10-Q 1 r10q601.txt 6/30/01 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 Form 10-Q Quarterly Report Under Section 13 or 15 (d) of the Securities Exchange Act of 1934. ______________________________________________ For the Quarterly Period Ended June 30, 2001. Commission file num- ber 2-84474 APT Housing Partners Limited Partnership (Exact name of registrant as specified in its charter) Massachusetts 04-2791736 (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 500 West Cummings Park, Suite 6050, Woburn, Massachusetts 01801 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (781) 935-4200 N/A Former name, former address and former fiscal year, if change since last report 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 and 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 APT HOUSING PARTNERS LIMITED PARTNERSHIP BALANCE SHEETS ASSETS June 30, December 31, 2001 2000 (Unaudited) (audited) Investment in Local $ -0- $ -0- Limited Partnerships Cash and Cash Equivalents $299,589 $252,224 Total Assets $299,589 $252,224 LIABILITIES AND PARTNERS' CAPITAL (DEFICIENCY) Liabilities: Accrued Expenses - Affiliate $ 9,350 $ 8,547 Professional Fees $11,500 $11,500 Total Liabilities $20,850 $20,047 Commitments and Contingencies Partners' Capital (Deficit): General Partners (33,750) (34,681) Limited Partners, 3,700 partnership units authorized, issued and outstanding 312,489 266,858 Total Partners'Capital (Deficit) 278,739 232,177 Total Liabilities and Partners' Capital (Deficiency) $299,589 $252,224 PART I ITEM 1. FINANCIAL STATEMENTS (Continued) APT HOUSING PARTNERS LIMITED PARTNERSHIP STATEMENTS OF OPERATIONS (Unaudited) 6 Months 6 Months 3 Months 3 Months Ended Ended Ended Ended June 30 June 30 June 30 June 30 2001 2000 2001 2000 Interest Income $ 3,968 $ 4,824 $1,041 $2,522 Operating Expenses: Management fees- affiliate 18,700 18,700 9,350 9,350 Administrative 13,217 10,679 8,832 5,679 Total Operating Expenses 31,917 29,379 18,182 15,029 Loss Before Share of Losses of and Distributions from Local Limited Partnerships (27,949) (24,555) (17,141) (12,507) Distribution from Local Limited Partnerships 74,511 87,903 74,511 87,903 Share of Losses of Local Limited Partnerships - - - - Net Income (Loss) $46,562 $63,348 $57,370 $75,396 Limited Partners' Interest in Net Income (Loss) $45,631 $62,081 $56,223 $73,888 ITEM 1 FINANCIAL STATEMENTS (continued) Weighted Average Number of Outstanding Limited Partnership Units 3,700 3,700 3,700 3,700 Net Income (Loss) Per Limited Partnership Unit $12.33 $16.78 $15.20 $19.97 PART I ITEM 1. FINANCIAL STATEMENTS (Continued) APT HOUSING PARTNERS LIMITED PARTNERSHIP STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended Six Months Ended June 30, 2001 June 30, 2000 Cash Flows From Operating Activities: Net Income (Loss) $46,562 $63,348 Adjustments to reconcile net income (loss) to net cash provided by (used by) operating activities: Change in operating assets and liabilities: Increase (decrease) in accrued expenses 803 2,070 Net Cash provided by (used by) operating activities: 47,365 65,418 Cash Flows From Financing Activities: Distributions to limited partners: - - Distributions to general partner - - Net Cash used in financing activities - - Net Increase (Decrease) in cash and cash equivalents 47,365 65,418 Cash and Cash Equivalents, Beginning of Period 252,224 203,385 Cash and Cash Equivalents, End of Period $ 299,589 $268,803 APT HOUSING PARTNERS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization: APT Housing Partners Limited Partnership (the Partnership), organized as a Massachusetts Limited Partnership on June 8, 1983 was formed to invest in other Local Limited Partnerships ("the Local Limited Partnerships") which own and operate existing residential rental housing developments that are financed or operated with assistance from Federal, State and/or local governmental agencies. The Partnership has limited partnership interests in two Local Limited Partnerships, with a total of 156 residential apartment units, located within the Commonwealth of Massachusetts. The general partner of the Partnership is APT Asset Management, Inc. The Partnership Agreement, as amended, authorized the issuance of 3,700 limited partnership units, all of which were issued and are outstanding. Financial Statements: The accompanying balance sheet as of June 30, 2001, the statements of operations for the six-month and three-month periods ended June 30, 2001 and June 30, 2000, and the statements of cash flows for the six-month periods then ended have been prepared by the Partnership without audit. In the opinion of management, alladjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows for the interim periods have been made. The accompanying balance sheet as of December 31, 2000 has been taken from the audited financial statements at that date. The results of operations for the six-month and three-month periods ended June 30, 2001 and 2000 are not necessarily indicative of operating results for a full year. Use of estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financialstatements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. APT HOUSING PARTNERS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS Investment in Local Limited Partnerships: The Partnership accounts for its investments in the Local Limited Partnerships by the equity method. Accordingly, the investments are carried at cost, adjusted for the Partnership's proportionate share of earnings or losses. The Partnership's share of losses on an investment is recognized only to the extent of the investment. Distributions received are reflected as reductions of the investments. Once