-----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, GAm8dffRZePxK6vyJjwI/VJNjLlk6AJ1Yf7q89WgStZyXfO4LkaRAfbLceOWzuls rw197iwimgImRArCFevnhw== 0000950146-98-001700.txt : 19981008 0000950146-98-001700.hdr.sgml : 19981008 ACCESSION NUMBER: 0000950146-98-001700 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980831 FILED AS OF DATE: 19981002 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: SEC FILE NUMBER: 000-12634 FILM NUMBER: 98720115 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 FORM 10-Q 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 August 31, 1998 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) August 31, February 28, 1998 1998 ---- ---- ASSETS Property and equipment, net of accumulated depreciation of $62,458,963 and $67,405,570, respectively $59,420,124 $66,541,368 Property and equipment-held for sale, net of accumulated depreciation of $3,761,441 and $7,466,033 1,912,735 8,372,413 Cash and cash equivalents 7,365,484 6,069,843 Certificates of deposit 77,226 205,509 Cash - restricted for tenants' security deposits 817,613 843,561 Mortgage escrow deposits 5,466,384 6,784,348 Rents receivable 240,515 304,888 Prepaid expenses and other assets 1,245,897 955,224 ----------- ----------- Total assets $76,545,978 $90,077,154 =========== =========== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Mortgage notes payable $45,603,013 $55,464,577 Purchase money notes payable (Note 2) 39,923,549 46,352,956 Due to selling partners (Note 2) 48,006,061 54,951,723 Accounts payable, accrued expenses and other liabilities 2,297,067 4,637,981 Tenants' security deposits payable 817,613 843,561 Due to general partners of subsidiaries and their affiliates 466,471 502,593 Due to general partners and affiliates 1,321,487 1,308,614 Distribution payable 0 2,030,972 ----------- ----------- Total liabilities 138,435,261 166,092,977 ----------- ----------- Minority interest 288,510 167,391 ----------- ----------- Commitments and contingencies (Note 6) Partners' deficit: Limited partners (61,107,484) (74,972,851) General partners (1,070,309) (1,210,363) ----------- ----------- Total partners' deficit (62,177,793) (76,183,214) ----------- ----------- Total liabilities and partners' deficit $76,545,978 $90,077,154 =========== =========== See Accompanying Notes to Consolidated Financial Statements. 2 CAMBRIDGE + RELATED HOUSING PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES Consolidated Statements of Operations (Unaudited)
Three Months Ended Six Months Ended August 31, August 31, 1998 1997 1998 1997 ---- ---- ---- ---- Revenues: Rentals, net $5,450,835 $6,937,665 $11,275,197 $14,007,969 Other 194,303 263,883 391,235 477,015 Gain (loss) on sale of properties (Note 5) (713,244) 483,618 5,427,756 483,618 ---------- ---------- ----------- ----------- Total revenues 4,931,894 7,685,166 17,094,188 14,968,602 ---------- ---------- ----------- ----------- Expenses Administrative and management 941,561 1,383,828 2,064,531 2,611,637 Administrative and management- related parties (Note 3) 575,086 698,084 1,164,968 1,385,097 Operating 800,176 1,057,915 1,770,780 2,513,372 Repairs and maintenance 1,544,317 1,943,506 2,861,210 3,692,931 Taxes and insurance 756,368 953,982 1,465,115 1,841,664 Interest 1,378,949 1,867,311 2,778,428 3,768,553 Depreciation 1,088,337 1,429,577 2,180,271 2,888,425 Loss on impairment of assets (Note 4) 0 0 3,191,072 0 ---------- ---------- ----------- ----------- Total expenses 7,084,794 9,334,203 17,476,375 18,701,679 ---------- ---------- ----------- ----------- Loss before minority interest and extraordinary item (2,152,900) (1,649,037) (382,187) (3,733,077) Minority interest in (income) loss of subsidiaries (620,341) 384 (621,294) 247 ---------- ---------- ----------- ----------- Loss before extraordinary item (2,773,241) (1,648,653) (1,003,481) (3,732,830) Extraordinary item- forgiveness of indebtedness income (Note 5) 15,762 3,187,950 15,008,902 3,187,950 ---------- ---------- ----------- ----------- Net income (loss) $(2,757,479) $1,539,297 $14,005,421 $ (544,880) =========== ========== =========== ===========
See Accompanying Notes to Consolidated Financial Statements. 3 CAMBRIDGE + RELATED HOUSING PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES Consolidated Statement of Partners' Deficit (Unaudited) Limited General Total Partners Partners ------------ ------------ ----------- Balance- March 1, 1998 $(76,183,214) $(74,972,851) $(1,210,363) Net income- six months ended August 31, 1998 14,005,421 13,865,367 140,054 ------------ ------------ ----------- Balance- August 31, 1998 $(62,177,793) $(61,107,484) $(1,070,309) ============ ============ =========== 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) Six Months Ended August 31, ---------------- 1998 1997 ---- ---- Cash flows from operating activities: Net income (loss) $14,005,421 $(544,880) ----------- ---------- Adjustments to reconcile net income (loss) to net cash provided by operating activities: Gain on sale of properties (Note 5) (5,427,756) (483,618) Extraordinary item - forgiveness of indebtedness income (Note 5) (15,008,902) (3,187,950) Depreciation 2,180,271 2,888,425 Loss on impairment of assets (Note 4) 3,191,072 0 Minority interest in income (loss) of subsidiaries 621,294 (247) Decrease (increase) in cash-restricted for tenants' security deposits 3,484 (24,282) Decrease (increase) in mortgage escrow deposits 468,071 (736,958) Decrease in rents receivable 59,744 2,709 (Increase) decrease in prepaid expenses and other assets (299,155) 369,714 Increase in due to selling partners 1,790,981 2,517,232 Payments to selling partners (85,784) (173,487) Decrease in accounts payable, accrued expenses and other liabilities (665,584) (114,689) (Decrease) increase in tenants' security deposits payable (5,748) 24,118 Increase in due to general partners of subsidiaries and their affiliates 152,331 228,889 Decrease in due to general partners of subsidiaries and their affiliates (144,191) (85,139) Increase in due to general partners and affiliates 5,373 446,869 ----------- ---------- Total adjustments (13,164,499) 1,671,586 ----------- ---------- Net cash provided by operating activities 840,922 1,126,706 ----------- ---------- 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) Six Months Ended August 31, ------------------------- 1998 1997 ---- ---- Cash flows from investing activities: Decrease (increase) in certificates of deposit 128,283 (1,608) Proceeds from sale of properties 7,082,059 100,000 Acquisitions of property and equipment (262,766) (470,453) Increase in mortgage escrow deposits (44,574) 0 ---------- ---------- Net cash provided by (used in) investing activities 6,903,002 (372,061) ---------- ---------- Cash flows from financing activities: Principal payments of mortgage notes payable (3,837,510) (977,934) Decrease in minority interest (500,175) (14,276) Distributions paid to partners (2,030,972) (1,111,554) Principal payments of purchase notes payable (79,626) 0 ----------- ---------- Net cash used in financing activities (6,448,283) (2,103,764) ---------- ---------- Net increase (decrease) in cash and cash equivalents 1,295,641 (1,349,119) Cash and cash equivalents at beginning of period 6,069,843 5,981,506 ----------- ---------- Cash and cash equivalents at end of period $7,365,484 $4,632,387 =========== ========== See Accompanying Notes to Consolidated Financial Statements. 6 CAMBRIDGE + RELATED HOUSING PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES Consolidated Statements of Cash Flows Increase (decrease) in Cash and Cash Equivalents (continued) (Unaudited) Six Months Ended August 31, ------------------------- 1998 1997 ---- ---- Supplemental disclosures of noncash activities: Forgiveness of indebtedness Decrease in purchase money notes payable (6,349,781) (1,429,159) Decrease in due to selling partners (8,650,859) (1,758,791) Increase in due to general partners and affiliates 7,500 0 Decrease in due to general partners of subsidiaries and their affiliates (15,762) 0 Summarized below are the components of the gain on sale of properties: Decrease in property and equipment, net of accumulated depreciation 8,472,345 1,655,247 Decrease in cash-restricted for tenants' security deposits 22,464 15,547 Decrease in mortgage escrow deposits 894,467 120,716 Decrease in rents receivable 4,629 791 Decrease in prepaid expenses and other assets 8,482 27,008 Decrease in mortgage notes payable (6,024,054) (1,681,707) Decrease in accounts payable, accrued expenses and other liabilities (1,675,330) (31,345) Decrease in tenants' security deposits payable (20,200) (15,383) Decrease in due to general partners of subsidiaries and their affiliates (28,500) (474,492) See Accompanying Notes to Consolidated Financial Statements. 7 CAMBRIDGE + RELATED HOUSING PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES Notes to Consolidated Financial Statements August 31, 1998 (Unaudited) Note 1 - General The consolidated financial statements for the six months ended August 31, 1998, include the accounts of Cambridge + Related Housing Properties Limited Partnership, a Massachusetts limited partnership (the "Partnership") and thirty-three subsidiary partnerships ("subsidiaries", "subsidiary partnerships" or "Local Partnerships"), one of which only has activity through the effective date of sale of the Partnership's interest and four of which only have activity through the date of sale of their properties and the related assets and liabilities (see Note 5). The consolidated financial statements for the six months ended August 31, 1997, include the accounts of the Partnership and forty-one subsidiary partnerships, one of which only has activity through the date of sale of the Partnership's interest (see Note 5). The Partnership is a limited partner, with an ownership interest of 98.99% in each of the subsidiary partnerships. Through the rights of the Partnership and/or a General Partner, which General Partner has a contractual obligation to act on behalf of the Partnership, the right to remove the local general partner of the subsidiary partnerships and to approve certain major operating and financial decisions, the Partnership has a controlling financial interest in the subsidiary partnerships. For financial reporting purposes, the Partnership's fiscal quarter ends on August 31. All subsidiaries have fiscal quarters ending June 30. Accounts of subsidiaries have been adjusted for intercompany transactions from June 1 through August 31. The Partnership's fiscal quarter ends on August 31 in order to allow adequate time for the subsidiaries financial statements to be prepared and consolidated. The books and records of the Partnership are maintained on the accrual basis of accounting, in accordance with generally accepted accounting principles ("GAAP"). 