-----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, FbLSkxged+hv7Br0ad9IodElw954o4/J5QRyilWFhTgVAXUT4epPzaXsPtLIDUKn twjeEVyHBFsSM3vTbKDrBA== 0000711642-05-000085.txt : 20050408 0000711642-05-000085.hdr.sgml : 20050408 20050408164031 ACCESSION NUMBER: 0000711642-05-000085 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20041231 FILED AS OF DATE: 20050408 DATE AS OF CHANGE: 20050408 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HOUSING PROGRAMS LTD CENTRAL INDEX KEY: 0000750304 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 953906167 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-13808 FILM NUMBER: 05741902 BUSINESS ADDRESS: STREET 1: 9090 WILSHIRE BLVD STREET 2: STE 201 CITY: BEVERLY HILLS STATE: CA ZIP: 90211 BUSINESS PHONE: 3102782191 MAIL ADDRESS: STREET 1: 9090 WILSHIRE BLVD STREET 2: SUITE 201 CITY: BEVERLY HILLS STATE: CA ZIP: 90211 FORMER COMPANY: FORMER CONFORMED NAME: REAL ESTATE ASSOCIATES LTD VIII DATE OF NAME CHANGE: 19840823 10KSB 1 hpl.txt HPL UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 Form 10-KSB (Mark One) [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2004 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________to _________ Commission file number 0-13808 HOUSING PROGRAMS LIMITED (Name of small business issuer in its charter) California 95-3906167 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 55 Beattie Place, PO Box 1089 Greenville, South Carolina 29602 (Address of principal executive offices) Issuer's telephone number (864) 239-1000 Securities registered under Section 12(b) of the Exchange Act: None Securities registered under Section 12(g) of the Exchange Act: 12,368 Limited Partnership Units (Title of class) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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___ Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of the Partnership's knowledge in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [X] State issuer's revenues for its most recent fiscal year. $1,000 State the aggregate market value of the voting partnership interests held by non-affiliates computed by reference to the price at which the partnership interests were sold, or the average bid and asked prices of such partnership interests as of December 31, 2004. No market exists for the limited partnership interests of the Registrant, and, therefore, no aggregate market value can be determined. DOCUMENTS INCORPORATED BY REFERENCE NONE The matters discussed in this report contain certain forward-looking statements, including, without limitation, statements regarding future financial performance and the effect of government regulations. Actual results may differ materially from those described in the forward-looking statements and will be affected by a variety of risks and factors including, without limitation: national and local economic conditions; the terms of governmental regulations that affect the Registrant and interpretations of those regulations; the competitive environment in which the Registrant operates; financing risks, including the risk that cash flows from operations may be insufficient to meet required payments of principal and interest; real estate risks, including variations of real estate values and the general economic climate in local markets and competition for tenants in such markets; litigation, including costs associated with prosecuting and defending claims and any adverse outcomes, and possible environmental liabilities. Readers should carefully review the Registrant's financial statements and the notes thereto, as well as the risk factors described in the documents the Registrant files from time to time with the Securities and Exchange Commission. PART I. ITEM 1. DESCRIPTION OF BUSINESS Housing Programs Limited ("HPL" or the "Partnership") is a limited partnership which was formed under the laws of the State of California on May 15, 1984. On September 12, 1984, the Partnership offered 3,000 units consisting of 6,184 Limited Partnership Interests and warrants to purchase a maximum of 6,184 Additional Limited Partnership Interests through a public offering. The Partnership shall be dissolved only upon the expiration of 50 complete calendar years (December 31, 2034) from the date of the formation of the Partnership or upon the occurrence of various other events as described in the terms of the Partnership agreement. The general partners of the Partnership are National Partnership Investments Corp. ("NAPICO" or the "Corporate General Partner"), Housing Programs Corporation II and National Partnership Investment Associates (collectively, the "General Partners"). NAPICO is a subsidiary of Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The business of the Partnership is conducted primarily by its General Partners as Housing Programs Limited and has no employees of its own. The general partners have a one percent interest in profits and losses of the Partnership. The limited partners have the remaining 99 percent interest which is allocated in proportion to their respective individual investments. The Partnership holds limited partnership interests in four local limited partnerships (the "Local Limited Partnerships") as of December 31, 2004. The Partnership surrendered its interest in one Local Limited Partnership in 2001 and the properties in three of the Local Limited Partnerships were sold in 2003. The remaining Local Limited Partnerships' general partners are unaffiliated with the Partnership. Each of the Local Limited Partnerships owns a low income housing project which is subsidized and/or has a mortgage note payable to or insured by agencies of the federal or local government. The Partnership became the limited partner in the Local Limited Partnerships pursuant to arm's-length negotiations with the Local Limited Partnerships' general partners who are often the original project