of cash
distributions in the event of refinancing or disposition.
Results of Operations
- ---------------------
The 1998 net loss of $7,036,000 increased 636% from the 1997 net loss of
$956,000, while the 1997 net loss decreased 83% from the 1996 net loss of
$5,504,000. The reasons for the differences are discussed below.
Extraordinary gains of $200,000 and $2,196,000 were recorded in 1998 and 1997,
respectively, as a result of matters related to the foreclosure and debt
extinguishment on the two Texas Properties (see Note 5).
An impairment loss of $4,100,000 was recorded in 1998 for a Detroit Michigan
property (see Note 1) and an impairment loss of $2,300,000 was recorded in 1996
for the two Fort Worth, Texas Properties. (see Note 1).
During 1998, 1997 and 1996, total revenue was $12,174,000, $12,900,000 and
$12,699,000, respectively. Rental income decreased $726,000 (5.63%) in 1998
compared to 1997 and increased $201,000 (1.58%) in 1997 compared to 1996. The
current year decrease in revenue related to the loss of operations from the two
Fort Worth, Texas Properties. After removing this decrease of revenue from the
loss of the Fort Worth, Texas Properties, the other Properties' rental revenue
increased an average of 2.79% comparing 1998 to 1997 and 2.61% comparing 1997 to
1996.
Total expenses exclusive of depreciation, interest and impairment loss for 1998,
1997, and 1996 were $9,076,000, $9,921,000 and $9,670,000, respectively. The
$845,000 (8.51%) decrease in expenses between 1998 and 1997 was primarily
related to a decrease in expenses related to the loss of operations from the two
Texas properties. After removing this decrease in expenses in 1998 related to
the loss of these two properties, the average increase in expenses is 1.59%.
The expenses with the largest fluctuations between 1998 and 1997 are
administrative, with an increase of $185,000 (11.66%), and utilities with a
decrease of $74,000 (5.15%). In addition, the $251,000 (2.60%) increase in
expenses between 1997 and 1996 was primarily due to a $143,000 (7.9%) increase
in administrative expenses, and a $88,000 (3.1%) increase in operating and
maintenance expense.
The administrative expense increases in 1998 are primarily attributable to an
increase in site staff salaries, an increase in bad debt expense and an increase
in renting expense. The utility expense decrease in 1998 primarily relates to a
general decrease in utility expenses of the Ohio and Michigan Properties. The
administrative expense increases in 1997 are primarily attributable to an
increase in site staff to provide more services at several of the Properties and
an increase in legal expense. The operating and maintenance increases in 1997
primarily relate to an increase in maintenance and repairs on many of the
Properties to improve the facilities.
During the past three year period, rental revenue, after the HUD rent
adjustments and adjusting for the loss of the Texas properties, has been
increasing an average of 1.79%, an increase which has not been sufficient to
cover increases in expenses (excluding depreciation, interest and impairment
loss) of 2.44%. The primary expense categories that have been steadily
increasing are administration (3.89%), operating and maintenance (3.93%) and
management fees (2.26%). Rent levels of the Properties are generally limited by
the requirements of the LIHTC 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 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 and are generally producing
positive cash flow. The managing general partners of the Operating Partnerships
and management companies are consistently seeking means to improve operational
results.
11
<PAGE>
Recent Financial Accounting Standards
- -------------------------------------
In June 1997, Statement of Financial Accounting Standards ("SFAS") No. 130,
Reporting Comprehensive Income, and SFAS No. 131, Disclosures about Segments of
an Enterprise and Related Information, were issued. SFAS No. 130 establishes
standards for reporting and displaying comprehensive income and its components
in a financial statement that is displayed with the same prominence as other
financial statements. Reclassification of financial statements for earlier
periods, provided for comparative purposes, is required. The statement also
requires the accumulated balance of other comprehensive income to be displayed
separately from retained earnings and additional paid-in capital in the equity
section of the statement of financial position.
SFAS No. 131 establishes standards for reporting information about operating
segments in annual and interim financial statements. Operating segments are
defined as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance. Categories required to be reported as well as reconciled to the
financial statements are segment profit or loss, certain specific revenue and
expense items, and segment assets. SFAS No. 130 and No. 131 are effective for
fiscal years beginning after December 15, 1997.
The Investment Partnership has no items of comprehensive income, therefore, the
adoption of SFAS No. 130 has no impact on the Investment Partnership's financial
position or results of operations. The Investment Partnership is in one business
segment and follows the requirements of SFAS No. 131.
In February 1998, FASB issued SFAS No. 132, "Employees' Disclosures about
Pension and Other Postretirement Benefits" ("SFAS No. 132"), which revises
employers' disclosures about pension and other postretirement benefit plans.
SFAS No. 132 does not change the measurement or recognition of these plans.
SFAS No. 132 is effective for fiscal years beginning after December 15, 1997.
The Investment Partnership does not directly have any employees and SFAS No. 132
is disclosure related only and therefore will have no impact on the Investment
Partnership's financial position or results of operations.
In June 1998, FASB issued SFAS No. 133, "Accounting for Derivatives and Hedging
Activities" ("SFAS No. 133"), which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
imbedded in other contracts, (collectively referred to as derivatives) and for
hedging activities. SFAS No. 133 is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. The Investment Partnership does not expect
the adoption of this statement to have a significant impact on the Investment
Partnership's financial position or results of operations.
In October 1998, FASB issued SFAS No. 134, "Accounting for Mortgage-Backed
Securities Retained after the Securitization of Mortgage Loans Held for Sale by
a Mortgagee Banking Enterprise" ("SFAS No. 134"), which amends SFAS No. 65 to
require that the securitization of mortgage loans held for sale, an entity
engaged in mortgage banking activities classify the resulting mortgage-backed
securities or other retained interests based on its ability and intent to sell
or hold those investments. SFAS No. 134 conforms the subsequent accounting for
securities retained after the securitization of mortgage loans by a mortgage
banking enterprise with the subsequent accounting for securities retained after
the securitization of other types of assets by a nonmortgage banking enterprise.
SFAS No. 134 is effective for all fiscal quarters beginning after December 15,
1998. The Investment Partnership does not expect the adoption of this statement
to have a significant impact on the Investment Partnership's financial position
or results of operations.
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Certain Factors Affecting Future Operating Results
- --------------------------------------------------
The following factors could cause actual results to differ materially from
historical results or those anticipated:
Risks of Government-Assisted Housing Complexes
- ----------------------------------------------
In certain respects government-assisted housing complexes differ from
conventional housing complexes. These include (a) greater financing leverage
than is usual in conventional complexes, (b) review of compliance with
12
<PAGE>
construction and other standards and (c) various contingency reserves required
in connection with such government assistance programs. Government-assisted
housing is also subject to special conditions and risks including, but not
limited to, (a) general surveillance by the appropriate governmental assistance
agency, which may include the application of rental and other guidelines
affecting tenant eligibility, operating costs and rental levels, (b) maintenance
of a reserve fund for replacements in an amount paid concurrently with
amortization of the mortgage and in addition to payments of principal and
interest, restricted such that withdrawals from the fund are subject to the
prior approval of the appropriate governmental assistance agency, (c) compliance
with the HUD regulations regarding management of the premises, (d) limitations
on salability, as contained in regulatory agreements with the appropriate
governmental assistance agency, (e) limitations on rent increases, and (f) the
uncertain effects of changes in complex rules and regulations governing such
government-assisted programs, or changes in the manner in which those
regulations are interpreted.
Government assistance payments may be reduced in the event that a project rents
less than 100% of its units eligible for rental subsidies to qualified low
income tenants. HUD generally elects to reduce subsidies only in the event that
occupancy levels for qualified tenants drop below 95% for a period of two years.
Finally, HUD commitments are subject to HUD's appropriation of federal funds
sufficient to meet its obligations in any given year. At the present time,
certain legislative initiatives and governmental budget negotiations could
result in a reduction of funds available for the various HUD-administered
housing programs and could also result in new limitations on subsidized rent
levels. This in turn could adversely impact the net operating income generated
by the Properties.
Real Estate Investment Risks
- ----------------------------
Real property investments are subject to varying degrees of risk. Revenues and
property values may be adversely affected by the general economic climate, the
local economic climate and local real estate conditions, including (i) the
perceptions of prospective tenants of the attractiveness of the property; (ii)
the ability to retain qualified individuals to provide adequate management and
maintenance of the property; (iii) the inability to collect rent due to
bankruptcy or insolvency of tenants or otherwise; and (iv) increased operating
costs. Real estate values may also be adversely affected by such factors as
applicable laws, including tax laws, interest rate levels and the availability
of financing.
Effect of Uninsured Loss
- ------------------------
The Operating Partnerships carry comprehensive liability, fire, flood, extended
coverage and rental loss insurance with respect to their properties with insured
limits and policy specifications that management believes are customary for
similar properties. There are, however, certain types of losses (generally of a
catastrophic nature such as wars, floods or earthquakes) which may be either
uninsurable, or, in management's judgment, not economically insurable. Should
an uninsured loss occur, the Investment Partnership could lose both its invested
capital in and anticipated profits from the affected property.
Possible Environmental Liabilities
- ----------------------------------
Under various federal, state and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real property may become
liable for the costs of the investigation, removal and remediation of hazardous
or toxic substances on, under, in or migrating from such property. Such laws
often impose liability without regard to whether the owner or operator knew of,
or was responsible for, the presence of such hazardous or toxic substances.
The Investment Partnership is not aware of any notification by any private party
or governmental authority of any non-compliance, liability or other claim in
connection with environmental conditions at any of its Properties that it
believes will involve any expenditure which would be material to the Investment
Partnership, nor is the Investment Partnership aware of any environmental
condition with respect to any of its Properties that it believes will involve
any such material expenditure. However, there can be no assurance that any non-
compliance, liability, claim or expenditure will not arise in the future.