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 from and cash distributions to the minority interest partners. 8 CAMBRIDGE + RELATED HOUSING PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES Notes to Consolidated Financial Statements August 31, 1998 (Unaudited) 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 $500 and $0 and $5,500 for the three and six months ended August 31, 1998 and 1997, 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 28, 1998. 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 August 31, 1998, the results of operations for the three and six months ended August 31, 1998 and 1997 and cash flows for the six months ended August 31, 1998 and 1997. However, the operating results for the six months ended August 31, 1998 may not be indicative of the results for the year. 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 28, 1998 Annual Report on Form 10-K. 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. The Purchase Money Notes, which provide for simple interest at the rate of 9% per annum through maturity, which will occur 9 CAMBRIDGE + RELATED HOUSING PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES Notes to Consolidated Financial Statements August 31, 1998 (Unaudited) 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. Continued accrual of such interest without payment would impact the effective rate of the notes, specifically by reducing the current effective interest rate of 9%. The exact effect is not determinable inasmuch as it is dependent on the actual future interest payments and ultimate repayment dates of the notes. Unpaid interest of $47,881,013 and $54,826,676 at August 31, 1998 and February 28, 1998, respectively, has been accrued and is included in the caption due to selling partners. In general, the interest on and the principal of each Purchase Money Note is also payable to the extent of the Partnership's actual receipt of proceeds from the sale or refinancing of the Apartment Complex, or in some cases the Local Partnership Interest to which the Purchase Money Note relates. The Partnership was permitted to extend the term of the Purchase Money Notes for up to five additional years. In connection with such extensions, the Partnership incurred an extension fee of 1/2% per annum of the outstanding principal balance of the assets. The Partnership sent an extension notice to each Purchase Note holder that pursuant to the note it was extending the maturity. However, the Partnership did not pay the extension fee at this time, deferring such payment to the future. The holders of the Note could argue that until the fee is paid the Note has not been properly extended. The Partnership expects that upon final 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. No assurance can be given that man- 10 CAMBRIDGE + RELATED HOUSING PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES Notes to Consolidated Financial Statements August 31, 1998 (Unaudited) agement's efforts will be successful. The Purchase Money Notes are without personal recourse to either the Partnership or any of its partners and the sellers' recourse, in the event of non-payment, would be to foreclose on the Partnership's interests in the respective Local Partnerships. During the six months ended August 31, 1998 and 1997, the Partnership received cash flow distributions aggregating $454,597 and $289,146, respectively, of which $85,784 and $173,488 was used to pay interest on the purchase money notes. In addition, the Partnership received a distribution of proceeds from the sale of four Local Partnerships and proceeds from the sale of its Local Partnership Interest in one Local Partnership aggregating $1,810,906 and $100,000, respectively, of which $488,712 and $0 was used to pay principal on the Purchase Money Notes during the six months ended August 31, 1998 and 1997, respectively. Note 3 - Related Party Transactions The costs incurred to related parties for the three and six months ended August 31, 1998 and 1997 were as follows: Three Months Ended Six Months Ended August 31, August 31, ------------------ ----------------- 1998 1997 1998 1997 ---- ---- ---- ---- Partnership manage- ment fees (a) $241,500 $241,500 $483,000 $483,000 Expense reimburse- ment (b) 28,060 72,625 52,560 130,625 Property manage- ment fees (c) 299,526 377,959 616,408 758,472 Local administra- tive fee (d) 6,000 6,000 13,000 13,000 -------- -------- ---------- -------- $575,086 $698,084 $1,164,968 $1,385,097 ======== ======== ========== ========== (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. Partnership management fees owed to the General Partners amounting to approximately $909,000 and $426,000 were accrued and unpaid as of August 31, 1998 and February 28, 1998. 