an investment balance has been reduced to zero, subsequent distributions received by the Partnership are recognized as income. Income taxes: Federal and state income taxes are not included in the accompany- ing financial statements because these taxes, if any, are the responsibility of the individual Partners. Statement of cash flows: For the purposes of the statement of cash flows, the Partnership considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. Cash equivalents consist of money market funds and U.S. Treasury Bills with carrying values of $198,786 and $198,162 at June 30, 2001 and December 31, 2000, respectively. Net income per limited partnership unit: Net income per limited partnership unit is computed by dividing net income available to limited partnership units by the weighted average number of outstanding limited partnership units during the period. 2. ALLOCATION OF BENEFITS In accordance with the Partnership Agreement, income, losses, credits and distributions are allocated 2% to the General Partner and 98% to the Limited Partners. 3. INVESTMENT IN LOCAL LIMITED PARTNERSHIPS The Partnership has investments in two Local Limited Partnerships, Ashland Commons Associates ("Ashland") and Rockledge Apartments Associates ("Rockledge"). The Partnership's investments consist of $1,143,695 for a 95.5% limited partnership interest in Ashland which owns an apartment complex of 96 units located in Ashland, Massachusetts and $543,900 for a 97% limited partnership interest in Rockledge which owns an apartment complex of 60 units located in Wakefield, Massachusetts. APT HOUSING PARTNERS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS The Local Limited Partnerships receive governmental assistance under programs which restrict the payment of annual cash distributions to the owners to specified maximum distributable amounts and to available surplus cash, as defined in the applicable Regulatory Agreement between the governmental agency and the Local Limited Partnership. Undistributed amounts are cumulative and may be distributed in subsequent years if there is available surplus cash. Based upon the Partnership's ownership interest in each of the Local Limited Partnerships, the maximum annual distributable amounts that can be made to the Partnership from Ashland and Rockledge are $87,903 and $9,552, respectively. For the six-month periods ended June 30, 2001 and 2000, the aggregate share of losses of the Local Limited Partnerships attributable to the Partnership amounted to $115,506 and $68,011, respectively. For the three-months ended June 30, 2001 and 2000, the aggregate share of losses of the Local Limited Partnerships attributable to the Partnership amounted to $44,267 and $34,527, respectively. The Partnership's cumulative share of losses of the Local Limited Partnerships exceeded its investments by $1,118,521 at June 30, 2001 and $1,003,015 at December 31, 2000. Accordingly, the investments have been reduced to zero and have not been reflected in the accompanying financial statements, and the Partnership has discontinued the application of the equity method. The Partnership will resume applying the equity method only after its allocable share of the net income of the Local Limited Partnerships equals the share of net losses not previously recognized during the period the equity method was suspended. Summarized balance sheet information on a combined basis for the Local Limited Partnerships as of June 30,2001 and December 31, 2000 was as follows: June 30, 2001 December 31, 2000 (Unaudited) (audited) Rental property $7,597,934 $7,597,934 Accumulated depreciation (4,971,409) (4,838,312) Cash and cash equivalents 206,838 297,070 Restricted assets and deposits 565,575 618,298 Other assets 169,592 103,888 Total assets 3,568,530 3,778,878 Mortgage loans payable 5,731,621 5,766,301 Other liabilities 165,953 176,014 Total liabilities 5,897,574 5,942,315 Partners' capital (deficiency) ($2,329,044) ($2,163,437) Composition of partners' capital (deficiency): General partners ($ 161,328) ($ 154,227) Limited partners (2,167,716) ( 2,009,210) Partners' capital (deficiency) ($2,329,044) ($2,163,437) APT HOUSING PARTNERS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS Summarized unaudited income statement information on a combined basis for the Local Limited Partnerships for the six-month and three-month periods ended June 30, 2001 and 2000 were as follows: Six Months Ended June 30, Three Months Ended June 30, 2001 2000 2001 2000 Revenues $880,992 $871,163 $444,538 $439,734 Net income (loss) ($120,579) ($70,511) ($46,209) ($35,812) 4. CASH AND CASH EQUIVALENTS The Partnership maintains cash and cash equivalent balances in a financial institution located in the Commonwealth of Massachusetts. Accounts in the institution are insured by the Federal Deposit Insurance Corporation (FDIC) up to $100,000. At December 31, 2000, cash and cash equivalents included a three month U.S. Treasury Bill which is backed by the full faith and credit of the U.S. Government and the remainder of the Partner- ship's cash and cash equivalents were fully insured. As well, at June 30, 2001 cash and cash equivalents includes a U.S. Treasury Bill and the Partnership's uninsured cash balances totaled $3,241. 5. TRANSACTIONS WITH RELATED PARTIES American Securities Team, Inc., an affiliate of the General Partner of the Partnership, receives an annual program management fee. This fee is for managing the affairs of the Partnership and for providing investor services to the Limited Partners. The fee is equal to .5% of invested assets plus the Local Limited Partnerships' annualized outstanding nonrecourse mortgage debt. Program management fees charged to operations for each of the six-month and three-month periods $18,700 and $9,350, respectively. The Partnership has liabilities to the affiliate of $9,350 and $8,547 at June 30, 2001 and December 31, 2000, respectively. 