Competition
- ------------
The financial performance of the Operating Partnerships will be impacted by the
competition from comparable properties in their local market areas. The
occupancy levels achievable at the Properties and the rental rates at the non-
subsidized Properties are largely a function of supply and demand in the
markets. In many markets across the country, development of new multi-family
properties has increased significantly over the past two years. Existing
13
<PAGE>
apartment properties in such markets could be expected to experience increased
vacancy levels, declines in effective rental rates and, in some cases, declines
in estimated market values as a result of the increased competition. There are
no assurances that these competitive pressures will not adversely affect the
operations and/or market values of the Operating Partnerships in the future and,
in particular, subsequent to the expiration of any existing subsidy agreements.
Impact of Operating Partnership Structure
- -----------------------------------------
The ownership of the Investment Partnership's investments through Operating
Partnerships could adversely impact the timing of the Investment Partnership's
planned dispositions of its remaining assets and the amount of proceeds received
from such dispositions. It is possible that the general partners of the
Operating Partnerships could have economic or business interests which are
inconsistent with those of the Investment Partnership. Given the limited rights
which the Investment Partnership has under the terms of the Operating
Partnership agreements, any conflict between the partners could result in delays
in completing a sale of the related operating property and could lead to an
impairment in the marketability of the property to third parties for purposes of
achieving the highest possible sale price.
Availability of a Pool of Qualified Buyers
- ------------------------------------------
The availability of a pool of qualified and interested buyers for the Investment
Partnership's remaining assets is critical to the Investment Partnership's
ability to realize the fair market values of such properties at the time of
their final dispositions. Demand by buyers of multi-family apartment properties
is affected by many factors, including the size, quality, age, condition and
location of the subject property, potential environmental liability concerns,
the existing debt structure, the liquidity in the debt and equity markets for
asset acquisitions, the general level of market interest rates and the general
and local economic climates. In addition, because of the government
restrictions on rental revenues and the related capital expenditure reserve
requirements and cash flow distribution limitations, there are a limited number
of potential buyers in the market for government subsidized, low-income housing
properties such as the Investment Partnership has invested in. Furthermore, the
current uncertainty regarding potential future reductions in the level of
federal government assistance for these programs may further restrict the
Properties' marketability.
Inflation
- ---------
The Investment Partnership completed its tenth year of operations in 1998. To
date, the effects of inflation and changes in prices on the Investment
Partnership's operating results have not been significant. In the future, with
regard to the Operating Partnerships, contract rental rates under "Section 8"
agreements may be increased at the discretion of the Department of Housing and
Urban Development in response to inflationary pressures to cover increases in
operating expenses due to inflation, but there can be no assurance that HUD will
do so.
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The combined financial statements of National Housing Trust Limited Partnership
and its substantially wholly-owned Operating Partnerships as of December 31,
1998 and 1997 and for each of the three years in the period ended December 31,
1998 are listed below and included on pages 15 through 30 of this report.
<TABLE>
<S> <C>
Audited Combined Financial Statements
Report of Independent Auditors - Reznick Fedder & Silverman.................................... 15
Report of Independent Auditors - Ernst & Young LLP............................................. 16
Combined Balance Sheets........................................................................ 17
Combined Statements of Operations.............................................................. 19
Combined Statements of Partners' Deficit....................................................... 20
Combined Statements of Cash Flows.............................................................. 21
Notes to Combined Financial Statements......................................................... 22
Financial Statements Schedules - Schedule I.................................................... 37
Financial Statements Schedules - Schedule III.................................................. 39
</TABLE>
14
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Partners
National Housing Trust Limited Partnership
We have audited the accompanying combined balance sheet of National Housing
Trust Limited Partnership and its substantially wholly-owned Operating
Partnerships (the Partnership) as of December 31, 1998 and the related combined
statements of operations, partners' deficit, and cash flows for the year then
ended and the financial statement schedules as of December 31, 1998 and for the
year then ended listed in the accompanying index. These combined financial
statements and schedules are the responsibility of the Partnership's management.
Our responsibility is to express an opinion on these combined financial
statements and schedules based on our audit. We did not audit the financial
statements of 16 substantially wholly-owned Operating Partnerships, which
statements reflect total assets of $28,438,609 at December 31, 1998, and total
revenues of $1,047,479 for the year ended December 31, 1998. Those statements
were audited by other auditors whose reports have been furnished to us, and our
opinion, insofar as it relates to data included for those substantially wholly-
owned Operating Partnerships, is based solely on the reports of the other
auditors.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements and schedules. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit and the reports of other auditors
provide a reasonable basis for our opinion.
In our opinion, based on our audit and the reports of other auditors, the
financial statements referred to above present fairly, in all material respects,
the combined financial position of National Housing Trust Limited Partnership
and its substantially wholly-owned Operating Partnerships at December 31, 1998
and the combined results of their operations and their cash flows for year then
ended in conformity with generally accepted accounting principles. Further, in
our opinion, based on our audit and the reports of other auditors, the financial
statement schedules as of December 31, 1998 and for the year then ended referred
to above, when considered in relation to the combined financial statements taken
as a whole, present fairly in all material respects the information set for
therein.
REZNICK FEDDER & SILVERMAN
Bethesda, Maryland
April 8, 1999
15
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Partners
National Housing Trust Limited Partnership
We have audited the accompanying combined balance sheet of National Housing
Trust Limited Partnership and its substantially wholly-owned Operating
Partnerships (the Partnership) as of December 31, 1997, and the related combined
statements of operations, partners' deficit, and cash flows for each of the two
years in the period ended December 31, 1997 and the financial statement
schedules listed in the accompanying index. These combined financial statements
and schedules are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these combined financial statements
and schedules based on our audits. We did not audit the financial statements of
12 substantially wholly-owned Operating Partnerships, which statements reflect
total assets of $26,689,518 at December 31, 1997, and total revenues of
$5,623,499 and $5,752,895 for the two years ended December 31, 1997 and 1996,
respectively. Those statements were audited by other auditors whose reports
have been furnished to us, and our opinion, insofar as it relates to data
included for those substantially wholly-owned Operating Partnerships, is based
solely on the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements and schedules. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits and the reports of other auditors
provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material respects,
the combined financial position of National Housing Trust Limited Partnership
and its substantially wholly-owned Operating Partnerships at December 31, 1997,
and the combined results of their operations and their cash flows for each of
the two years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles. Further, in our opinion, based on our
audits and the reports of other auditors, the financial statement schedules
referred to above, when considered in relation to the combined financial
statements taken as a whole, present fairly in all material respects the
information set for therein.
ERNST & YOUNG LLP
Columbus, Ohio
March 19, 1998
16
<PAGE>
NATIONAL HOUSING TRUST LIMITED PARTNERSHIP
AND ITS SUBSTANTIALLY WHOLLY-OWNED OPERATING PARTNERSHIPS
COMBINED BALANCE SHEETS, DECEMBER 31, 1998 AND 1997
(In Thousands)
<TABLE>
<CAPTION>
ASSETS December 31
- --------------------------------------------------- -------------------------------------------------------
1998 1997
Restated
--------------- ---------------
<S> <C> <C>
Current assets:
Cash and cash equivalents (Note 1) $ 982 $ 968
Tenants' security deposits 412 429
Mortgage escrow deposits 616 648
Prepaid expenses and other assets 823 923
--------------- ---------------
Total current assets 2,833 2,968
--------------- ---------------
Restricted cash 5,829 5,388
--------------- ---------------
Rental property (Notes 1, 3 and 5):
Buildings and improvements 71,420 75,871
Furniture and equipment 2,449 2,521
--------------- ---------------
73,869 78,392
Less accumulated depreciation (24,327) (23,030)
--------------- ---------------
49,542 55,362
Land 3,305 3,719
--------------- ---------------
52,847 59,081
--------------- ---------------
Total assets $ 61,509 $ 67,437
=============== ===============
</TABLE>
The accompanying notes are an integral
part of the combined financial statements.
17
<PAGE>
NATIONAL HOUSING TRUST LIMITED PARTNERSHIP
AND ITS SUBSTANTIALLY WHOLLY-OWNED OPERATING PARTNERSHIPS
COMBINED BALANCE SHEETS, CONTINUED
(In Thousands, except Investment Units)
<TABLE>
<CAPTION>
LIABILITIES AND PARTNERS' DEFICIT December 31
- --------------------------------------------------- -------------------------------------------------------
1998 1997
Restated
--------------- ---------------
<S> <C> <C>
Current liabilities:
Accounts payable and accrued expenses $ 2,122 $ 1,970
Rents received in advance 43 35
Deposits held 445 438
Accrued interest, mortgage notes payable 262 201
Current maturities of term debt (Note 3) 1,000 1,008
--------------- ---------------
Total current liabilities 3,872 3,652
--------------- ---------------
Term debt, less current maturities (Note 3):
Mortgage notes payable 40,510 40,938
Promissory notes, including accrued
interest payable of $11,236 and
$9,559 in 1998 and 1997, respectively 28,531 27,200
--------------- ---------------
69,041 68,138
--------------- ---------------
Partners' deficit:
General Partners:
NHT, Inc. (17) (9)
Other operating General Partners (75) 9
Limited partners:
Issued and outstanding 1,014,668
investment units (11,312) (4,353)
--------------- ---------------
(11,404) (4,353)
--------------- ---------------
Total liabilities and partners' deficit $ 61,509 $ 67,437
=============== ===============
</TABLE>
The accompanying notes are an integral
part of the combined financial statements.
