10-Q 1 r10q302.txt MARCH 31, 2002 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 _______________________________________________ Form 10Q Quarterly Report Under Section 13 or 15 (d) of the Securities Exchange Act of 1934. _______________________________________________ For the Three Months Ended March 31, 2002 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 incorporation or organization) Identification No.) 500 West Cummings Park, Suite 6050,Woburn, MA 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______________ This document contains 13 pages. PART I ITEM 1. FINANCIAL STATEMENTS APT HOUSING PARTNERS LIMITED PARTNERSHIP BALANCE SHEETS ASSETS March 31, December 31, 2002 2001 (unaudited) (audited) Investment in Local Limited Partnerships $ -0- $ -0- Cash and Cash Equivalents $268,944 $ 282,041 Total Assets $268,944 $ 282,041 LIABILITIES AND PARTNERS' CAPITAL (DEFICIENCY) Liabilities: Accrued Expenses - Affiliate $ 9,350 $ 7,696 Professional Fees 14,506 11,706 Total Liabilities 23,856 19,402 Commitments and Contingencies Partner's Capital (Deficit): General Partners ( 34,423) ( 34,072) Limited Partners, 3,700 partnership units authorized, issued and outstanding 279,511 296,711 Total Partners' Capital (Deficit) 245,088 262,639 Total Liabilities and Partners' Capital (Deficiency) $268,944 $282,041 See accompanying notes to financial statements PART I ITEM 1. FINANCIAL STATEMENTS (Continued) APT HOUSING PARTNERS LIMITED PARTNERSHIP STATEMENTS OF OPERATIONS (Unaudited) Three Months Three Months Ended Ended March 31, 2002 March 31, 2001 Interest Income $ 1,242 $ 2,927 Operating Expenses: Management fees - 9,350 9,350 affiliate Administrative 9,443 4,385 Total Operating Expenses 18,793 13,735 Loss Before Share of Losses of and Distri- butions from Local Limited Partnerships ( 17,551) ( 10,808) Distribution from Local - - Limited Partnership Share of Losses of Local Limited Partnerships - - Net Income (Loss) ($ 17,551) ($10,808) Limited Partners' Interest in Net Income (Loss) ($ 17,200) ($10,592) Weighted Average Number of Outstanding Limited Partnership Units 3,700 3,700 Net Income (Loss) Per Limited Partnership Unit ($ 4.65) ($ 2.86) See accompanying notes to financial statements PART I ITEM 1. FINANCIAL STATEMENTS (Continued) APT HOUSING PARTNERS LIMITED PARTNERSHIP STATEMENTS OF CASH FLOWS (Unaudited) Three Months Ended March 31, 2002 2001 Cash Flows From Operating Activities: Net Income (Loss) ($ 17,551) ($10,808) 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 4,454 3,678 Net Cash provided by (used by) operating activities: ( 13,097) (7,130) 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 ( 13,097) ( 7,130) Cash and Cash Equivalents, Beginning of Period 282,041 252,224 Cash and Cash Equivalents, End of Period $268,944 $245,094 See accompanying notes to financial statements 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 March 31, 2002, the statements of operations for the three-month periods ended March 31, 2002 and March 31, 2001, and the statements of cash flows for the three-month periods then ended have been pre- pared by the Partnership without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necesssary 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, 2001 has been taken from the audited financial statements at that date. The results of operations for the periods ended March 31, 2002 and 2001 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 liabili- ties at the date of the financial statements, 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 Partner- ship'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 accompanying financial statements because these taxes, if any are the responsibility of the individual Partners. Statement of cash flows: For 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. No cash equivalents were held at March 31, 2002 and December 31, 2001. 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 Partner- ships, Ashland Common 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 3. INVESTMENT IN LOCAL LIMITED PARTNERSHIPS (continued) 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 quarters ended March 31, 2002 and 2001, the aggregate share of losses of the Local Limited Partnerships attributable to the Partnership amounted to ($9,158) and ($71,239), respectively. The Partnership's cumulative share of losses of the Local Limited Partnerships exceeded its investments by $1,141,131 at March 31, 2002 and $1,131,973 at December 31, 2001. 