6. FAIR VALUE OF FINANCIAL INSTRUMENTS The fair values of the Partnership's financial instruments have been determined at a specific point in time, based on relevant market information and information about the financial instrument. Estimates of fair value are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could affect the estimates. The carrying amounts of cash and cash equivalents and accrued expenses at June 30, 2001 and December 31, 2000 approximate their fair values because of the short-term maturity of these instruments. PART I ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS: Liquidity and Capital Resources The Partnership's primary source of funds were the proceeds of its public offering. Other sources of liquidity include interest earned on funds and cash distributions from operations of the Local Limited Partnerships in which the Partnership has invested. These sources of liquidity are available to meet obligations of the Partnership. The Partnership received $3,700,000 in gross proceeds from the sale of partnership interests pursuant to the public offering, resulting in net proceeds available for investment, after volume discounts, establishment of working capital reserves, payment of sales commissions, acquisition fees and offering expenses, of $3,071,000. As of June 30, 2001, the Partnership has invested all of the net proceeds available for investment. The Partnership's commitment to investments requiring initial capital contributions has been paid. The Partnership has no other significant capital commitments. Pursuant to HUD's efforts to provide for the nation's housing needs, the Multifamily Assisted Housing Reform and Affordability Act (MAHRAA) of 1997, as amended, was enacted. In this Act, Congress set forth the legislation for a permanent "mark-to-market" program and provided for permanent authority for the renewal of Section 8 Contracts. Owners with Section 8 contracts expiring after September 30 ,1998 are subject to the provisions of MAHRAA. On September 11, 1998, HUD issued an interim rule to provide clarification of the implementation of the mark-to-market program. Since then, revised guidance has been provided through various HUD housing notices, most recently HUD housing notice 99-36, which addresses project- based Section 8 contracts expiring in fiscal year 2000. Under this notice, project owners have several options for Section 8 contract renewals, depending on the type of project and rent level. Options include marking rents up to market, renewing other contracts with rents at or below market, referring projects to the Office of Multifamily Housing Assistance Restructuring (OMHAR) for mark-to market or "OMHAR lite" renewals, renewing contracts that are exempted from referral to OMHAR, renewing contracts for portfolio re-engineering demonstration and preservation projects, and opting out of the Section 8 program. Owners must submit their rules and procedures that must be followed to comply with the requirements of housing notice 99-36. As such, each Local Limited Partnership may choose to either opt out of the Section 8 program, request mortgage restructuring and renewal of the Section 8 contract, or request renewal of the Section 8 contract without mortgage restructuring. Each option contains a specific set of rules and procedures that must be followed in order to comply with the requirements of MAHRAA. The Partnership cannot reasonably predict legislative initiatives and governmental budget negotiations, the outcome of which could result in a reduction in funds available for the various federal and state administered housing programs including the Section 8 program. Such changes could adversely affect the future net operating income and debt structure of certain Local Limited Partnerships currently receiving such subsidy or similar subsidies. PART I ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued): Cash distributions received from a Local Limited Partnership amounted to $74,511 and $87,903 during the quarters ended June 30, 2001 and 2000, respectively. These distributions are used to meet the Partnership's obligations. The Partnership has invested in Local Limited Partnerships owning housing developments which receive governmental assistance under programs which restrict the cash return available to the housing development owners. The Partnership believes that it will continue to receive cash distributions from a Local Limited Partnership in an amount sufficient to meet its operating expenses. However, there can be no assurance that cash distributions received will be adequate to allow the Partnership to make any further cash distributions to its partners. 