18
<PAGE>
NATIONAL HOUSING TRUST LIMITED PARTNERSHIP
AND ITS SUBSTANTIALLY WHOLLY-OWNED OPERATING PARTNERSHIPS
COMBINED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(In Thousands, except per Unit Amounts)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-----------------------------------------------------
1998 1997 1996
--------------- ------------- --------------
<S> <C> <C> <C>
Revenues (Notes 4 and 5):
Rental revenues $ 11,919 $ 12,540 $ 12,429
Other income 255 360 270
-------------- ------------- --------------
Total revenues 12,174 12,900 12,699
-------------- ------------- --------------
Expenses:
Administration 1,771 1,776 1,672
Operating and maintenance 2,861 3,149 3,042
Management fees, including $843, $814 and $756 to
affiliates (Note 2) 1,041 1,060 996
Partnership asset management fees, affiliates (Note 2) 318 318 315
Utilities 1,362 1,754 1,779
Taxes and insurance 1,723 1,864 1,866
Depreciation and amortization 2,993 2,967 2,995
Impairment loss (Note 1) 4,100 - 2,300
-------------- ------------- --------------
Total expenses 16,169 12,888 14,965
-------------- ------------- --------------
Income (loss) from rental operations (3,995) 12 (2,266)
-------------- ------------- --------------
Other revenues and (expenses):
Interest income 273 270 252
Interest expense (3,514) (3,434) (3,490)
-------------- ------------- --------------
Loss before extraordinary gain (7,236) (3,152) (5,504)
Extraordinary gain (Note 5) 200 2,196 -
-------------- ------------- --------------
Net loss $ (7,036) $ (956) $ (5,504)
============== ============= ==============
Loss per limited partnership unit before extraordinary gain $ (7.13) $ (3.10) $ (5.42)
Extraordinary gain per limited partnership unit .20 2.16 -
-------------- ------------- --------------
Net loss per limited partnership unit $ (6.93) $ (.94) $ (5.42)
============== ============= ==============
</TABLE>
The accompanying notes are an integral
part of the combined financial statements
19
<PAGE>
NATIONAL HOUSING TRUST LIMITED PARTNERSHIP
AND ITS SUBSTANTIALLY WHOLLY-OWNED OPERATING PARTNERSHIPS
COMBINED STATEMENTS OF PARTNERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(In Thousands)
<TABLE>
<CAPTION>
GENERAL
PARTNERS' INTEREST LIMITED PARTNERS' INTEREST TOTAL
------------------------------ --------------------------------------------- -----------
Other General Investment Operating Partners'
NHT, Inc. Partners Partnership Partnerships Total Deficit
---------- ------------- ------------- -------------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balances as of January 1,
1996 as reported $ (2) $ 54 $ 824 $ 921 $ 1,745 $ 1,797
Prior period adjustment 4 3 289 292 296
---------- ----------- ------------- -------------- --------- -----------
Balances as of January 1,
1996 as restated (2) 58 827 1,210 2,037 2,093
Allocation of net loss (5) (55) (60) (5,384) (5,444) (5,504)
General Partner
contributions 16 16
General Partner
distributions (1) (1) (2)
---------- ----------- ------------- -------------- --------- -----------
Balances as of December
31, 1996 (8) 18 767 (4,174) (3,407) (3,397)
Allocation of net loss (1) (9) (10) (936) (946) (956)
---------- ----------- ------------- -------------- --------- -----------
Balances as of December
31, 1997 (9) 9 757 (5,110) (4,353) (4,353)
General Partner
distributions (1) (14) (15)
Allocation of net loss (7) (70) (77) (6,882) (6,959) (7,036)
---------- ----------- ------------- -------------- --------- -----------
Balances as of December
31, 1998 $ (17) $ (75) $ 680 $ (11,992) $ (11,312) $ (11,404)
========== =========== ============= ============== ========= ===========
</TABLE>
The accompanying notes are an integral
part of the combined financial statements.
20
<PAGE>
NATIONAL HOUSING TRUST LIMITED PARTNERSHIP
AND ITS SUBSTANTIALLY WHOLLY-OWNED OPERATING PARTNERSHIPS
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(In Thousands)
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (7,036) $ (956) $ (5,504)
Adjustments to reconcile net loss
to net cash provided by operating activities:
Depreciation and amortization 2,993 2,967 2,995
Impairment loss 4,100 - 2,300
Extraordinary gain (200) (2,196) -
Bankruptcy related reserves 200 (216) -
Accrued interest on promissory notes 1,677 1,555 1,379
Changes in operating assets and liabilities:
(Increase) decrease in deposits, prepaids and other
assets 124 (76) (16)
Increase in accounts payable and accrued expenses 152 114 285
Increase (decrease) in other current liabilities 76 (78) 208
-------- -------- --------
Net cash provided by operating activities 2,086 1,114 1,647
-------- -------- --------
Investing activities:
Additions to buildings, furniture and equipment (834) (1,079) (1,217)
Withdrawals to restricted cash, net (441) (242) (180)
-------- -------- --------
Net cash used for investing activities (1,275) (1,321) (1,397)
-------- -------- --------
Financing Activities:
General Partners cash (distributions) contributions, net (15) - 14
Additions to term debt 241 779 676
Payments of term debt (1,023) (917) (757)
-------- -------- --------
Net cash used for financing activities (797) (138) (67)
-------- -------- --------
Increase (decrease) in cash and cash equivalents 14 (345) 183
Cash and cash equivalents, beginning of year 968 1,313 1,130
-------- -------- --------
Cash and cash equivalents, end of year $ 982 $ 968 $ 1,313
======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 2,265 $ 1,750 $ 1,890
======== ======== ========
Supplemental schedule of non-cash investing and
financing activities:
Assets transferred to lender in satisfaction of
indebtedness:
Liabilities cancelled $ - $ 3,476 $ -
Carrying amount of assets transferred - 1,280 -
-------- ------- --------
$ - $ 2,196 $ -
======== ======== ========
</TABLE>
The accompanying notes are an integral
part of the combined financial statements
21
<PAGE>
NATIONAL HOUSING TRUST LIMITED PARTNERSHIP
AND ITS SUBSTANTIALLY WHOLLY-OWNED OPERATING PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1. Summary of the Organization and Its Significant Accounting Policies:
--------------------------------------------------------------------
National Housing Trust Limited Partnership, a Delaware limited partnership
(the "Investment Partnership" or the "Partnership") was formed on July 9,
1987 to invest in low-income housing developments throughout the United
States through the acquisition of a 98.9% limited partnership interest in
project specific Operating Partnerships ("Operating Partnerships"). NHT,
Inc. (The "General Partner" or "NHT") serves as a General Partner of the
Investment Partnership and holds a .1% - 1.1% General Partner interest in
each of the Operating Partnerships. The Investment Partnership and the
Operating Partnerships are referred to collectively as the "Partnerships".
NHT, Inc., the sole General Partner of the Investment Partnership is a
Delaware nonprofit corporation which holds a 1% General Partner's interest
in the Investment Partnership. Shearson Lehman Hutton Low-Income Housing,
Inc., a Delaware corporation, was a Special Limited Partner in the
Investment Partnership with a .01% limited partnership interest. Effective
December 1, 1997, Shearson Lehman Hutton Low-Income Housing, Inc. sold its
.01% limited partnership interest to NHT, Inc.
The Operating Partnerships acquire, maintain and operate low-income housing
developments that are eligible for and have been allocated the low-income
housing tax credit established by the Tax Reform Act of 1986. Each housing
project is financed and/or operated with one or more forms of rental or
financial assistance from the U.S. Department of Housing and Urban
Development (HUD), the Rural Development Authority (RD), or various
state/local housing finance agencies. Under the terms of the regulatory
agreements executed in connection with obtaining the mortgage loans, the
Operating Partnerships are regulated as to rental charges, operating
methods and cash distributions to partners.
National Affordable Housing Trust, Inc. (the "Trust") nonprofit
corporation, is the sole member of the General Partner. The Trust in turn
has three members: National Church Residences, an Ohio nonprofit
corporation formed in 1961, Retirement Housing Foundation, a California
nonprofit corporation also formed in 1961, and as of March 15, 1996
Volunteers of America, Inc., a New York nonprofit corporation formed in
1896 (the "Trust Members").
On October 7, 1988, the Investment Partnership completed a public offering
of 1,014,668 units of limited partnership interests at $20.00 per unit,
from which the Investment Partnership received gross proceeds of
approximately $20,293,000. After paying Shearson Lehman Hutton, Inc.
$2,079,000 for fees and costs related to the offering and paying the Trust
$965,000 for organizational and offering expenses, the net proceeds of the
offering were $17,249,000.
After completion of the public offering, the Partnership acquired a 98.9%
limited partnership interest in 31 Operating Partnerships. No acquisitions
occurred during 1998, 1997 or 1996. The two Texas Operating Partnerships
lost their Properties in a December 1997 foreclosure sale. These Operating
Partnerships were liquidated in 1998 paying remaining Operating Partnership
liabilities out of available Operating Partnership cash. Any cash in excess
of liabilities was distributed to the Investment Partnership. No
distributions will be made to Unit holders. These Operating Partnership are
expected to be dissolved once all legal suits are resolved (see Note 5.)
Annual distributions, if any, from the Operating Partnerships are limited
under the terms of various agreements with governmental agencies. Any cash
available for distribution from the Operating Partnerships will be
distributed 98.9% to the Investment Partnership and 1.1% to the General
Partners. Any Investment Partnership net income (loss), or cash available
for distribution will be distributed 98.9% to unit holders and 1.1% to NHT,
Inc. Cash distributions to Partners, if any, shall be made at such time or
times as the General Partner may determine. Net loss per limited
partnership unit is based on the average number of limited partnership
units outstanding during the period of operating activity.
