-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PkzJXlC55zaypUOVGsQeWAE3fvnqV8+l6+GzqUD4fLhKFZ8iW/VkYgz6C1aznban trPT72ZhMm1Gg49nOIb34g== 0000950146-97-000052.txt : 19970220 0000950146-97-000052.hdr.sgml : 19970220 ACCESSION NUMBER: 0000950146-97-000052 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961130 FILED AS OF DATE: 19970114 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CAMBRIDGE RELATED HOUSING PROPERTIES LIMITED PARTNERSHIP CENTRAL INDEX KEY: 0000718915 STANDARD INDUSTRIAL CLASSIFICATION: 6500 IRS NUMBER: 133161322 STATE OF INCORPORATION: MA FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-12634 FILM NUMBER: 97505753 BUSINESS ADDRESS: STREET 1: 625 MADISON AVE CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 2124215333 MAIL ADDRESS: STREET 1: 625 MADISON AVENUE CITY: NEW YORK STATE: NY ZIP: 10022 FORMER COMPANY: FORMER CONFORMED NAME: SHEARSON & RELATED HOUSING PROPERTIES LTD PARTNERSHIP DATE OF NAME CHANGE: 19940615 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - - - - - - - - - --- EXCHANGE ACT OF 1934 --- For the quarterly period ended November 30, 1996 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - - - - - - - - - --- EXCHANGE ACT OF 1934 Commission File Number 0-12634 CAMBRIDGE + RELATED HOUSING PROPERTIES LIMITED PARTNERSHIP (Exact name of registrant as specified in its charter) Massachusetts 13-3161322 - - - - - - - - - ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 625 Madison Avenue, New York, New York 10022 - - - - - - - - - ---------------------------------------- --------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (212)421-5333 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- PART I Item 1. Financial Statements CAMBRIDGE + RELATED HOUSING PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES Consolidated Balance Sheets (unaudited)
November 30, February 29, 1996 1996* ------------ ------------ ASSETS Property and equipment, net of accumulated depreciation of $78,669,670 and $80,440,482, respectively $ 99,877,418 $111,663,787 Cash and cash equivalents 7,856,526 4,277,246 Certificates of deposit 201,124 255,000 Cash - restricted for tenants' security deposits 1,086,058 1,155,455 Mortgage escrow deposits 8,570,270 7,969,001 Rents receivable 296,519 288,143 Prepaid expenses and other assets 1,321,427 961,020 ------------ ------------ Total assets $119,209,342 $126,569,652 ============ ============ LIABILITIES AND PARTNERS' DEFICIT Liabilities: Mortgage notes payable $ 64,128,421 $ 71,832,854 Purchase money notes payable (Note 2) 56,929,115 61,029,115 Due to selling partners (Note 2) 62,681,058 62,562,415 Accounts payable, accrued expenses and other liabilities 4,203,359 6,333,269 Tenants' security deposits payable 1,086,058 1,155,455 Due to general partners of subsidiaries and their affiliates 1,086,663 998,268 Due to general partners and affiliates 3,188,244 2,989,870 ------------ ------------ Total liabilities 193,302,918 206,901,246 Minority interest 70,581 76,347 ------------ ------------ Commitments and contingencies (Note 6) Partners' deficit: Limited partners (72,973,985) (79,155,331) General partners (1,190,172) (1,252,610) ------------ ------------ Total partners' deficit (74,164,157) (80,407,941) ------------ ------------ Total liabilities and partners' deficit $119,209,342 $126,569,652 ============ ============
*Reclassified for comparative purposes See Accompanying Notes to Consolidated Financial Statements 2 CAMBRIDGE + RELATED HOUSING PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES Consolidated Statements of Operations (Unaduited)
Three Months Ended Nine Months Ended November 30, November 30, -------------------------------- ----------------------------- 1996 1995 1996 1995 ---------- ---------- ----------- ----------- Revenues Rentals, net $7,371,246 $7,499,468 $22,284,296 $22,267,222 Other 225,871 250,560 715,097 689,873 Gain on sale of properties (Note 4) 5,319,969 0 7,034,101 0 ---------- ----------- ----------- ----------- Total revenues 12,917,086 7,750,028 30,033,494 22,957,095 ---------- ----------- ----------- ----------- Expenses Selling and renting 110,376 102,253 350,279 322,753 Administrative and management 1,225,031 1,102,317 3,649,392 3,381,928 Administrative and management- related parties (Note 3) 454,565 480,974 1,411,318 1,404,989 Operating 1,096,085 1,118,215 3,767,851 3,618,010 Repairs and maintenance 2,066,999 2,020,448 5,876,051 5,651,183 Taxes and insurance 1,004,723 981,765 3,050,451 2,922,300 Interest 1,887,379 2,138,272 6,041,065 6,427,335 Depreciation 1,590,844 1,645,093 4,852,878 4,912,856 ---------- ----------- ----------- ----------- Total expenses 9,436,002 9,589,337 28,999,285 28,641,354 ---------- ----------- ----------- ----------- 3,481,084 (1,839,309) 1,034,209 (5,684,259) Minority interest in loss of subsidiaries 71 194 1,535 6 ---------- ----------- ----------- ----------- Income (loss) before extra- ordinary item 3,481,155 (1,839,115) 1,035,744 (5,684,253) Extraordinary item- forgiveness of indebtedness income (Note 5) 4,130,987 0 5,208,040 0 ---------- ----------- ----------- ----------- Net income (loss) $7,612,142 $(1,839,115) $6,243,784 $(5,684,253) ========== =========== =========== ===========
See Accompanying Notes to Consolidated Financial Statements 3 CAMBRIDGE + RELATED HOUSING PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES Consolidated Statement of Partner's Deficit (Unaudited) Limited General Total Partners Partners ------------- ------------- ------------ Balance- March 1, 1996 $(80,407,941) $(79,155,331) $(1,252,610) Net income- nine months ended November 30, 1996 6,243,784 6,181,346 62,438 ------------- ------------- ------------ Balance- November 30, 1996 $(74,164,157) $(72,973,985) $(1,190,172) ============ ============ =========== See Accompanying Notes to Consolidated Financial Statements 4 CAMBRIDGE + RELATED HOUSING PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES Consolidated Statements of Cash Flows Increase (Decrease) in Cash and Cash Equivalents (Unaudited) Nine Months Ended November 30, ------------------------ 1996 1995 ---------- ----------- Cash flows from operating activities: Net income (loss) $6,243,784 $(5,684,253) ---------- ----------- Adjustments to reconcile net income (loss) to net cash provided by operating activities: Gain on sale of properties (Note 4) (7,034,101) 0 Extraordinary item-forgiveness of indebtedness income (Note 5) (5,208,040) 0 Depreciation 4,852,878 