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 for laws that have not yet been adopted. Results of Operations The Partnership was formed to provide various benefits to its Limited Partners. It is anticipated that the Local Limited Partnerships in which the Partnership has invested will primarily produce tax losses of approximately $17,000 per $5,000 investment in approximately 14 to 17 full years of Partnership operations, with approximately $11,000 of such tax losses occurring during the first 5 years of Partnership operations (assuming the applicability of current laws, regulations and court decisions). The benefits received in the form of tax savings may be reduced due to the enactment of the Tax Reform Act of 1986, depending on the individual circumstances of each Limited Partner. There can be no assurance that the Partnership will be able to attain its investment objectives. The Partnership will not seek to sell its interest in any housing development or Local Limited Partnership unti proceeds of such sale would supply sufficient cash to enable its Limited Partners to pay applicable taxes. Proceeds of such sales will not be reinvested. It is not expected that any of the Local Limited Partnerships in which the Partnership has invested will generate cash flow sufficient to provide for distributions to Limited Partners in any material amount. Except for the operating balance of cash, the Partnership's assets consist primarily of limited partnership interests in Local Limited Partnerships owning government-assisted housing developments. The Partnership accounts for its investments in the Local Limited Partnerships using the equity method of accounting. Under the equity method of accounting, the investment cost is subsequently adjusted for the Partner- ship's share of each Local Limited Partnership's results of operations and cash distributions. The Partnership's share in the loss of each Local Limited Partnership is not recognized to the extent that the investment balance would become negative. For the six -month periods ended June 30, 2001 and 2000, the aggregate share of losses of the Local Limited Partnerships attributable to the Partnership amounted to $115,506 and $68,011, respectively. For the three-months ended June 30, 2001 and 2000, the aggregate share of losses of the Local Limited Partnerships attributable to the Partnership and not included in the statements of income amounted to $44,267 and $34,527, respectively. The Partnership's cumulative share of losses of the Local Limited Partnerships exceed its investments, and, accordingly, its share of losses of the Local Limited Partnerships have not been reflected in the financial statements in accordance with the equity method of accounting because the investment balances have been reduced to zero. PART I ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued): The Partnership's net income for the six-month and three- month periods ended June 30, 2001 and 2000 was due primarily to the receipt of a cash distribution from its investment in a Local Limited Partnership. The Partnership incurs an annual program management fee payable to American Securities Team, Inc. ("AST"), an affiliate of the General Partner, for managing the affairs of the Partnership and for providing investor services to the Limited Partners. The fee to AST is equal to .5% of invested assets plus the Local Limited Partnerships' annualized outstanding nonrecourse debt. The fee amounted to $9,350 per quarter for the periods ended June 30, 2001 and 2000. Administrative expenses consist of professional fees. Other The Partnership's investment as a Limited Partner in the Local Limited Partnerships is subject to the risks incident to the potential losses arising from management and ownership of improved real estate. The Partnership's investments also could be adversely affected by poor economic conditions, generally, which could increase vacancy levels, increase rental payments defaults, or increase operating expenses. Any or all of these circumstances could threaten the financial viability of one or both of the local Limited Partnerships. There are also substantial risks associated with the operations of Apartment Complexes receiving governmental assistance. These include: governmental regulations concerning tenant eligibility which may make it more difficult to rent apartments in the complexes; difficulties in obtaining government approval for rent increases; limitations on the percentage of income which low and moderate income tenants may pay as rent; the possibility that Congress may not appropriate funds to enable the U.S. Department of Housing and Urban Development to make the rental assistance payments it has contracted to make; and that when the rental assistance contracts expire, there may not be market demand for apartments at full market rents in a Local Limited Partnership's Apartment Complex. PART I ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Disclosure not applicable. PART II OTHER INFORMATION ITEM 6. Exhibits and Reports on Form 8-K a. Articles of Incorporation and By-laws: The Registrant is not incorporated. The Partnership Agreement was filed with the Registrant's Registration Statement on Form S-11 (#2-84474) and is incorporated herein by reference. Purchase and Sale Agreement, dated as of March 30, 1984, relating to Ashland Commons Associates filed with Registrant's Form 8-K dated March 30, 1984 and is incorporated herein by reference. Purchase and Sale Agreement, dated as of April 30, 1984, relating to Historic Cohoes, II filed with Registrant's Form 8-K dated April 30, 1984 and is Purchase and Sale Agreement, dated as of June 22, 1984, relating to Rockledge Apartments Associates filed with Registrant's Form 8-K dated June 22, 1984 and is incorporated herein by reference. Withdrawal of APT Housing Partners Limited Partnership as a Limited Partner in a Local Limited Partnership, dated as of December 18, 1986, relating to Historic Cohoes II, filed with Registrant's Form 8-K dated March 30, 1987 and is incorporated herein by reference. b. No reports on Form 8-K have been filed for the quarter ended June 30, 2001. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. APT HOUSING PARTNERS LIMITED PARTNERSHIP By: APT Asset Management, Inc. General Partner Date:_____________________ _____________________ Jeff Ewing, President Bruno/1APT/10Q601.word 1