22
<PAGE>
NATIONAL HOUSING TRUST LIMITED PARTNERSHIP
AND ITS SUBSTANTIALLY WHOLLY-OWNED OPERATING PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
Principles of Combination:
--------------------------
The combined financial statements include the accounts of the Investment
Partnership and Operating Partnerships in which it has acquired 98.9%
limited partnership interests. The Investment Partnership does not have any
significant liability to the Operating Partnerships beyond its original
investment, but does have control over certain aspects of the Operating
Partnerships either through the operation of the various partnership
agreements or through NHT, which is a general partner in both the
Investment Partnership and Operating Partnerships. Combined financial
statements have been presented because of the Investment Partnership's more
than significant influence over the Operating Partnerships. All related
intercompany accounts and transactions have been eliminated. Each of the
Operating Partnerships has no significant assets other than an apartment
complex encumbered by mortgage debt, and related cash reserves and mortgage
escrow deposits. The assets of any Operating Partnership are not available
for the benefit of any other Operating Partnership or for the benefit of
the Investment Partnership.
The Operating Partnerships that are included in the combined financial
statements are the following:
<TABLE>
<CAPTION>
Date
Partnership Name State Acquired
---------------- ----- --------
<S> <C> <C>
Stygler Village Limited Partnership Ohio 10/07/88
St. Martins Associates Washington 01/31/89
W-C Apartments Limited Partnership Oklahoma 03/02/89
W-G Apartments Limited Partnership Oklahoma 03/02/89
W-P Apartments Limited Partnership Oklahoma 03/02/89
W-R Apartments Limited Partnership Oklahoma 03/02/89
Springchase Apartments Limited Partnership (Note 5) Texas 10/31/89
Trinidad Apartments Limited Partnership (Note 5) Texas 10/31/89
Wildwood Village I Limited Partnership Ohio 12/01/89
Wildwood Village II Limited Partnership Ohio 12/01/89
Wildwood Village III Limited Partnership Ohio 12/01/89
Melrose Village I Limited Partnership Ohio 12/01/89
Summit Square Limited Partnership Ohio 12/01/89
Washington Court House I Limited Partnership Ohio 12/01/89
Griggs Village Limited Partnership Ohio 12/01/89
Hebron Village Limited Partnership Ohio 12/01/89
Aspen NHT Apartments Company Limited Partnership Michigan 12/28/89
Birch Lake NHT Apartments Company Limited Partnership Michigan 12/28/89
Century Place NHT Apartments Company Limited Partnership Michigan 12/28/89
Glendale NHT Apartments Company Limited Partnership Michigan 12/28/89
Lakeside NHT Apartments Company Limited Partnership Michigan 12/28/89
Park Terrace NHT Apartments Company Limited Partnership Michigan 12/28/89
Traverse Woods NHT Apartments Company Limited Partnership Michigan 12/28/89
Traverse Woods II NHT Apartments Company Limited Partnership Michigan 12/28/89
Bingham Terrace Limited Partnership Ohio 12/28/89
Coal Township Limited Partnership Pennsylvania 12/29/89
Hazelwood Limited Partnership Pennsylvania 12/29/89
Mahanoy Limited Partnership Pennsylvania 12/29/89
RP Limited Dividend Housing Association Limited Partnership Michigan 12/31/89
YM Limited Dividend Housing Association Limited Partnership Michigan 12/31/89
West Allegheny Partners Limited Partnership Pennsylvania 03/27/90
</TABLE>
23
<PAGE>
NATIONAL HOUSING TRUST LIMITED PARTNERSHIP
AND ITS SUBSTANTIALLY WHOLLY-OWNED OPERATING PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
Cash Equivalents:
-----------------
For purposes of the combined statement of cash flows, the Investment
Partnership and its Operating Partnerships define cash equivalents as
short-term, highly liquid investments with original maturities of three
months or less when purchased.
Restricted Cash:
----------------
Restricted Cash consisted of Operating Partnerships' property reserves of
$5,408,000 and $5,071,000 in 1998 and 1997, respectively and Investment
Partnership reserves of $421,000 and $317,000 in 1998 and 1997,
respectively.
Property reserves represent amounts required by HUD or other governmental
agencies to be maintained with respect to each of the individual properties
acquired by the Operating Partnerships. Withdrawals are subject to written
permission of the governmental agency. Under the applicable governmental
regulations, the property reserves maintained with respect to each
individual Property are not available as supplementary capital for any
other property or for the Investment Partnership. The purpose of these
reserves is to ensure funding is available for repairs and other
expenditures which may be needed for the designated property. At December
31, 1998 and 1997, these assets were maintained in demand deposit accounts
with various financial institutions.
Investment Partnership reserves represent the amount that is available to
supplement the Operating Partnerships' property reserves, or to pay certain
operating expenses of the Investment Partnership. At December 31, 1998 and
1997 these assets were invested in certificates of deposits, U.S.
government obligations, commercial paper, demand deposit and money market
accounts.
The carrying amount of reserves approximated market value at December 31,
1998 and 1997.
Reclassifications:
------------------
Certain 1997 and 1996 amounts have been reclassified to conform to the 1998
presentation.
Rental Property:
----------------
Rental property is held for investment and is recorded at cost, net of any
provisions for value impairment. Upon the sale, retirement or disposition
of assets the carrying value and related accumulated depreciation are
eliminated from the accounts and any resulting gain or loss is recorded.
Depreciation is computed on the straight-line and accelerated methods using
estimated useful lives of 27.5 years in general for buildings, 25 years for
improvements, and 5 to 10 years for furniture and equipment.
Income Taxes:
-------------
The Investment Partnership is not taxed on its income. The partners are
taxed in their individual capacities upon their share of the Investment
Partnership's taxable loss. During 1998, 1997, and 1996, the following
items related to low-income housing tax credits were generated by the
Investment Partnership:
<TABLE>
<CAPTION>
(In Thousands) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Low-income housing tax credits $2,693 $2,769 $2,957
Recapture credits and related interest - $ (722) -
</TABLE>
The Revenue Reconciliation Act of 1990 permitted the Investment Partnership
to accelerate low-income housing tax credits to individual taxpayers who
held interests on October 26, 1990. Consequently, the Investment
Partnership has passed the accelerated credit through to all qualifying
partners of record on October 26, 1990. During 1990, the accelerated low-
income housing tax credit was $4,104,000. The housing credit for subsequent
24
<PAGE>
NATIONAL HOUSING TRUST LIMITED PARTNERSHIP
AND ITS SUBSTANTIALLY WHOLLY-OWNED OPERATING PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
Income Taxes (continued):
-------------------------
tax years must be reduced on a pro rata basis by the amount of the
increased credit. Non-qualifying Unit holders will receive the original
unaccelerated low-income housing tax credit for the remaining qualifying
tax years of their investment.
Use of Estimates:
-----------------
The preparation of the financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Specifically, management reviews the carrying value
of rental property using estimated future cash flows, including estimates
from disposition, whenever an event or change in circumstances might
indicate that the asset value may not be recoverable. Because of the
inherent uncertainties in estimating future cash flows, it is at least
reasonably possible that the estimates used will change within the near
term. Actual results could differ from those estimates.
Fair Value of Financial Instruments:
------------------------------------
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of Financial
Accounting Standards Board Statement No. 107, Disclosure About Fair Value
of Financial Instruments.
Deposits and Restricted Cash are invested in short-term liquid investments,
generally less than one year; accordingly, the fair values of these assets
approximate their carrying values.
The other financial instruments in which the Partnerships have an interest
are the various term debt related to the properties owned by the Operating
Partnerships. The debt consists of (1) mortgage debt provided by and or
insured by agencies such as Rural Development Authority (RD), The
Department of Housing and Urban Development (HUD), and various state
housing authorities, and (2) promissory notes. The promissory notes, a
substantial portion of which are collateralized by second mortgages,
generally provide for repayment only from cash flow or refinancing of the
related properties. In addition, the debt agreements contain various
restrictions including limiting annual distributions to partners and
requiring the rental of units to low-income individuals and/or families.
Accordingly, management has determined that there is not a meaningful
market for debt with the provisions as described above, and given the
unique aspects of the debt, believes that determining a reasonable estimate
of fair value would not be practicable without incurring excessive costs.
Impairment of Long-lived Assets:
--------------------------------
During 1998, an impairment loss in the amount of $4,100,000 was recorded
for an apartment project in Detroit, Michigan. The loss was recorded under
the requirements of Financial Accounting Standards Board Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of". FAS No. 121 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. Indicators present during 1998 for
this Operating Partnership include cash flow from operations that was less
than the debt service on the property, however, debt service was paid by
allowing trade payables to become larger and more delinquent. Therefore, an
assessment was done to evaluate the undiscounted cash flows which were not
sufficient to recover the assets' carrying amount. Based on this
assessment, an impairment loss of $4,100,000 was recognized to reduce the
carrying amount of the property to its estimated fair value of $4,315,000.
During 1996, an impairment loss in the amount of $2,300,000 was recorded
for two apartment projects which were eventually transferred to the
mortgage holder during 1997. Indicators present during 1996 included the
Operating Partnerships' inability to re-negotiate the terms of the mortgage
debt, which was delinquent, the subsequent sale of the mortgages to a third
party who demanded immediate payment, and the filing of
25
<PAGE>
NATIONAL HOUSING TRUST LIMITED PARTNERSHIP
AND ITS SUBSTANTIALLY WHOLLY-OWNED OPERATING PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
Impairment of Long-lived Assets (continued):
--------------------------------------------
bankruptcy protection by the Operating Partnerships. These indicators
created uncertainty regarding the extent to which the Operating
Partnerships would realize future cash flows from the projects and,
accordingly, an impairment loss in the amount of $2,300,000 was recorded.
New Pronouncements:
-------------------
In June 1997, Statement of Financial Accounting Standards ("SFAS") No. 130,
Reporting Comprehensive Income, and SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information, were issued. SFAS No.
130 establishes standards for reporting and displaying comprehensive income
and its components in a financial statement that is displayed with the same
prominence as other financial statements. Reclassification of financial
statements for earlier periods, provided for comparative purposes, is
required. The statement also requires the accumulated balance of other
comprehensive income to be displayed separately from retained earnings and
additional paid-in capital in the equity section of the statement of
financial position.