11 CAMBRIDGE + RELATED HOUSING PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES Notes to Consolidated Financial Statements August 31, 1998 (Unaudited) (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 partnerships' performance. (c) Property management fees incurred by Local Partnerships to affiliates of the Local Partnerships amounted to $299,526 and $377,959 and $616,408 and $758,472 for the three and six months ended August 31, 1998 and 1997, respectively. Of such fees $40,867 and $67,226 and $101,079 and $134,818, respectively, were incurred to a company which is also an affiliate of the General Partners. (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 - Property and Equipment Caddo Parish-Villas South, Ltd. ("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. Accordingly, for the six months ended August 31, 1998, an impairment loss in the amount of $3,191,072 has been recognized. As of August 31, 1998, the building was written down to zero. 12 CAMBRIDGE + RELATED HOUSING PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES Notes to Consolidated Financial Statements August 31, 1998 (Unaudited) Note 5 - Sale of Properties On June 24, 1998, the Pacific Palm Limited Partnership entered into a contract to sell the property to an unaffiliated third party for a price of $4,500,000. The buyer failed to close and a contract termination notice was sent on September 22, 1998. The general partner is actively pursuing other interested purchasers. On April 27, 1998, the property and the related assets and liabilities of Riverside Gardens Limited Partnership ("Riverside") and Cudahy Gardens Limited Partnership ("Cudahy") were sold to a third party for approximately $1,834,000 and $232,000, respectively, resulting in losses of approximately $473,000 and $240,000 plus the assumption of the related mortgage notes. The Partnership used approximately $442,000 and $47,000, respectively, of the net proceeds to settle the associated Purchase Money Note and accrued interest thereon which had total outstanding balances of approximately $5,402,000 and $2,672,000, respectively, resulting in forgiveness of indebtedness income of approximately $4,961,000 and $2,625,000, respectively. For tax purposes, the entire gain to be realized by the Partnership is anticipated to be approximately $6,500,000 and $3,600,000, respectively. On April 21, 1998, the Partnership's limited partnership interest in Oklahoma City - Town and Country Village Apartments, Ltd. ("Town and Country") was assigned to the local general partner effective January 15, 1998, resulting in a gain of approximately $4,634,000. The related purchase money note and interest thereon were canceled resulting in forgiveness of indebtedness income of approximately $7,407,000. For tax purposes, the entire gain to be realized by the Partnership is anticipated to be approximately $11,500,000. On January 16, 1998, the property and related assets and liabilities of Country Ltd. ("Country") and Northbrook III, Ltd. ("Northbrook") were sold to a third party for approximately $3,247,000 and $1,998,000, respectively, resulting in gains of approximately $937,000 and $570,000, respectively. The Partnership used approximately $860,000 and $90,000, respectively, of the net proceeds to settle the associated Purchase Money Note and accrued 13 CAMBRIDGE + RELATED HOUSING PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES Notes to Consolidated Financial Statements August 31, 1998 (Unaudited) interest thereon which had total outstanding balances of $2,517,000 and $77,000, respectively, resulting in forgiveness of indebtedness income (loss) of $1,656,000 and $(13,000), respectively. For tax purposes, the entire gain to be realized by the Partnership is anticipated to be approximately $4,200,000 and $1,600,000, respectively. On April 25, 1997, the Partnership's Local Partnership Interest in Los Caballeros Apartments ("Los Caballeros") was sold to the general partners of Los Caballeros for $100,000, resulting in a gain in the amount of $483,618. No proceeds were used to settle the associated Purchase Money Note and accrued interest thereon which had a total outstanding balance of $3,187,950, resulting in forgiveness of indebtedness income. Note 6 - Commitments and Contingencies There were no material changes, except as set forth in Note 5, 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 28, 1998. a) Certificate of Deposit The Partnership has a Certificate of Deposit in the amount of $77,226 at August 31, 1998 to secure an overdraft in Town and Country's bank account. Upon finalization of sale the funds will be used to pay off the overdraft. 