4,912,856 Minority interest in loss of subsidiaries (1,535) (6) Decrease (increase) in cash-restricted for tenants' security deposits 16,448 (25,704) Increase in mortgage escrow deposits (617,123) (536,230) Increase in rents receivable (15,234) (77,629) Increase in prepaid expenses and other assets (453,860) (201,208) Increase in due to selling partners 4,005,190 4,119,465 Increase in accounts payable, accrued expenses and other liabilities 198,645 5,009 Increase in tenants' security deposits payable 13,783 25,704 Increase (decrease) in due to general partners of subsidiaries and their affiliates 88,395 (102,996) Increase in due to general partners and affiliates 198,374 36,569 ---------- ----------- Total adjustments (3,956,180) 8,155,830 ---------- ----------- Net cash provided by operating activities 2,287,604 2,471,577 ---------- ----------- Cash flows provided by (used in) investing activities: Decrease in certificates of deposit 53,876 0 Proceeds from sale of property 13,096,696 0 Acquisitions of property and equipment (686,277) (744,926) ---------- ----------- Net cash provided by (used in) investing activities 12,464,295 (744,926) ---------- ----------- See Accompanying Notes to Consolidated Financial Statements 5 CAMBRIDGE + RELATED HOUSING PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES Consolidated Statements of Cash Flows Increase (Decrease) in Cash and Cash Equivalents (continued) (Unaudited) Nine Months Ended November 30, ------------------------ 1996 1995 ---------- ----------- Cash flows used in financing activities: Principal payments of mortgage notes payable (6,621,081) (1,431,928) Payments to selling partners (1,319,366) (398,840) Decrease in minority interest (4,231) (6,782) Principal payment of purchase money notes payable (3,227,941) 0 ----------- ----------- Net cash used in financing activities (11,172,619) (1,837,550) ----------- ----------- Net increase (decrease) in cash and cash equivalents 3,579,280 (110,899) Cash and cash equivalents at beginning of period 4,277,246 4,176,820 ----------- ----------- Cash and cash equivalents at end of period $7,856,526 $4,065,921 =========== =========== Supplemental disclosures of noncash activities: Forgiveness of indebtedness (Note 5): Decrease in purchase money notes payable (872,059) 0 Decrease in due to selling partners (2,567,181) 0 Decrease in mortgage notes payable (1,083,352) 0 Decrease in accounts payable, accrued expenses and other liabilities (685,448) 0 Summarized below are the components of the gain on sale of properties: Decrease in property and equipment, net of accumulated depreciation 7,619,768 0 Decrease in cash-restricted for tenants' security deposits 52,949 0 Decrease in rents receivable 6,858 0 Decrease in mortgage escrow deposits 15,854 0 Decrease in prepaid expenses and other assets 93,453 0 Decrease in accounts payable, accrued expenses and other liabilities (1,643,107) 0 Decrease in tenants' security deposits payable (83,180) 0 See Accompanying Notes to Consolidated Financial Statements 6 CAMBRIDGE + RELATED HOUSING PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES Notes to Consolidated Financial Statements November 30, 1996 (Unaudited) Note 1 - General The consolidated financial statements include the accounts of Cambridge + Related Housing Properties Limited Partnership, a Massachusetts limited partnership (the "Partnership") and 44 subsidiary partnerships, two of which only have activity through the date of sale of their properties and the related assets and liabilities on June 3, 1996 and September 17, 1996 and one of which only has activity through the date of sale of the Partnership's interest on August 15, 1996 (see Note 4). The Partnership is the sole limited partner, with an ownership interest of 98.99% in each of the subsidiary partnerships. Through the rights of the Partnership and/or the General Partner, which General Partner has a contractual obligation to act on behalf of the Partnership, to remove the general partner of the subsidiary local partnerships and to approve certain major operating and financial decisions, the Partnership has a controlling financial interest in the subsidiary local partnerships. The Partnership's fiscal quarter ends November 30. All subsidiaries have fiscal quarters ending September 30. Accounts of the subsidiary partnerships have been adjusted for intercompany transactions from October 1 through November 30. All intercompany accounts and transactions have been eliminated in consolidation. Increases (decreases) in the capitalization of consolidated subsidiaries attributable to minority interest arise from cash contributions and cash distributions to the minority interest partners. Losses attributable to minority interests which exceed the minority interests' investment in a subsidiary have been charged to the Partnership. Such losses aggregated approximately $0 and $3,300 and $5,600 and $12,200 for the three and nine months ended November 30, 1996 and 1995, respectively. The Partnership's investment in each subsidiary is equal to the respective subsidiary's partners' equity less minority interest capital, if any. These unaudited financial statements have been prepared on the same basis as the audited financial statements included in the Partnership's Form 10-K for the year ended February 29, 1996. In the opinion of the General Partners, the accompanying unaudited financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the financial position of the Partnership as of November 30, 1996, the 7 CAMBRIDGE + RELATED HOUSING PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES Notes to Consolidated Financial Statements November 30, 1996 (Unaudited) Note 1 - General (continued) results of operations for the three and nine months ended November 30, 1996 and 1995 and cash flows for the nine months ended November 30, 1996 and 1995. However, the operating results for the nine months ended November 30, 1996 may not be indicative of the results for the year. In March 1995, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Asset and for Long-Lived Assets to Be Disposed Of". Under SFAS No. 121, the Partnership is required to review long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the book value of an asset may not be recoverable. An impairment loss should be recognized whenever the review demonstrates that the book value of a long-lived asset is not recoverable. Effective March 1, 1996, the Partnership adopted SFAS No. 