SFAS No. 131 establishes standards for reporting information about
operating segments in annual and interim financial statements. Operating
segments are defined as components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in
assessing performance. Categories required to be reported as well as
reconciled to the financial statements are segment profit or loss, certain
specific revenue and expense items, and segment assets. SFAS No. 130 and
No. 131 are effective for fiscal years beginning after December 15, 1997.
The Investment Partnership has no items of comprehensive income, therefore,
the adoption of SFAS No. 130 has no impact on the Investment Partnership's
financial position or results of operations. The Investment Partnership is
in one business segment and follows the requirements of SFAS No. 131.
In February 1998, FASB issued SFAS No. 132, "Employees' Disclosures about
Pension and Other Postretirement Benefits" ("SFAS No. 132"), which revises
employers' disclosures about pension and other postretirement benefit
plans. SFAS No. 132 does not change the measurement or recognition of these
plans. SFAS No. 132 is effective for fiscal years beginning after December
15, 1997. The Investment Partnership does not directly have any employees
and SFAS No. 132 is disclosure related only and therefore will have no
impact on the Investment Partnership's financial position or results of
operations.
In June 1998, FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities" ("SFAS No. 133"), which establishes accounting and
reporting standards for derivative instruments, including certain
derivative instruments imbedded in other contracts, (collectively referred
to as derivatives) and for hedging activities. SFAS No. 133 is effective
for all fiscal quarters of fiscal years beginning after June 15, 1999. The
Investment Partnership does not expect the adoption of this statement to
have a significant impact on the Investment Partnership's financial
position or results of operations.
In October 1998, FASB issued SFAS No. 134, "Accounting for Mortgage-Backed
Securities Retained after the Securitization of Mortgage Loans Held for
Sale by a Mortgagee Banking Enterprise" ("SFAS No. 134"), which amends SFAS
No. 65 to require that the securitization of mortgage loans held for sale,
an entity engaged in mortgage banking activities classify the resulting
mortgage-backed securities or other retained interests based on its ability
and intent to sell or hold those investments. SFAS No. 134 conforms the
subsequent accounting for securities retained after the securitization of
mortgage loans by a mortgage banking enterprise with the subsequent
accounting for securities retained after the securitization of other types
of assets by a nonmortgage banking enterprise. SFAS No. 134 is effective
for all fiscal quarters beginning after December 15, 1998. The Investment
Partnership does not expect the adoption of this statement to have a
significant impact on the Investment Partnership's financial position or
results of operations.
26
<PAGE>
NATIONAL HOUSING TRUST LIMITED PARTNERSHIP
AND ITS SUBSTANTIALLY WHOLLY-OWNED OPERATING PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
2. Related Party Transactions:
---------------------------
Administrative Services:
------------------------
The Trust provides certain administrative services for the Investment
Partnership, for which, if charged, the Partnerships are required to
reimburse the Trust. No such charges by the Trust were made in any year
presented.
Management Fees, including Affiliates:
--------------------------------------
General partners or affiliates of general partners of the Investment and
the Operating Partnerships provide certain management, investing, and
accounting services to various Operating Partnerships for which a
management fee is charged; the amount of such fees, including incentive
management fees, was $843,000, $814,000 and $756,000 in 1998, 1997 and
1996, respectively, including $185,000, $178,000 and $176,000 in 1998, 1997
and 1996, respectively to an affiliate of NHT, Inc.
Partnership Management Fees, Affiliates:
----------------------------------------
The Investment Partnership is also obligated to pay NHT, Inc. a supervisory
management fee equal to .5% of the annual gross revenues of the Operating
Partnerships in which an affiliate of a Trust member is not the property
manager. This fee amounted to $46,000, $50,000 and $51,000 in 1998, 1997
and 1996, respectively. Additionally, the Investment Partnership has an
obligation to pay an annual program management fee to NHT, Inc. equal to
the lesser of approximately $272,000, $268,000 and $264,000 in 1998, 1997
and 1996, respectively or .5% of the aggregate cost of all properties
acquired by the Operating Partnerships as of December 31, 1998, 1997 and
1996. The supervisory management fees and program management fees totaled
$318,000, $318,000 and $315,000 in 1998, 1997 and 1996, respectively. The
fees paid in 1998, 1997 and 1996 were $253,000, $135,000 and $185,000,
respectively. The balance accrued for these fees was $443,000, $378,000 and
$195,000 as of December 31, 1998, 1997 and 1996, respectively.
Land Leases:
------------
Two Operating Partnerships have entered into operating land leases of 51
years and 99 years with affiliates of the general partners. The Operating
Partnerships prepaid the first ten to fifteen years of the leases at a cost
of approximately $330,000 and account for the prepaid leases using the
interest method.
3. Term Debt:
----------
Concurrent with the Investment Partnership's investment in the Operating
Partnerships, the Operating Partnerships assumed the outstanding mortgage
loans payable from the sellers and also issued promissory notes payable to
the sellers. The mortgage loans were originally issued under various
provisions of the National Housing Act from HUD, RD, or various state/local
housing agencies. The mortgage loan agreements generally require the
Operating Partnerships to comply with the terms of regulatory agreements
with governmental agencies. These agreements govern, among other things,
the funding of replacement reserves and escrows for taxes and insurance,
annual distribution to partners and rental of units to low-income
individuals and or/families. These loans are collateralized by the
Operating Partnerships' land, buildings, and rental income. They have
maturity dates ranging from 2011 to 2034 and bear interest at rates varying
from 7% to 11.25%.
Substantially all of the promissory notes are collateralized by second
mortgages on the rental properties owned by the Operating Partnerships, and
are primarily nonamortizing until the properties are refinanced or sold.
The notes bear interest at rates ranging from non-interest bearing to
11.25% with principal and interest due at various dates, some of which are
not determinable as they are contingent upon certain events, such as sale
or refinancing of a Property. Included in promissory notes is a note and
related accrued interest in the amount of $2,504,000 and $2,310,000 at
December 31, 1998 and 1997, which is due to an affiliate of the General
Partner.
27
<PAGE>
NATIONAL HOUSING TRUST LIMITED PARTNERSHIP
AND ITS SUBSTANTIALLY WHOLLY-OWNED PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
Term Debt (continued):
----------------------
Estimated principal requirements on these loans during the next five years
and thereafter (in thousands):
1999 $ 1,000
2000 1,086
2001 1,165
2002 1,251
2003 3,842
Thereafter 61,697
-------
$70,041
=======
4. Uncertainties:
--------------
HUD Housing Assistance Payments (HAP) Contracts:
------------------------------------------------
Many of the Operating Partnerships receive their revenues from HUD under
the terms of Housing Assistance Payments Contracts ("HAP Contracts"), which
provide for rental assistance payments to the Operating Partnerships on
behalf of low-income tenants who meet certain qualifications. The
Multifamily Assisted Housing Reform and Affordability Act of 1997 has
substantially modified key HUD subsidy programs. Under certain
circumstances, HUD and its agents may modify or reduce subsidy contracts
and may replace project-based subsidies with tenant vouchers. This would
allow residents to use the vouchers to pay rent at any project of their
choice. At the present time, it is not possible to determine in detail how
changes in the subsidy programs will be implemented or the impact of recent
changes upon the future operations of the Operating Partnerships and, as a
result, the Investment Partnership. The Operating Partnerships received
approximately $6,483,000, $6,205,000 and $6,273,000 of rental assistance
payments from HUD for the years ended December 31, 1998 and 1997 and 1996,
respectively, which represents 53.3%, 48.1% and 49.4% of their total
revenues for the years ended December 31, 1998, 1997 and 1996,
respectively.
There are 19 Properties with HAP contracts, of which fourteen have HAP
contracts which expire during 1999, the majority of which are on annual or
6 month renewals. There is one Property whose HAP contract expired in
October 1998 and subsequent to December 31, 1998 has obtained a signed
renewal contract. Management continues to seek to renew all HAP contracts
as they expire.
Liquidity:
----------
Low-income housing projects, such as those owned by the Operating
Partnerships, frequently generate limited cash flow, and, therefore, the
potential for cash flow deficits exist. Because of limitations imposed by
HUD and other lenders, the various reserves maintained by an Operating
Partnership are typically available only for the Property owned by such
Operating Partnership. Further, the general partners of the Operating
Partnerships and of the Investment Partnership have limited resources to
fund deficits which may be generated by one or more Operating Partnerships.
At December 31, 1998, five Operating Partnerships have experienced
operating deficits. Three of these have not funded reserves of taxes and
insurance or replacement reserve adequately. The other two had additional
operating and maintenance expenses in the current year. One of the
Operating Partnerships, RP Limited Dividend Housing Association Limited
Partnership, which owns a Property in Detroit Michigan, has allowed trade
payables to become more delinquent and much larger (see Note 1).
28
<PAGE>
NATIONAL HOUSING TRUST LIMITED PARTNERSHIP
AND ITS SUBSTANTIALLY WHOLLY-OWNED PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
Promissory Notes:
-----------------
As indicated in Note 3, substantially all of the promissory notes are
primarily nonamortizing until the related properties are refinanced or
sold. Most of the notes are payable to the first mortgage lender or a non-
profit community development agency. In addition, the notes generally
provide that the payment of interest is deferred until maturity or, in
certain cases, payable from excess revenues. Fifteen of the loans are due
in the years 2004 - 2006 (principal and accrued interest of $27,115,000 at
December 31, 1998); the remaining loan is due during the year 2028
(principal and accrued interest of $1,416,000 at December 31, 1998). All of
the loans which are due during the years 2004 - 2006 are due prior to the
maturity of the first mortgages on the properties, which generally mature
during the years 2011 - 2019. The General Partner anticipates that the
Properties will be sold generally as the promissory notes comes due. If the
sales do not occur as anticipated, it is not possible to determine at the
present time whether there will be sufficient financing available to
refinance these loans.