14 CAMBRIDGE + RELATED HOUSING PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES Notes to Consolidated Financial Statements August 31, 1998 (Unaudited) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources The Partnership's primary sources of funds are (i) cash distributions from operations and sales of the Local Partnerships in which the Partnership has invested, (ii) interest earned on funds and (iii) cash in working capital reserves. All of these sources of funds are available to meet the obligations of the Partnership. During the six months ended August 31, 1998 and 1997, the Partnership received cash flow distributions aggregating $455,000 and $289,000 , respectively, of which $86,000 and $173,000 was used to pay interest on the Purchase Money Notes. In addition, the Partnership received a distribution of proceeds from the sale of four Local Partnership and proceeds from the sale of its Local Partnership Interest in one Local Partnership aggregating $1,811,000 and $100,000, respectively, of which $489,000 and $0 was used to pay principal on the Purchase Money Notes during the six months ended August 31, 1998 and 1997, respectively. During the three and six months ended August 31, 1998, cash and cash equivalents of the Partnership and its thirty-three consolidated Local Partnerships increased approximately $1,296,000. This increase was due to cash provided by operating activities ($841,000), decrease in certificates of deposit ($128,000) and proceeds from sale of properties ($7,082,000) which exceeded principal payments of mortgage notes payable ($3,838,000), principal payments of purchase money notes payable ($80,000), an increase in mortgage escrow deposits ($45,000), distributions paid to partners ($2,031,000), a decrease in minority interest ($500,000) and acquisitions of property and equipment ($263,000). Included in the adjustments to reconcile the net income to cash provided by operating activities is gain on sale of properties ($5,428,000), forgiveness of indebtedness income ($15,009,000), a loss on impairment of assets ($3,191,000) and depreciation ($2,180,000). The Partnership had a working capital reserve of approximately $3,390,000 and $2,339,000 (which does not include approximately $2,031,000 of net proceeds from sale of properties which was distributed to limited partners and General Partners in March 1998) at August 31, 1998 and February 28, 1998, respectively, of which approximately $77,000 and $206,000 was restricted at August 31, 1998 and 1997 to secure an overdraft in Town and Country's bank account and to secure operating credit lines at five other Local Partnerships. The working capital reserve is temporarily invested 15 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 from future sales and future cash flow distributions will be adequate for its operating needs, and plans to continue investing available reserves in short term investments. In March 1998 and 1997, a distribution of approximately $2,011,000 and $1,100,000, and $21,000 and $11,000 was paid to the limited partners and General Partners, respectively, from net proceeds from the sale of properties. Of the total distributions of approximately $2,031,000 and $1,111,000 for the six months ended August 31, 1998 and 1997, $0 and $1,111,000 ($110.68 per unit or 100%) represents a return of capital determined in accordance with generally accepted accounting principles. Partnership management fees owed to the General Partners amounting to approximately $909,000 and $426,000 were accrued and unpaid as of August 31, 1998 and February 28, 1998. The Local Partnerships which receive government assistance are subject to low-income use restrictions which limit 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 provide 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 and the Riverside Gardens property were sold on September 9, 1997 and April 27, 1998, respectively. The local general partners of the other properties are either negotiating purchase and sale contracts or exploring their alternatives under the 1996 Act. 16 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 had funded approximately $325 million for preservation for 1997 fiscal year. Congress did not allocate any funds for preservation for the 1998 fiscal year, effectively ending the preservation effort for the time being. Management is working with the local general partners in an effort to find alternative exit strategies. 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 option has expired and the general partners are pursuing other opportunities. The Partnership's investment in Westgate was approximately $839,000 at August 31, 1998. Westgate's assets constituted approximately 3% of the consolidated total assets at August 31, 1998. For a discussion of Purchase Money Notes Payable see Note 2 to the financial statements. For a discussion of the Partnership's sale of properties see Note 5 to the financial statements. 