121, consistent with the required adoption period. Property and equipment are carried at the lower of depreciated cost or estimated amounts recoverable through future operations and ultimate disposition of the property. Cost includes the purchase price, acquisition fees and expenses, and any other costs incurred in acquiring the properties. As required by SFAS 121, a provision for loss on impairment of assets is recorded when estimated amounts recoverable through future operations and sale of the property on an undiscounted basis are below depreciated cost. However, depreciated cost, adjusted for such reductions in value, if any, may be greater than the fair value. Property investments themselves are reduced to estimated fair value (generally using discounted cash flows) when the property is considered to be impaired and the depreciated cost exceeds estimate fair value. Through November 30, 1996, the Partnership has not recorded any provisions for loss on impairment of assets or reduction to estimated fair value. Certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted. It is suggested that these consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Partnership's February 29, 1996 Annual Report on Form 10-K. 8 CAMBRIDGE + RELATED HOUSING PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES Notes to Consolidated Financial Statements November 30, 1996 (Unaudited) Note 2 - Purchase Money Notes Payable Nonrecourse purchase money notes in the original amount of $61,029,115 were issued to the selling partners of the subsidiary partnerships as part of the purchase price and are secured only by the Partnership's interest in the subsidiary partnership to which the note relates. On June 3, 1996 and September 17, 1996 the properties and the related assets and liabilities owned by two subsidiary partnerships were sold to third parties and on August 15, 1996 the Partnership's interest in another subsidiary partnership was also sold to a third party. A portion of the net proceeds were used to settle the associated purchase money notes and accrued interest thereon (see Note 4). The purchase money notes, which provide for simple interest at the rate of 9% per annum through maturity, which will occur during the period July 1998 to December 1999, will not be in default during the basic term (generally fifteen years) if not less than 60% of the cash flow actually distributed to the Partnership by the corresponding subsidiary partnership (generated by the operations, as defined) is applied first to accrued interest and then to current interest thereon. Any interest not paid currently accrues, without further interest thereon, through the due date of the note. All accrued and unpaid interest must be paid on the due date of the note, unless the Partnership exercises an extension right. The Partnership may elect, upon the payment of an extension fee of 1 1/2% per annum of the outstanding principal amount, to extend the term of the purchase money note for up to five additional years. The Partnership may also defer payment of any accrued and unpaid interest until the due date of the note. Management is working with the selling partners to restructure and/or refinance the notes. The sellers' recourse, in the event of non-payment would be to foreclose on the Partnership's interests in the respective local partnerships. Distributions aggregating $737,827 (which includes $80,546 held in escrow for expenses relating to refinancings or sales) and $664,734 were made to the Partnership for the nine months ended November 30, 1996 and 1995, of which $302,500 and $398,840, respectively, was used to pay interest on the purchase money notes. Continued accrual of such interest without payment, would impact the effective rate of the notes. The impact would be to reduce the effective interest rate of 9%. The exact effect is not 9 CAMBRIDGE + RELATED HOUSING PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES Notes to Consolidated Financial Statements November 30, 1996 (Unaudited) Note 2 - Purchase Money Notes Payable (continued) determinable inasmuch as it is dependent on the actual future interest payments and ultimate repayment dates of the notes. Unpaid interest of approximately $62,556,000 and $62,437,000 at November 30, 1996 and February 29, 1996, respectively, has been accrued and is included in the caption due to selling partners. Note 3 - Related Party Transactions The costs incurred to related parties for the three and nine months ended November 30, 1996 and 1995 were as follows: Three Months Ended Nine Months Ended November 30, November 30, ---------------------- --------------------- 1996 1995 1996 1995 -------- -------- -------- -------- Partnership management fees (a) $ 30,413 $ 29,663 $ 91,238 $ 88,988 Expense reimburse- ment (b) 42,500 50,190 152,363 118,845 Property management fees (c) 374,652 394,121 1,147,717 1,177,156 Local adminis- trative fee (d) 7,000 7,000 20,000 20,000 -------- -------- ---------- ---------- $454,565 $480,974 $1,411,318 $1,404,989 ======== ======== ========== ========== (a) After all other expenses of the Partnership are paid, an annual partnership management fee of up to .5% of invested assets is payable to the Partnership's general partners and affiliates. (b) The Partnership reimburses the General Partners and their affiliates for actual Partnership operating expenses incurred by the General Partners and their affiliates on the Partnership's behalf. The amount of reimbursement from the Partnership is limited by the provisions of the Partnership Agreement. Another affiliate of the General Partners performs asset monitoring for the Partnership. These services include site visits and evaluations of the subsidiary partnership's performance. (c) Property management fees incurred by Local Partnerships to affiliates of the Local Partnerships amounted to $374,652 and $316,036 and $1,147,717 and $944,343 for the three and nine months 10 CAMBRIDGE + RELATED HOUSING PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES Notes to Consolidated Financial Statements November 30, 1996 (Unaudited) Note 3 - Related Party Transactions (continued) ended November 30, 1996 and 1995, respectively. Of such fees $67,876 and $78,085 and $226,247 and $232,813 were incurred to a company which is also an affiliate of the Related General Partner. (d) Cambridge/Related Housing Associates Limited Partnership, the special limited partner of each of the subsidiary partnerships, owning .01%, is entitled to receive a local administrative fee of up to $2,500 per year from each subsidiary partnership. Note 4 - Sale of Properties On June 3, 1996, the property and the related assets and liabilities of Roper Mountain Apartments Ltd. ("Roper Mountain") were sold to a third party for $4,735,000, resulting in net proceeds of $1,953,406 to the Partnership after repayment of the first mortgage owed to HUD and expenses of the sale. For financial reporting purposes a gain on the sale of property in the amount of $1,714,132 was realized. The Partnership used $1,227,941 of the net proceeds to settle the associated purchase money note and accrued interest which had a total outstanding balance of $2,304,994 resulting in forgiveness of indebtedness income of $1,077,053. For tax purposes, the entire gain to be realized by the Partnership is anticipated to be approximately $4,500,000. Rolling Meadows of Chickasha ("Chickasha"), a subsidiary partnership, had previously filed a petition under Chapter 11 of the Bankruptcy Code ("Chapter 11") which had been dismissed. HUD notified Chickasha that it intended to commence foreclosure proceedings. Chickasha was in default and under HUD control as a mortgagee in possession. On August 15, 1996, the Partnership's limited partnership interest in Chickasha was sold to a third party for $75,000, resulting in no net proceeds to the Partnership after expenses of the sale. For financial reporting purposes a gain on the sale of property in the amount of $472,720 was realized and forgiveness of indebtedness income of $1,768,800 was also realized as a result of forgiveness of the mortgage note payable to HUD and accrued interest thereon. No proceeds were used to settle the associated purchase money note and accrued interest which had a total outstanding balance of $1,723,095 resulting in additional forgiveness of indebtedness income of $1,723,095. Therefore the entire forgiveness of indebtedness income realized by the Partnership from this transaction is $3,491,895. For tax 11 CAMBRIDGE + RELATED HOUSING PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES Notes to Consolidated Financial Statements November 30, 1996 (Unaudited) Note 4 - Sale of Properties (continued) purposes, the entire gain to be realized by the Partnership is anticipated to be approximately $1,800,000. On September 17, 1996, the property and the related assets and liabilities of Oakland-Keller Plaza ("Keller Plaza") were sold to a third party for $8,800,000, resulting in net proceeds of $6,033,731 to the Partnership after repayment of the first mortgage owed to HUD and expenses of the sale. For financial reporting purposes a gain on the sale of property in the amount of $4,847,249 was realized. The Partnership used $3,016,865 of the net proceeds (not including $409,930 which is anticipated to be repaid in January 1997 from a distribution of escrow funds) to settle the associated purchase money note and accrued interest which had a total outstanding balance of $4,065,887 resulting in forgiveness of indebtedness income of $639,092. For tax purposes, the entire gain to be realized by the Partnership is anticipated to be approximately $8,200,000. Note 5 - Extraordinary Items On June 3, 1996, the property and the related assets and liabilities of Roper Mountain were sold to a third party for $4,735,000. For financial reporting purposes, forgiveness of indebtedness income of $1,077,053 was realized (see Note 4). On August 15, 1996, the Partnership's limited partnership interest in Chickasha was sold to a third party for $75,000. For financial reporting purposes, forgiveness of indebtedness income of $3,491,895 was realized (see Note 4). On September 17, 1996, the property and the related assets and liabilities of Keller Plaza were sold to a third party for $8,800,000. For financial reporting purposes, forgiveness of indebtedness income of $639,092 was realized (see Note 4). Note 6 - Commitments and Contingencies The following disclosures include changes and/or additions to disclosures regarding the subsidiary partnerships which were included in the Partnership's Annual Report on Form 10-K for the period ended February 29, 1996. 12 CAMBRIDGE + RELATED HOUSING PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES Notes to Consolidated Financial Statements November 30, 1996 (Unaudited) Note 6 - Commitments and Contingencies (continued) a) Events of Default Two subsidiary partnerships continue to be in default of their original mortgage agreements. Until November 1995, both subsidiary partnerships operated under a provisional workout agreement with HUD. On November 1, 1995, the mortgage note of Oklahoma City - Town & Country Village Apartments ("Town and Country") was sold to a conventional mortgagee. During November 1995, the mortgage note of Caddo Parish - Villas South ("Villas South") was also sold to a conventional mortgagee. The auditors for the subsidiary partnerships modified their reports for the 1995, 1994 and 1993 Fiscal Years due to the uncertainty of the ability of the subsidiary partnerships to continue in existence. Villas South and Town and Country are in the process of trying to renegotiate the terms of the notes with the new mortgage holders, but there can be no assurance that the renegotiation will be successful. Villas South filed for protection under Chapter 11 of the United States Bankruptcy Code on November 12, 1996 and the equivalent of a receiver has been appointed. In the interim, Villas South is continuing to make payments to the new mortgage holder under the provisions of the previous workout agreement with HUD. Town & Country had been making payments under the provisions of the previous workout agreement with HUD, however in February 1996 payments were suspended until management can negotiate new terms with the mortgagee. The Partnership's investment in these two subsidiary partnerships was approximately $384,000 and $739,000 at November 30, 1996 and February 29, 1996, respectively, and the minority interest balance was zero at each date. The net loss after minority interest for these two subsidiary partnerships amounted to approximately $119,000 and $125,000 and $354,000 and $391,000 for the three and nine months ended November 30, 1996 and 1995, respectively. Another subsidiary partnership, Los Caballeros Apartments ("Los Caballeros"), received formal notice from the Secretary of the Department of Housing and Urban Development ("HUD") that, as