5. Bankruptcy - Operating Partnerships:
------------------------------------
During March 1996, two Operating Partnerships which had purchased apartment
projects in Fort Worth, Texas filed for bankruptcy. The bankruptcy filing
followed unsuccessful negotiations with the lender (HUD) and the
foreclosure actions by a Texas bank which purchased the loans from HUD.
During 1997, attempts to reorganize the Operating Partnerships were
unsuccessful and the Texas bank was permitted to complete its foreclosure
actions and purchase the apartment projects at the foreclosure sales. In
connection with the foreclosure action, the Operating Partnerships were
relieved of any obligation related to the nonrecourse mortgage debt. At
December 31, 1997, the Operating Partnerships had accumulated cash of
$216,000 which was in contention amongst the parties and, accordingly, a
reserve was established pending the resolution of the bankruptcy hearing
scheduled for March 26, 1998 to determine the ownership of the cash.
A hearing to dismiss the bankruptcy and determine the ownership of the cash
was held on March 26, 1998. The Court entered an order denying the bank's
motion for payment of cash collateral and granted the motion to dismiss the
bankruptcy. The bank filed an appeal. The Court has dismissed the bank's
appeal with respect to Springchase Operating Partnership. The bank also
filed suit against Springchase Operating Partnership in the State District
Court in Dallas County Texas and sought an injunction against Springchase
Operating Partnership. The injunction was denied by the State District
Court. It is anticipated that this suit will be resolved sometime in 1999.
The appeal with respect to the Trinidad Operating Partnership is still in
process. There can be no assurance as to how these matters will be
resolved, however, in the opinion of management the Operating Partnerships
should prevail and, accordingly, the resultant reserve has been reversed
and recorded as an extraordinary gain in the financial statements. These
partnerships were liquidated in 1998 paying remaining Operating Partnership
liabilities out of available Operating Partnership cash. Any cash in excess
of liabilities was distributed to the Investment Partnership. No
distributions will be made to the Unit holders.
Extraordinary Gain:
-------------------
In 1998, an extraordinary gain of $200,000 was recorded as result of the
reversal of the reserve established in 1997 as a result of the transfer of
the properties. The 1997 extraordinary gain of $2,196,000 was recorded to
reflect the transfer of these properties from the Operating Partnerships
and consisted of the following:
29
<PAGE>
NATIONAL HOUSING TRUST LIMITED PARTNERSHIP
AND ITS SUBSTANTIALLY WHOLLY-OWNED PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
Extraordinary Gain (continued):
-------------------------------
Liabilities cancelled:
Mortgage notes payable $2,742,000
Accrued interest 381,000
Promissory notes 353,000
----------
3,476,000
----------
Carrying amount of assets:
Apartment projects transferred 1,037,000*
Other - net 243,000
----------
1,280,000
----------
Extraordinary gain resulting from foreclosure $2,196,000
==========
*The carrying amount approximates estimated fair value at the date of
transfer.
Condensed Financial Information
-------------------------------
The Operating Partnerships ceased operations after the foreclosure sales
and were liquidated in 1998 with any remaining assets transferred to their
partners. A summary of the condensed financial information included in the
combined financial statements for the years ended December 31, 1998, 1997
and 1996 is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
------------------------------------------------------
1998 1997 1996
-------------- --------------- ---------------
<S> <C> <C> <C>
Total Assets $ - $ - $ 1,390,000
Total Liabilities $ - $ - $ 3,791,000
Total Revenues $ - $ 1,057,000 $ 1,159,000
Net Income (Loss) $ 55,000 $ 2,236,000 $ (2,311,000)
</TABLE>
6. Restatement:
------------
Partners' capital at the beginning of 1996 has been restated by three of
the Operating Partnerships by a total increase of $296,000 to reflect
adjustments relating to an increase in prepaid real estate taxes of
$76,000, a decrease in real estate tax payable of $163,000, and a decrease
in fee distribution payable of $57,000.
7. Taxable Loss
------------
The difference between the 1998 financial statement loss and tax return
loss consists of an impairment loss of $4,100,000 and tax depreciation in
excess of book depreciation of $66,729. These amounts comprise the
difference in the building basis for financial statement and tax return
reporting purposes.
30
<PAGE>
PART III
--------
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Registrant elected, effective December 11, 1998 to replace Ernst & Young
LLP, as its independent auditors for the fiscal year ending December 31, 1998.
The Registrant selected Reznick Fedder & Silverman to be its new accountants,
also effective December 11, 1998. The change in accountants was approved by the
Board of Trustees of the General Partner.
The reason for the change in accountants was that the General Partner subjected
the audit of financial statements to a bidding process involving a number of
national and regional accounting firms and concluded Reznick Fedder & Silverman
was the best overall value. The reports of Ernst & Young LLP on the Registrant's
financial statements for the past two fiscal years did not contain an adverse or
a disclaimer of opinion and were not qualified or modified as to the
uncertainty, audit scope or accounting principles. In connection with the audits
of the Registrant's financial statements for each of the two fiscal years ended
December 31, 1997 and 1996 and for the subsequent interim period, there were no
disagreements with Ernst & Young LLP on any matters of accounting principles or
practices, financial statement disclosure or auditing scope or procedures, which
if not resolved to the satisfaction of Ernst & Young LLP, would have caused
Ernst & Young LLP to make reference to the matter in their report.
The Registrant requested Ernst & Young LLP furnish it a letter addressed to the
Commission stating whether it agrees with the above statement. A copy of that
letter dated December 15, 1998 was filed as an Exhibit to the Form 8-K.
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT
The Partnership has no officers and directors. Officers and trustees of the
General Partner are as follows:
<TABLE>
<CAPTION>
Name Age Office Term Expires
- ---- --- ------ ------------
<S> <C> <C> <C>
James A. Bowman 44 President, Chief Executive Officer and Trustee 2000
M. Snow 46 Vice President, Secretary and Trustee 2000
Joseph R. Kasberg 46 Assistant Treasurer 2000
Susan E. Basting 37 Chief Financial Officer, Treasurer and Trustee 2000
</TABLE>
JAMES A. BOWMAN is president and chief executive officer of the National
Affordable Housing Trust and NHT, Inc. Previously he served as senior vice
president with National City Investments and as Director of Finance for Franklin
County (Ohio). Mr. Bowman is a graduate of The Ohio State University with a
Bachelor's Degree in Economics and a Master's Degree in Public Administration.
ROBERT M. SNOW is vice president of National Affordable Housing Trust, Inc. and
NHT, Inc. Mr. Snow is in charge of asset management for NHTLP and has been an
officer since 1992. Mr. Snow received a Bachelor's Degree from Lafayette
University.
JOSEPH R. KASBERG is vice president and chief financial officer for National
Church Residences. Mr. Kasberg, a certified public accountant, has been a
financial officer of National Affordable Housing Trust, Inc. since July 1988.
Mr. Kasberg received a Bachelor's Degree in Accounting from The Ohio State
University in 1974 and an MBA from Xavier University in 1985.
SUSAN E. BASTING is Treasurer and Chief Financial Officer of the National
Affordable Housing Trust, Inc. and NHT, Inc. Ms. Basting, a certified public
accountant and certified management accountant, worked in public accounting and
accounting management prior to joining the staff in 1996. Ms. Basting is a
graduate of Wright State University with a Bachelor's Degree in Accounting.
31
<PAGE>
ITEM 11 EXECUTIVE COMPENSATION
National Housing Trust Limited Partnership has no officers or directors.
However, as outlined in the offering, various fees and reimbursements are paid
to the General Partners and affiliates. The following is a summary of such fees
paid or accrued for the years ended December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
Fee or (In thousands)
Reimbursement Type Payee 1998 1997 1996
- ------------------ ----- ---- ---- ----
<S> <C> <C> <C> <C>
Property management fees General Partners of
Operating Partnerships $ 843 $ 814 $ 756
Partnership management NHT, Inc.
fees $ 318 $ 318 $ 315
</TABLE>
ITEM 12 SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
None.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
The Partnership has not had material transactions or business relationships with
NHT, Inc. or its affiliates, except as described in Items 8, 9 and 10.
32
<PAGE>
PART IV
-------
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K
(a) Documents filed as a part of this report:
1. Financial Statements
--------------------
The combined financial statements, related notes, and accountant's
report listed below are included herein:
Page
Report of Independent Auditors - Reznick
Fedder & Silverman 15
Report of Independent Auditors - Ernst &
Young LLP 16
Combined balance sheets as of December 31,
1998 and 1997 17
Combined statements of operations for the
years ended December 31, 1998, 1997 and
1996 19
Combined statements of partners' deficit
for the years ended December 31, 1998,
1997 and 1996 20
Combined statements of cash flows for the
years ended December 31, 1998, 1997 and 1996 21
Notes to combined financial statements 22
2. Financial Statement Schedules
Schedule I 37
Schedule III 39
All other schedules have been omitted. The required information is not
present or is not present in amounts sufficient to require submission of
the schedules.
(b) Reports on 8-K:
Form 8-K dated December 11, 1998 was filed to report changes in registrant's
Certifying Accountant during the last quarter of the latest fiscal year.
33
<PAGE>
3. Exhibits
--------
(a) Exhibits
Exhibit No. Description
----------- -----------
* 3.1 Form of Amended and Restated Agreement of Limited
Partnership of the Registrant (attached to the
Prospectus as Exhibit A)
* 3.2 Certificate of Limited Partnership of the Registrant.
* 10.1 Escrow Agreement between FirsTier Bank, N.A. and
Registrant.
* 10.2 Form of Purchase and Sale Agreement (including form of
Purchase Money Note).
* 10.3 Form of Operating Partnership Agreement.
** 10.4 Guarantee Agreement between the Trust and the
Partnership.