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. Management has endeavored to contact the Local Partnerships in the southeast regions which may have been affected by Hurricane Georges. At this time, it is premature to report any damage due to the incomplete information available at this time due to the recent timing of this occurrence. Management is not aware of any trends or events, commitments or uncertainties which have not otherwise been disclosed that will or are likely to 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. How- 17 ever, the geographic diversifications of the portfolio may not protect against a general downturn in the national economy. Results of Operations The results of operations of the Partnership, as well as the Local Partnerships, remained fairly consistent during the three and six months ended August 31, 1998 and 1997 excluding South Munjoy, Country, Northbrook III, Riverside and Cudahy which sold their properties and Los Cabelleros, Clinton Plaza, Clinton Plaza #2, Grosvenor Plaza, Grosvenor Plaza #2 and Town and Country in which the Partnership's interest was sold (collectively the "Sold Assets"), administrative and management and loss on impairment of assets. 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 21% and 20% for the three and six months ended August 31, 1998 as compared to 1997. Excluding the Sold Assets, rental income increased approximately 1% for both the three and six months ended August 31, 1998 as compared to 1997 primarily due to rental rate increases. Other income decreased approximately $70,000 and $86,000 for the three and six months ended August 31, 1998 as compared to 1997. Excluding the Sold Assets such income increased approximately $8,000 and $9,000, respectively. Total expenses excluding the Sold Assets, administrative and management and loss on impairment of assets, expenses remained fairly consistent with an increase of approximately 1% and a decrease of approximately 1% for the three and six months ended August 31, 1998 as compared to 1997. 18 Administrative and management expense decreased approximately $442,000 and $547,000, for the three and six months ended August 31, 1998 as compared to 1997 primarily due to decreases relating to the Sold Assets. Excluding the Sold Assets, such expense decreased approximately $173,000 and $112,000 primarily due to decreases in bad debt expense at two Local Partnerships as well as decreases at three other Local Partnerships for the three and six months ended August 31, 1998 as compared to 1997. Administrative and management-related parties, operating, repairs and maintenance, taxes and insurance, interest and depreciation expense decreased approximately $123,000 and $220,000, $258,000 and $743,000, $399,000 and $832,000, $198,000 and $377,000, $488,000 and $990,000, $341,000 and $708,000, respectively, for the three and six months ended August 31, 1998 as compared to 1997 primarily due to decreases relating to the Sold Assets. Excluding the Sold Assets, and Pacific Palm for depreciation only, such expenses remained fairly consistent with (decreases) increases of approximately ($25,000) and ($46,000), ($31,000) and ($169,000), $100,000 and $49,000, ($4,000) and $31,000, $17,000 and ($14,000), $5,000 and $16,000, respectively, for the three and six months ended August 31, 1998 as compared to 1997. Pacific Palm is not depreciated during the quarter because it is classified an asset held for sale. Year 2000 Compliance As the year 2000 approaches, an issue has emerged regarding how existing application software programs and operating systems can accommodate this date value. Failure to adequately address this issue could have potentially serious repercussions. The General Partners are in the process of working with the Partnership's service providers to prepare for the year 2000. Based on information currently available, the Partnership does not expect that it will incur significant operating expenses or be required to incur material costs to be year 2000 compliant. 19 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 was 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. 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 20 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. 21 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CAMBRIDGE + RELATED HOUSING PROPERTIES LIMITED PARTNERSHIP (Registrant) By: GOVERNMENT ASSISTED PROPERTIES, INC., a General Partner Date: October 2, 1998 By:/s/ Alan P. Hirmes ------------------ Alan P. Hirmes, Vice President and Principal Financial Officer Date: October 2, 1998 By:/s/ Glenn F. Hopps ------------------ Glenn F. Hopps, Treasurer and Principal Accounting Officer By: RELATED HOUSING PROGRAMS CORPORATION, a General Partner Date: October 2, 1998 By:/s/ Alan P. Hirmes ------------------ Alan P. Hirmes, Vice President and Principal Financial Officer Date: October 2, 1998 By:/s/ Glenn F. Hopps ------------------ Glenn F. Hopps, Treasurer and Principal Accounting Officer 22 EX-27 2 ART.5 FDS FOR 2ND 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 6-MOS FEB-28-1999 MAR-01-1998 AUG-31-1998 13,649,481 77,226 240,515 0 0 1,245,897 127,553,263 66,220,404 76,545,978 4,902,638 133,532,623 0 0 0 (61,889,283) 76,545,978 0 17,094,188 0 0 11,506,875 3,191,072 2,778,428 (382,187) 0 0 0 15,008,902 0 14,005,421 1,381 0
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