a result of deficiencies sited upon a physical inspection of the property, the complex is in violation of their regulatory agreement and their Housing Assistance Payment ("HAP") Contracts. Los Caballeros does not have the working capital necessary to cover the costs to cure the deficiencies. In addition, one of Los Caballeros' three HAP contracts was not renewed upon the contract's expiration on November 30, 1995. The auditors for Los Caballeros modified their report for the 1995 Fiscal Year due to the uncertainty of the ability of Los Caballeros to continue in existence. Management of Los Caballeros is now working on 13 CAMBRIDGE + RELATED HOUSING PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES Notes to Consolidated Financial Statements November 30, 1996 (Unaudited) Note 6 - Commitments and Contingencies (continued) securing a commercial loan to cover the cost of physical improvements. HUD has indicated they would be willing to increase existing contract rents to cover the cost of debt service on a second mortgage. The Partnership's investment in Los Caballeros was approximately $423,000 and $539,000 at November 30, 1996 and February 29, 1996, respectively, and the minority interest balance was zero at each date. The net loss after minority interest for Los Caballeros amounted to approximately $8,000 and $28,000 and $116,000 and $111,000 for the three and nine months ended November 30, 1996 and 1995, respectively. b) Certificate of Deposit The Partnership has a Certificate of Deposit in the amount of $71,124 at November 30, 1996 to secure an overdraft in Town and Country's bank account. The amount of the overdraft was approximately $56,000 at September 30, 1996. c) Other Restricted Cash In addition, the Partnership and/or its subsidiary partnerships may from time to time use a portion of their cash or property to secure operating credit lines. As of November 30, 1996, $130,000 of the Partnership's funds have been so pledged to secure operating credit lines at seven subsidiary partnerships. d) Sales of Subsidiary Partnerships The general partners of one subsidiary partnership, Westgate Associates, Limited ("Westgate"), have signed an option agreement to sell the project to the Vermont Housing Finance Agency subject to HUD approval and other contingencies, on or before December 31, 1998. The Partnership's investment in Westgate was approximately $812,000 at November 30, 1996. Westgate's assets constituted approximately 2% of the consolidated total assets at November 30, 1996. The Partnership entered into negotiations to sell South Munjoy Associates, Limited ("South Munjoy") for a sales price of approximately $3,000,000. The net proceeds will be used to satisfy the existing mortgage debt of approximately $800,000. The balance of the proceeds will be used to settle the purchase money notes and accrued interest with the balance, if any, available for general partnership purposes. The Partnership's investment in South Munjoy was approximately $2,411,000 at November 30, 1996. South Munjoy's assets constituted approximately 3% of the consolidated total assets at November 30, 1996. 14 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources The Partnership's capital has been invested primarily in forty-four subsidiary partnerships (the "Local Partnerships" or "subsidiary partnerships"). As of December 1984, the Partnership had completed its cash investment of approximately $36,638,000 (including expenses) in the Local Partnerships (the "Local Partnership Interests"). On June 3, 1996 and September 17, 1996 the properties and the related assets and liabilities owned by two subsidiary partnerships were sold to third parties and on August 15, 1996 the Partnership's interest in another subsidiary partnership was also sold to a third party (see below). During the nine months ended November 30, 1996, cash and cash equivalents of the Partnership and its 44 consolidated Local Partnerships (including the activity through the dates of sale for the three Local Partnerships above) increased approximately $3,579,000. This increase was primarily due to cash provided by operating activities ($2,288,000), proceeds from sale of properties ($13,097,000) and a decrease in certificates of deposit ($54,000) which exceeded principal payments of mortgage notes and purchase money notes payable ($9,849,000), payments to selling partners ($1,319,000) and acquisitions of property and equipment ($686,000). The Partnership's primary sources of funds are (i) cash distributions from operations of the Local Partnerships in which the Partnership has invested, (ii) interest earned on funds and (iii) working capital reserves. All of these sources of funds are available to meet the obligations of the Partnership. During the nine months ended November 30, 1996 and 1995, the Partnership received cash flow distributions from operations of the Local Partnerships of approximately $738,000 (which includes approximately $81,000 held in escrow for expenses relating to refinancings or sales) and $665,000, respectively, of which approximately $303,000 and $399,000, respectively, was used to pay interest on the related Local Partnership purchase money notes. In general, 60% of cash flow distributions are required to be applied to interest payments; the balance used to fund Partnership expenses. The Partnership had a working capital reserve of approximately $4,180,000 and $308,000 at November 30, 1996 and February 29, 1996, respectively, of which approximately $201,000 and $255,000, respectively, was restricted to secure an overdraft in Town and Country's bank account and to secure operating credit lines at 15 seven other Local Partnerships. The working capital reserve is temporarily invested in bank certificates of deposits or money market accounts which can be easily liquidated to meet obligations as they arise. The General Partners believe that the Partnership's reserves, net proceeds for future sales and future cash flow distributions will be adequate for its operating needs, and plan to continue investing available reserves in short term investments. As part of the purchase price of its investment in the Local Partnerships, the Partnership issued approximately $61,029,000 of Purchase Money Notes. The typical Purchase Money Note has a basic term of fifteen years (maturities range from July 1998 to December 1999), subject to certain possible extensions as described below; provided, however, that the