** 10.5 Letter Agreement between the Trust and the Selling Agent
relating to capitalization of the General Partner.
** 10.6 Letter Agreement between the Trust and the General
Partner relating to capitalization of the General
Partner.
** 10.7 Letter Agreement between National Church Residences and
the Selling Agent relating to withdrawal from the Trust
or from Operating Partnerships by Retirement Housing
Foundation or its affiliates.
** 10.8 Letter Agreement between Retirement Housing Foundation
and the Selling Agent relating to withdrawal from the
Trust or from Operating Partnerships by Retirement
Housing Foundation or its affiliates.
** 10.9 Letter Agreement between the Trust and the Selling Agent
relating to the repayment or refinancing of Purchase
Money Notes.
** 10.10 Letter Agreement between National Church Residences that
the Selling Agent relating to the repayment or
refinancing of Purchase Money Notes.
** 10.11 Letter Agreement between Retirement Housing Foundation
and the Selling Agent relating to the repayment or
refinancing of Purchase Money Notes
34
<PAGE>
*** 10.12(a) Purchase and Sale Agreement, with amendments, by and
among Willow Creek Apartments, Ltd., Willow Park
Apartments, Ltd., Willow Garden Apartments, Ltd. and
Willow Rock Apartments, Ltd., and the March Company
dated May 6, 1988.
*** 10.13(a) Operating Partnership Agreement for W-R Apartments,
L.P., dated March 2, 1989.
*** 10.12(b) Purchase and Sale Agreement with amendments, by and
among Trinidad Apartments, and Springchase Apartments.
*** 10.13(b) Operating Partnership Agreement for Trinidad Apartments
and Springchase Apartments.
*** 10.12(c) Purchase and Sale Agreement with amendments, by and
among Melrose Village.
*** 10.13(c) Operating Partnership Agreement for Melrose Village,
Limited Partnership, dated December 1, 1989.
*** 10.12(d) Purchase and Sale Agreement with amendments, by and
among Aspen Apartments.
*** 0.13(d) Operating Partnership Agreement for Aspen NHT Apartments
Limited Partnership, dated December 28, 1989.
*** 10.12(e) Purchase and Sale Agreement with amendments, by and
among Bingham Terrace Apartments.
*** 10.13(e) Operating Partnership Agreement for Bingham Terrace
Limited Partnership, dated December 29, 1989.
*** 10.12(f) Purchase and Sale Agreement with amendments, by and
among Coal Township Elderly, Hazelwood Apartments, and
Mahanoy Elderly.
*** 10.13(f) Operating Partnership Agreement for Coal Township
Elderly, Hazelwood Apartments, and Mahanoy Elderly dated
December 29, 1989.
*** 10.12(g) Purchase and Sale Agreement with amendments, by and
among Research Park and Young Manor.
*** 10.13(g) Operating Partnership Agreement for RP Limited Dividend
Housing Association Limited Partnership and YM Limited
Dividend Housing Association Limited Partnership, dated
December 31, 1989.
35
<PAGE>
**** 10.12(h) Purchase and Sale Agreement with amendments, by and
among West Allegheny Partnership, L.P.
**** 10.13(h) Operating Partnership Agreement for West Allegheny
Partnership, L.P., dated March 27, 1990.
Exhibit 27 Financial Data Schedule
* Filed under the identical Exhibit Number in Amendment No. 2 to the
Registrant's Registration Statement on Form S-11 (Commission File No.
33-15285) and incorporated herein by reference.
** Filed under the identical Exhibit Number on Form 10-K for the fiscal
year ended December 31, 1987 and incorporated herein by reference.
*** Filed under the identical Exhibit Number on Form 8-Ks filed for the
1989 Operating Partnership acquisitions identified in note #1 to the
Combined Financial Statements and incorporated herein by reference.
**** Filed under the identical Exhibit Number on Form 8-K filed for the
1990 Operating Partnership acquisition identified in note #1 to the
Combined Financial Statements and incorporated herein by reference.
36
<PAGE>
NATIONAL HOUSING TRUST LIMITED PARTNERSHIP
AND ITS SUBSTANTIALLY WHOLLY-OWNED OPERATING PARTNERSHIPS
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT-NATIONAL HOUSING TRUST
LIMITED PARTNERSHIP
<TABLE>
<CAPTION>
Condensed Balance Sheets December 31,
------------
1998 1997
---- ----
<S> <C> <C>
Assets (In Thousands)
Current assets:
Cash $ 421 $ 317
Accounts receivable, Operating Partnerships,
net of allowance of $198 and $121 in 1998 and 1997 285 319
-------- -------
Total current assets 706 636
Notes receivable, Operating Partnership,
net of allowance of $283 in 1998 and 1997 - -
-------- -------
$ 706 $ 636
======== =======
Liabilities and Partners' Capital
Current liabilities:
Accounts payable, primarily general partner $ 457 $ 382
Deficit in Operating Partnerships 11,649 4,617
Partners' Deficit (11,400) (4,363)
-------- -------
$ 706 $ 636
======== =======
</TABLE>
<TABLE>
<CAPTION>
Condensed Statements of Operations Years Ended December 31
-----------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Revenues: (In Thousands)
Program management fees from Operating
Partnerships $ 143 $ 157 $ 157
Interest 21 18 15
------- ------- -------
164 175 172
------- ------- -------
Expenses:
Program management fees, general partner 319 318 315
Administrative 21 635 58
------- ------- -------
340 953 373
------- ------- -------
Loss before equity in loss of Operating Partnerships
and extraordinary gain (176) (778) (201)
Equity in loss of Operating Partnerships (6,861) (2,341) (5,248)
------- ------- -------
Loss from operations before extraordinary gain (7,037) (3,119) (5,449)
Extraordinary gain - 2,172 -
------- ------- -------
Net loss $(7,037) $ 947) $(5,449)
======= ======== =======
</TABLE>
37
<PAGE>
NATIONAL HOUSING TRUST LIMITED PARTNERSHIP
AND ITS SUBSTANTIALLY WHOLLY-OWNED OPERATING PARTNERSHIPS
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT-NATIONAL HOUSING TRUST
LIMITED PARTNERSHIP (CONTINUED)
<TABLE>
<CAPTION>
Condensed Statements of Cash Flows Years Ended December 31
------------------------
1998 1997 1996
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Cash used in operating activities $ 67 $( 84) $ (92)
Financing activities, distributions from Operating
Partnerships, net 171 122 118
----- ----- -----
Increase (decrease) in cash $ 104 $ 38 $ 26
===== ===== =====
</TABLE>
Notes to Condensed Financial Statements
Note A - Basis of Presentation:
In the financial statements of National Housing Trust Limited Partnership
(NHTLP), its investment in substantially wholly-owned Operating Partnerships is
stated at cost plus equity in undistributed earnings and less losses of the
Operating Partnerships since the date of acquisition.
Note B - Notes Receivable, Operating Partnership:
The notes receivable from an Operating Partnership bear interest at varying
rates, are repayable out of distributable cash flow and are due through 2006.