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 March 31, 2002 and December 31, 2001 was as follows: March 31, December 31, 2002 2001 (unaudited) (audited) Rental property $ 7,597,934 $7,597,934 Accumulated depreciation ( 5,172,281) ( 5,104,501) Cash and cash equivalents 211,917 245,196 Restricted assets and deposits 714,963 625,242 Other assets 82,260 99,602 Total assets 3,434,794 3,463,473 Mortgage loans payable 5,681,401 5,695,219 Other liabilities 139,641 144,635 Total liabilities 5,821,042 5,839,854 Partners' capital (deficiency) ($ 2,386,248) ($2,376,381) Composition of partners' capital (deficiency) General partners ($ 164,411) ($ 163,702) Limited partners ( 2,221,837) ( 2,212,679) Partners' capital (deficiency) ($ 2,386,248) ( $2,376,381) APT HOUSING PARTNERS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS 3. INVESTMENT IN LOCAL LIMITED PARTNERSHIPS (continued) Summarized unaudited income statement information on a com- bined basis for the Local Limited Partnerships for the quarters ended March 31, 2002 and 2001 was as follows: March 31, 2002 March 31, 2001 Revenues $ 439,749 $ 436,454 Net income (loss) ($ 9,869) ($ 74,370) 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 March 31, 2002 and December 31, 2001 uninsured cash and cash equivalents balances totaled $168,944 and $187,619, repsectively. 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 the quarters ended March 31, 2002 and 2001 amounted to $9,350 and $9,350, respectively. The Partnership has liabilities to the affiliate of $9,350 and $7,696 at March 31, 2002 and December 31, 2001, 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 March 31, 2002 and December 31, 2001 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 opera- tions 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 March 31, 2002, 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 Afforda- bility 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 "Section 8 Renewal Policy Guide" which addresses project-based Section 8 contracts expiring in fiscal year 2001. Under this notice, project owners have several options for Section 8 contract renewals, depending on the type of projec 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 option to HUD at least 120 days before expiration of their contract. Each option contains specific rules and procedures that must be followed to comply with the requirements of the Section 8 Renewal Policy Guide. 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. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued): 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. No cash distributions were received from Local Limited Partnerships during the quarters ended March 31, 2002 and 2001. However, a cash distribution was received in calendar year 2001. This distribution was 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 will not receive a cash distribution in 2002. Management believes there is sufficient cash balances to fund operations. Accordingly, there can be no assurance that future cash distributions will be adequate to allow the Partnership to make 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 until 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 Partnership's share of each Local Limited Partner- ship'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 quarters ended March 31, 2002 and 2001, the aggregate share of net income (losses) of the Local Limited Partnerships attributable to the Partnership and not included in the statement of operations amounted to ($9,158) and ($71,239), respectively. The Partnership's cumulative share of losses of the Local Limited Partnerships exceed its investments, and, accordingly, its share of income/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 loss for the quarters ended March 31, 2002 and 2001 were due primarily to the accrual of first quarter program management fees and administration expenses. Management does not expect to receive cash distributions from Local Limited Partnerships for calendar 2002 as the partner- ships did not meet surplus cash as defined by HUD in Calendar 2001. Management believes existing cash balances are sufficient to meet future operating expenses. 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 for the quarters ended March 31, 2002 and 2001. Administrative expenses for the three months ended March 31, 2002 and 2001 were $9,443 and $4,385, respectively and consist of professional fees and legal fees related to Limited Partnership operations. The increase from 2001 to 2002 was the result of additional legal fees. Interest income for the three months ended March 31, 2002 was $1,242 as compared to $2,927 for the first quarter of 2001. The decrease was due to the interest rates on the cash and cash equivalents. 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 Partner- ship's Apartment Complex. PART I ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Partnership maintains cash and cash equivalents in a financial institution which is insured by the Federal Deposit Insurance Corporation (FDIC) up to $100,000. The Partnership does not believe these financial instruments are subject to significant market risk. 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 incorporated herein by reference. 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 March 31, 2002. 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