Purchase Money Note, as it may have been extended from time to time, will mature in any event upon the sale or refinancing of the Apartment Complex or in the event that the Local Partnership Interest has been sold by the Partnership prior thereto, in twenty years from issuance. On June 3, 1996 and September 17, 1996 the properties and the related assets and liabilities owned by two subsidiary partnerships were sold to third parties and on August 15, 1996 the Partnership's interest in another subsidiary partnership was also sold to a third party. A portion of the net proceeds were used to settle the associated purchase money notes and accrued interest thereon (see below). Interest on each Purchase Money Note is payable at the rate of 9% per annum. A Purchase Money Note will not be in default during the basic fifteen-year term if not less than 60% of the cash flow actually distributed to the Partnership by the corresponding Local Partnership (generated by the operations of its Apartment Complex) is applied first to accrued interest and then to current interest thereon. Any interest not paid currently shall accrue, without further interest thereon, through the fifteenth year. All accrued and unpaid interest must be paid in full at the end of the fifteenth year, unless the Partnership exercises an extension right. The obligation to pay the Purchase Money Note is on a non-recourse basis to any General or Limited Partner but payment thereof is secured by a pledge under the purchase, sale and security agreement of the related Local Partnership Interest. The payee has the right to foreclose on the related Local Partnership Interest in the event that any payment on the Purchase Money Note is not paid when due or if the Partnership is otherwise in default thereunder. At November 30, 1996, unpaid accrued interest on the Purchase 16 Money Notes amounted to approximately $62,556,000. The principal of and all accrued interest on the Purchase Money Notes is due at maturity, which will occur during the period July 1998 to December 1999. The Partnership may elect, upon the payment of an extension fee of 1 1/2% per annum of the outstanding principal amount, to extend the term of the Purchase Money Notes for up to five additional years. The cash distributions out of which the Partnership pays interest on the Purchase Money Notes is less than the total interest thereon, and it is expected that accrued and unpaid interest on the Purchase Money Notes will continue to increase. The Partnership expects that upon maturity it will be required to refinance or sell its investments in the Local Partnerships in order to pay the Purchase Money Notes and accrued interest thereon. Based on the historical operating results of the Local Partnerships and the current economic conditions including changes in tax laws, it is uncertain as to whether the proceeds from such sales will be sufficient to meet the outstanding balances. Management is working with the selling partners to restructure and/or refinance the notes. The sellers recourse, in the event of non-payment would be to foreclose on the Partnership's interests in the respective local partnerships. The local partnerships which receive government assistance are subject to low-income use restrictions which limited the owners ability to sell or refinance the properties. In order to maintain the existing inventory of affordable housing, Congress passed a series of related acts including the Emergency Low Income Preservation Act of 1987, the Low-Income Housing Preservation and Resident Homeownership Act of 1990 (together the "Preservation Acts") and the Housing Opportunity Program Extension Act of 1996 (the "1996 Act"). In exchange for maintaining the aforementioned use restrictions, the Preservation Acts provided financial incentives for owners of government assisted properties. The 1996 Act provides financial assistance by funding the sale of such properties to not-for-profit owners and also restores the owners ability to prepay their HUD mortgage and convert the property to condominiums or market-rate rental housing. Local general partners have filed for incentives under the Preservation Acts or the 1996 Act for the following local partnerships: San Diego - Logan Square Gardens Company, Albuquerque - Lafayette Square Apts. Ltd., Westgate Associates Limited, Riverside Gardens, a Limited Partnership, Pacific Palms, a Limited Partnership, Canton Commons Associates, Rosewood Manor Associates, Bethany Glen Associates, and South Munjoy Associates, Ltd. The South Munjoy Associates, Ltd. property is under contract for sale to a private owner. The local general partners of the other properties are either negotiating purchase and sale contracts or exploring their 17 alternatives under the 1996 Act. Funding for the 1996 Act is subject to appropriations by Congress. Congress funded $624 million in fiscal year 1996 for the preservation of housing. Congress has funded approximately $325 million for preservation for 1997 Fiscal Year. Moreover only $175 million of the 1997 allocation is available to fund preservation, the balance is set aside for rental assistance payments and for special projects. There is a backlog of properties having a preservation value of in excess of $900 million. Accordingly, no assurance can be given that any of the local partnerships will obtain such incentives. HUD previously released the American Community Partnerships Act (the "ACPA"). The ACPA is HUD's blueprint for providing for the nation's housing needs in an era of static or decreasing budget authority. Two key proposals in the ACPA that could affect the Local Partnerships are: a discontinuation of project based Section 8 subsidy payments and an attendant reduction in debt on properties that were supported by the Section 8 payments. The ACPA calls for a transition during which the project based Section 8 would be converted to a tenant based voucher system. Any FHA insured debt would then be "marked-to-market", that is revalued in light of the reduced income stream, if any. Several industry sources have already commented to HUD and Congress that in the event the ACPA was fully enacted in its present form the reduction in mortgage indebtedness would be considered taxable income to limited partners in the Partnership. Legislative relief has been proposed to exempt "marked-to-market" debt from cancellation off indebtedness income treatment. Though HUD initially backed away from the "marked-to-market" proposal, it has now been re-introduced as "Portfolio Restructuring". Additionally, in the interim, HUD has agreed to annual extensions of any expiring project based Section 8 contracts, but there is no guarantee that such extension will be available in the future. The Partnership entered into negotiations to sell South Munjoy Associates, Limited for a sales price of approximately $3,000,000. The net proceeds will be used to satisfy the existing mortgage debt of approximately $800,000. The balance of the proceeds will be used to settle the purchase money notes and accrued interest with the balance, if any, available for general partnership purposes. Additionally, another local partnership has signed an option agreement to sell its property to the Local Housing Authority subject to HUD approval on or before December 31, 1998. 