38
<PAGE>
NATIONAL HOUSING TRUST LIMITED PARTNERSHIP
AND ITS SUBSTANTIALLY WHOLLY-OWNED OPERATING PARTNERSHIPS
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
FOR YEAR ENDED DECEMBER 31, 1998
( 1 OF 4)
(In Thousands)
<TABLE>
<CAPTION>
COST
CAPITALIZED
INITIAL COST TO SUBSEQUENT TO
PARTNERSHIP ACQUISITION
------------------------------------------------------------
PARTNERSHIP BUILDINGS &
NAME DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS LAND
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Stygler Village Low income housing project $5,581 $4,717 $140
Located in Gahanna, Ohio
St. Martins Low-income housing project 1,417 2,094 96
Located in Seattle, Washington
Willow Creek Low-income housing project 1,032 $123 1,373 107 $123
Located in Bartlesville, OK
Willow Gardens Low-income housing project 1,273 94 1,630 84 94
Located in Bartlesville, OK
Willow Park Low-income housing project 1,149 157 1,513 120 157
Located in Bartlesville, OK
Willow Rock Low-income housing project 1,236 148 1,508 168 148
Located in Bartlesville, OK
Wildwood I Low-income housing project 1,079 123 1,783 78 123
Located in Columbus, OH
Wildwood II Low-income housing project 878 117 1,526 1 117
Located in Columbus, OH
Wildwood III Low-income housing project 1,008 178 1,725 59 178
Located in Columbus, OH
<CAPTION>
GROSS LIFE ON WHICH
AMOUNTS AT WHICH CARRIED DEPRICIATION IN
AT CLOSE OF PERIOD ACQUISITION
PARTNERSHIP -------------------------
BUILDINGS & ACCUMULATED DATE STATEMENTS
NAME DESCRIPTION IMPROVEMENTS TOTAL DEPRECIATION AUIRED IS COMPUTED
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Stygler Village Low income housing project $ 4,857 $4,857 1,776 10/07/88 27 1/2 years
Located in Gahanna, Ohio
St. Martins Low-income housing project 2,190 2,190 805 1/31/89 27 1/2 years
Located in Seattle, Washington
Willow Creek Low-income housing project 1,480 1,603 529 3/02/89 27 1/2 years
Located in Bartlesville, OK
Willow Gardens Low-income housing project 1,714 1,808 611 3/02/89 27 1/2 years
Located in Bartlesville, OK
Willow Park Low-income housing project 1,633 1,790 582 3/02/89 27 1/2 years
Located in Bartlesville, OK
Willow Rock Low-income housing project 1,676 1,824 592 3/02/89 27 1/2 years
Located in Bartlesville, OK
Wildwood I Low-income housing project 1,861 1,984 605 12/01/89 27 1/2 years
Located in Columbus, OH
Wildwood II Low-income housing project 1,527 1,644 494 12/01/89 27 1/2 years
Located in Columbus, OH
Wildwood III Low-income housing project 1,784 1,796 564 12/01/89 27 1/2 years
Located in Columbus, OH
</TABLE>
CONTINUED
39
<PAGE>
NATIONAL HOUSING TRUST LIMITED PARTNERSHIP
AND ITS SUBSTANTIALLY WHOLLY-OWNED OPERATING PARTNERSHIPS
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
FOR YEAR ENDED DECEMBER 31, 1998
( 2 OF 4)
(In Thousands)
<TABLE>
<CAPTION>
COST
CAPITALIZED
INITIAL COST TO SUBSEQUENT TO
PARTNERSHIP ACQUISITION
--------------------------------------------------
PARTNERSHIP BUILDING &
NAME DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS LAND
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Melrose Village Low income housing project 576 89 983 89
Located in Findlay, OH
Summit Square Low-income housing project 1,687 105 3,327 7 105
Located in Dayton, OH
Washington Court House Low-income housing project 526 81 932 9 81
Located in Washington CH, OH
Griggs Village Low-income housing project 285 36 610 25 36
Located in Columbus, OH
Hebron Village Low-income housing project 345 45 603 45
Located in Hebron, OH
Aspen I Low-income housing project 932 70 997 29 70
Located in Gaylord, MI
Birch Lake Low-income housing project 793 56 805 58 56
Located in Ludington, MI
Century Place Low-income housing project 2,309 138 1,990 561 138
Located in Greenville, MI
Glendale Low-income housing project 387 27 414 3 27
Located in Scottville, MI
Lakeside Low-income housing project 1,247 76 1,023 239 76
Located in Cadillac, MI
<CAPTION>
GROSS LIFE ON WHICH
AMOUNT AT WHICH CARRIED DEPRECIATION IN
AT CLOSE OF PERIOD LATEST INCOME
----------------------------------------
PARTNERSHIP BUILDINGS & ACCUMULATED DATE STATEMENTS IS
NAME LAND TOTAL DEPRECIATION ACQUIRED COMPUTED
DESCRIPTION IMPROVEMENTS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Melrose Village Low income housing project 983 1,072 325 12/01/89 27 1/2 years
Located in Findlay, OH
Summit Square Low-income housing project 3,334 3,439 1,103 12/01/89 27 1/2 years
Located in Dayton, OH
Washington Court House Low-income housing project 941 1,022 305 12/01/89 27 1/2 years
Located in Washington CH, OH
Griggs Village Low-income housing project 635 671 199 12/01/89 27 1/2 years
Located in Columbus, OH
Hebron Village Low-income housing project 603 648 199 12/01/89 27 1/2 years
Located in Hebron, OH
Aspen I Low-income housing project 1,026 1,096 336 12/28/89 27 1/2 years
Located in Gaylord, MI
Birch Lake Low-income housing project 863 919 278 12/28/89 27 1/2 years
Located in Ludington, MI
Century Place Low-income housing project 2,551 2,689 716 12/28/89 27 1/2 years
Located in Greenville, MI
Glendale Low-income housing project 417 444 139 12/28/89 27 1/2 years
Located in Scottville, MI
Lakeside Low-income housing project 1,262 1,338 386 12/28/89 27 1/2 years
Located in Cadillac, MI
</TABLE>
CONTINUED
40
<PAGE>
NATIONAL HOUSINGTRUST LIMITED PARTNERSHIP
AND ITS SUBSTANTIALLY WHLLY-OWNED OPERATING PARTNERSHIPS
SCHEDULE III
REAL ESTATE ANDACCUMULATED DEPRECIATION
FOR YEAR ENDED DECEMBER 31, 1998
(3 OF 4)
(In Thousands)
<TABLE>
<CAPTION>
COST
CAPITALIZED
INITIAL COST TO SUBSEQUENT TO
PARTNERSHIP ACQUISITION
------------------------------------------------------------
PARTNERSHIP BUILDING &
NAME DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS LAND
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Park Terrace Low income housing project 920 73 1,065 19 73
Located in Williamston, MI
Traverse Woods Low-income housing project 931 71 1,054 51 71
Located in Petoskey, MI
Traverse Woods II Low-income housing project 1,556 117 1,733 701 117
Located in Petoskey, MI
Bingham Terrace Low-income housing project 1,303 16 1,092 381 20
Located in Cadiz, OH
Coal Township Low-income housing project 4,577 150 4,511 700 150
Located in Coal Township, PA
Hazelwood Low-income housing project 4,943 200 4,379 395 200
Located in Luzerne County, PA
Mahanoy Low-income housing project 5,519 125 5,915 880 125
Located in Mahanoy City, PA
Research Park Low-income housing project 11,359 850 9,678 (4,131) 436
Located in Detroit, MI
Young Manor Low-income housing project 6,849 400 6,512 268 400
Located in Detroit, MI
West Allegheny Low-income housing project 3,023 50 836 4,044 50
Located in Philadelphia, PA
-------------------------------------------------------------------------
TOTALS
$64,720 $3,715 $66,328 $ 5,092 $3,305
=========================================================================
<CAPTION>
GROSS LIFE ON WHICH
AMOUNT AT WHICH CARRIED DEPRECIATION IN
AT CLOSE OF PERIOD LATEST INCOME
--------------------------
PARTNERSHIP BUILDINGS & ACCUMULATED DATE STATEMENT IS
NAME DESCRIPTION IMPROVEMENTS TOTAL DEPRECIATION ACQUIRED COMPUTED
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Park Terrace Low income housing project 1,084 1,157 360 12/28/89 27 1/2 years
Located in Williamston, MI
Traverse Woods Low-income housing project 1,105 1,176 366 12/28/89 27 1/2 years
Located in Petoskey, MI
Traverse Woods II Low-income housing project 2,434 2,551 688 12/28/89 27 1/2 years
Located in Petoskey, MI
Bingham Terrace Low-income housing project 1,473 1,493 313 12/29/89 40 years
Located in Cadiz, OH
Coal Township Low-income housing project 5,211 5,361 1,625 12/29/89 27 1/2 years
Located in Coal Township, PA
Hazelwood Low-income housing project 4,774 4,974 1,486 12/29/89 27 1/2 years
Located in Luzerne County, PA
Mahanoy Low-income housing project 6,795 6,920 2,138 12/29/89 27 1/2 years
Located in Mahanoy City, PA
Research Park Low-income housing project 5,547 5,983 1,724 12/31/89 27 1/2 years
Located in Detroit, MI
Young Manor Low-income housing project 6,780 7,180 2,211 12/31/89 27 1/2 years
Located in Detroit, MI
West Allegheny Low-income housing project 4,880 4,930 966 3/27/90 40 Years
Located in Philadelphia, PA
-----------------------------------------------------------------------------
$71,420 $ 74,725 $22,421
====================================
</TABLE>
41
<PAGE>
NATIONAL HOUSING TRUST LIMITED PARTNERSHIP
AND ITS SUBSTANTIALLY WHOLLY-OWNED OPERATING PARTNERSHIPS
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
FOR YEAR ENDED DECEMBER 31, 1998
(4 OF 4)
(In Thousands)
<TABLE>
<CAPTION>
December 31
---------------------------------------------------------
Real Estate: 1998 1997 1996
- ------------------------------------ --------- ---------- ------------
<S> <C> <C> <C>
Balance at beginning of period: $ 79,681 $ 79,868 $ 81,868
Additions during period:
Improvements 522 898 1,120
Deductions during period **: (5,478) (1,085) (3,120)
--------- ---------- ----------
Balance at end of period *: $ 74,725 $ 79,681 $ 79,868
========= ========== ==========
Accumulated Depreciation:
- ------------------------------------
Balance at beginning of period:*** $ 21,247 $ 18,572 $ 16,744
Additions during period:
Depreciation expense*** 2,812 2,700 2,648
Deductions during period: (1,638) (25) (820)
--------- ---------- ----------
Balance at end of period:*** $ 22,421 $ 21,247 $ 18,572
========= ========== ==========
</TABLE>
* Aggregate costs for federal income tax purposes were $74,725,000, $79,681,000
and $79,868,000 at December 31, 1998, 1997, and 1996 respectively.
** Includes deductions for impairment loss and write off of fully depreciated
assets in 1996 and primarily assets transferred to lender in 1997.
*** Amounts for 1996 represent corrected balances. Corrections had no impact on
net income or partners' capital (deficit).
42
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) or the Securities and
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
By: NHT, Inc. General Partner
Date: April 12, 1999 /s/James A. Bowman
-------------- ------------------------------------------
James A. Bowman, President
and Chief Executive Officer, NHT, Inc.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
* * * * *
Date: April 12, 1999 By /s/James A. Bowman
-------------- ------------------------------------------
James A. Bowman, Trustee
President and CEO, NHT, Inc.
* * * * *
Date: April 12, 1999 By /s/Robert M. Snow
-------------- ------------------------------------------
Robert M. Snow, Trustee,
Vice President and Secretary, NHT, Inc.
* * * * *
Date: April 12, 1999 By /s/Susan E. Basting
-------------- ------------------------------------------
Susan E. Basting, Trustee
Chief Financial Officer and Treasurer,
NHT, Inc.
43
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 982
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,833
<PP&E> 73,869
<DEPRECIATION> 24,327
<TOTAL-ASSETS> 61,509
<CURRENT-LIABILITIES> 3,872
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (11,404)
<TOTAL-LIABILITY-AND-EQUITY> 61,509
<SALES> 11,919
<TOTAL-REVENUES> 12,174
<CGS> 0
<TOTAL-COSTS> 16,169
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,514
<INCOME-PRETAX> (7,236)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,236)
<DISCONTINUED> 0
<EXTRAORDINARY> 200
<CHANGES> 0
<NET-INCOME> (7,036)
<EPS-PRIMARY> (6.93)
<EPS-DILUTED> (6.93)
</TABLE>