18 On June 3, 1996, the property and the related assets and liabilities of Roper Mountain Apartments Ltd. ("Roper Mountain") were sold to a third party for $4,735,000, resulting in net proceeds of $1,953,406 to the Partnership after repayment of the first mortgage owed to HUD and expenses of the sale. For financial reporting purposes a gain on the sale of property in the amount of $1,714,132 was realized. The Partnership used $1,227,941 of the net proceeds to settle the associated purchase money note and accrued interest which had a total outstanding balance of $2,304,994 resulting in forgiveness of indebtedness income of $1,077,053. For tax purposes, the entire gain to be realized by the Partnership is anticipated to be approximately $4,500,000. On August 15, 1996, the Partnership's limited partnership interest in Chickasha was sold to a third party for $75,000, resulting in no net proceeds to the Partnership after expenses of the sale. For financial reporting purposes a gain on the sale of property in the amount of $472,720 was realized and forgiveness of indebtedness income of $1,768,800 was also realized as a result of forgiveness of the mortgage note payable to HUD and accrued interest thereon. No proceeds were used to settle the associated purchase money note and accrued interest which had a total outstanding balance of $1,723,095 resulting in additional forgiveness of indebtedness income of $1,723,095. Therefore the entire forgiveness of indebtedness income realized by the Partnership from this transaction is $3,491,895. For tax purposes, the entire gain to be realized by the Partnership is anticipated to be approximately $1,800,000. On September 17, 1996, the property and the related assets and liabilities of Oakland-Keller Plaza ("Keller Plaza") were sold to a third party for $8,800,000, resulting in net proceeds of $6,033,731 to the Partnership after repayment of the first mortgage owed to HUD and expenses of the sale. For financial reporting purposes a gain on the sale of property in the amount of $4,847,249 was realized. The Partnership used $3,016,865 of the net proceeds (not including $409,930 which is anticipated to be repaid in January 1997 from a distribution of escrow funds) to settle the associated purchase money note and accrued interest which had a total outstanding balance of $4,065,887 resulting in forgiveness of indebtedness income of $639,092. For tax purposes, the entire gain to be realized by the Partnership is anticipated to be approximately $8,200,000. 19 For a discussion of contingencies affecting certain Local Partnerships, see Note 6 to the financial statements. Since the maximum loss the Partnership would be liable for is its net investment in the respective Local Partnerships, the resolution of the existing contingencies is not anticipated to impact future results of operations, liquidity or financial condition in a material way. Except as described above, management is not aware of any trends or events, commitments or uncertainties that will impact liquidity in a material way. Management believes the only impact would be from laws that have not yet been adopted. The portfolio is diversified by the location of the properties around the United States so that if one area of the country is experiencing downturns in the economy, the remaining properties in the portfolio may be experiencing upswings. However, the geographic diversifications of the portfolio may not protect against a general downturn in the national economy. Results of Operations In March 1995, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Asset and for Long-Lived Assets to Be Disposed Of". Under SFAS No. 121, the Partnership is required to review long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the book value of an asset may not be recoverable. An impairment loss should be recognized whenever the review demonstrates that the book value of a long-lived asset is not recoverable. Effective March 1, 1996, the Partnership adopted SFAS No. 121, consistent with the required adoption period. Property and equipment are carried at the lower of depreciated cost or estimated amounts recoverable through future operations and ultimate disposition of the property. Cost includes the purchase price, acquisition fees and expenses, and any other costs incurred in acquiring the properties. As required by SFAS 121, a provision for loss on impairment of assets is recorded when estimated amounts recoverable through future operations and sale of the property on an undiscounted basis are below depreciated cost. However, depreciated cost, adjusted for such reductions in value, if any, may be greater than the fair value. Property investments themselves are reduced to estimated fair value (generally using discounted cash flows) when the property is considered to be impaired and the depreciated cost exceeds estimated fair value. Through November 30, 1996, the Partnership has not recorded any provisions for loss on impairment of assets or reduction to estimated fair value. The results of operations of the Partnership, as well as the Local Partnerships, excluding gain on sale of property and forgiveness of indebtedness income, remained fairly constant during the three and nine months ended November 30, 1996 and 1995. Contributing to the relatively stable operations at the Local Partnerships is the fact that a large portion of the Local Partnerships are operating under Government Assistance Programs which provide for rental subsidies and/or reductions of mortgage interest payments under HUD Section 8 and Section 236 Programs. The Partnership's primary source of income continues to be its portion of the local partnerships' operating results. The majority of local partnership income continues to be in the form of rental income with the corresponding expenses being divided among operations, depreciation, and mortgage interest. In addition, the Partnership incurred interest expense relating to the Purchase Money Notes issued when the local partnership Interests were acquired. Rental income decreased approximately 2% and increased less than 1% during the three and nine months ended November 30, 1996 as compared to 1995. Excluding Roper Mountain and Keller Plaza, which sold their properties on June 3, 1996 and September 17, 1996, and Chickasha in which the Partnership's interest was sold on August 15, 1996, rental income increased approximately 2% during both the three and nine months ended November 30, 1996 as compared to 1995 primarily due to rental rate increases. 20 Other income decreased approximately $25,000 during the three months ended November 30, 1996 as compared to 1995 primarily due to a real estate tax refund at one local partnership during the third quarter of 1995. Total expenses excluding Roper Mountain, Keller Plaza and Chickasha, administrative and management expenses and interest expense remained fairly consistent with increases of approximately 3% and 4% for the three and nine months ended November 30, 1996 as compared to 1995. Administrative and management expenses increased approximately $123,000 and $267,000 for the three and nine months ended November 30, 1996 as compared to 1995. Excluding Roper Mountain, Keller Plaza and Chickasha, such expenses increased approximately $160,000 and $294,000, respectively, primarily due to an increase in bad debts and legal fees at one local partnership, hiring expenses relating to the turnover of three positions and an increase in superintendent services at a second local partnership, the change at a third local partnership from an affiliated property manager to one which is not an affiliate and small increases at three other local partnerships. Interest expense decreased approximately $251,000 and $386,000 for the three and nine months ended November 30, 1996 as compared to 1995 primarily due to the sale of the properties owned by Roper Mountain and Keller Plaza and the sale of the Partnership's interest in Chickasha. 21 PART II. OTHER INFORMATION Item 1. Legal Proceedings The Partnership is a Plaintiff in the Oklahoma County District Court in Oklahoma against Jerry L. Womack and Womack Property Management, Inc., an Oklahoma corporation. In this action entitled Shearson + Related Housing Properties Limited Partnership and Shearson/Related Housing Associates Limited Partnership v. Jerry L. Womack and Womack Property Management, Inc., the Partnership seeks judgment for damages caused by the individual defendant's resignation as general partner of Rolling Meadows of Chickasha, Ltd. (Rolling Meadows), of which the Partnership is a limited partner, and by the corporate defendant's mismanagement of the apartment project owned by Rolling Meadows. The individual defendant has counterclaimed against the Plaintiffs, alleging that they breached an agreement to advance funds to Rolling Meadows sufficient to pay operating losses on the property, thereby damaging such defendant in an amount exceeding $10,000. The corporate defendant has counterclaimed against the Plaintiffs for unpaid management fees and expenses approximating $6,000. Both counterclaims seek costs and attorneys' fees. Discovery is continuing in the action. The Plaintiffs are responding vigorously to the counterclaims and intend to continue doing so. While it is impossible to predict with certainty, counsel believes the counter claims have no substantial merit and that an outcome unfavorable to the Partnership is unlikely. The U.S. Department of Housing and Urban Development ("HUD"), the holder of the mortgage on the Project, notified Rolling Meadows that such mortgage was in default and that HUD intended to commence foreclosure proceedings. On August 15, 1996, the Partnership's limited partnership interest in Chickasha was sold to a third party for $75,000, resulting in no net proceeds to the Partnership after expenses of the sale (see Note 4 to the financial statements). Item 2. Changes in Securities - None Item 3. Defaults Upon Senior Securities - None Item 4. Submission of Matters to a Vote of Security Holders - None Item 5. Other information - None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: 27 Financial Data Schedule (filed herewith) (b) Reports on Form 8-K - No reports on Form 8-K were filed during the quarter. 22 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CAMBRIDGE + RELATED HOUSING PROPERTIES LIMITED PARTNERSHIP (Registrant) By: GOVERNMENT ASSISTED PROPERTIES, INC., a General Partner Date: By: /s/ Paul L. Abbott January 13, 1997 ------------------ Paul L. Abbott, President By: RELATED HOUSING PROGRAMS CORPORATION, a General Partner Date: By: /s/ Alan P. Hirmes January 13, 1997 ------------------ Alan P. Hirmes, Vice President 23 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf by the registrant and in the capacities and on the dates indicated: Signature Title Date - - - - - - - - - --------------------- --------------------- ------------- Vice President of Related Housing Programs /s/ Alan P. Hirmes Corporation Jan. 13, 1997 - - - - - - - - - --------------------- Alan P. Hirmes Treasurer (principal financial and accounting officer) of Related Housing Programs /s/ Richard A. Palermo Corporation Jan. 13, 1997 - - - - - - - - - ---------------------- Richard A. Palermo President, Chief Executive Officer (principal executive officer) and Chief Financial Officer of Government Assisted /s/ Paul L. Abbott Properties, Inc. Jan. 13, 1997 - - - - - - - - - ---------------------- Paul L. Abbott 24 EX-27 2 ART. 5 FDS FOR 3RD QUARTER 10-Q
5 The Schedule contains summary financial information extracted from the financial statements for Cambridge + Related Housing Properties L.P. and is qualified in its entirety by reference to such financial statements 0000718915 Cambridge + Related Housing Properties L.P. 1 9-MOS FEB-28-1997 MAR-01-1996 NOV-30-1996 17,512,854 201,124 296,519 0 0 1,321,427 178,547,088 78,669,670 119,209,342 9,564,324 183,738,594 0 0 0 (74,093,576) 119,209,342 0 30,033,494 0 0 22,958,220 0 6,041,065 1,034,209 0 0 0 5,208,040 0 6,243,784 622 0
-----END PRIVACY-ENHANCED MESSAGE-----