developers. In certain other cases, the Partnership invested in newly formed Local Limited Partnerships which, in turn, acquired the projects. As a limited partner, the Partnership's liability for obligations of the Local Limited Partnership is limited to its investment. The general partner of the Local Limited Partnership retains responsibility for maintaining, operating and managing the project. Under certain circumstances, the Partnership has the right to replace the general partner of the Local Limited Partnerships. Although each of the Local Limited Partnerships in which the Partnership has invested will generally own a project which must compete in the market place for tenants, interest subsidies and rent supplements from governmental agencies make it possible to offer these dwelling units to eligible "low income" tenants at a cost significantly below the market rate for comparable conventionally financed dwelling units in the area. In order to stimulate private investment in low income housing, the federal government and certain state and local agencies provided ownership incentives, including among others, interest subsidies, rent supplements, and mortgage insurance, with the intent of reducing certain market risks and providing investors with certain tax benefits, plus limited cash distributions and the possibility of long-term capital gains. There remains, however, significant risks associated with the ownership of low income housing projects. The long-term nature of investments in government assisted housing limits the ability of the Partnership to vary its portfolio in response to changing economic, financial and investment conditions; such investments are also subject to changes in local economic circumstances and housing patterns, as well as rising operating costs, vacancies, rent collection difficulties, energy shortages and other factors which have an impact on real estate values. These projects also require greater management expertise and may have higher operating expenses than conventional housing projects. Laws benefiting disabled persons may result in the Local Limited Partnerships' incurrence of unanticipated expenses. Under the Americans with Disabilities Act of 1990, or ADA, all places intended to be used by the public are required to meet certain Federal requirements related to access and use by disabled persons. Likewise, the Fair Housing Amendments Act of 1988, or FHAA, requires apartment properties first occupied after March 13, 1990 to be accessible to the handicapped. These and other Federal, state and local laws may require modifications to the Local Limited Partnerships' properties, or restrict renovations of the properties. Noncompliance with these laws could result in the imposition of fines or an award of damages to private litigants and also could result in an order to correct any non-complying feature, which could result in substantial capital expenditures. Although the Corporate General Partner believes that the Local Limited Partnerships' properties are substantially in compliance with the present requirements, the Local Limited Partnerships may incur unanticipated expenses to comply with the ADA and the FHAA. Under recently adopted law and policy, the United States Department of Housing and Urban Development ("HUD") has determined not to renew the Housing Assistance Payment ("HAP") Contracts on a long term basis on the existing terms. In connection with renewals of the HAP Contracts under such new law and policy, the amount of rental assistance payments under renewed HAP Contracts will be based on market rentals instead of above market rentals, which may be the case under existing HAP Contracts. The payments under the renewed HAP Contracts may not be in an amount that would provide sufficient cash flow to permit owners of properties subject to HAP Contracts to meet the debt service requirements of existing loans insured by the Federal Housing Administration of HUD ("FHA") unless such mortgage loans are restructured. In order to address the reduction in payments under HAP Contracts as a result of this new policy, the Multi-family Assisted Housing Reform and Affordability Act of 1997 ("MAHRAA") provides for the restructuring of mortgage loans insured by the FHA with respect to properties subject to the Section 8 program. Under MAHRAA, an FHA-insured mortgage loan can be restructured into a first mortgage loan which will be amortized on a current basis and a low interest second mortgage loan payable to FHA which will only be payable on maturity of the first mortgage loan. This restructuring results in a reduction in annual debt service payable by the owner of the FHA-insured mortgage loan and is expected to result in an insurance payment from FHA to the holder of the FHA-insured loan due to the reduction in the principal amount. MAHRAA also phases out project-based subsidies on selected properties serving families not located in rental markets with limited supply, converting such subsidies to a tenant-based subsidy. When the HAP Contracts are subject to renewal, there can be no assurance that the Local Limited Partnerships in which the Partnership has an investment will be permitted to restructure its mortgage indebtedness under MAHRAA. In addition, the economic impact on the Partnership of the combination of the reduced payments under the HAP Contracts and the restructuring of the existing FHA-insured mortgage loans under MAHRAA is uncertain. The Partnership has no employees. Management and administrative services are performed by the Corporate General Partner and by agents retained by the Corporate General Partner. During 2004, all of the projects in which the Partnership had invested were substantially rented. The following is a schedule of the status, as of December 31, 2004, of the projects owned by the Local Limited Partnerships in which the Partnership has invested. SCHEDULE OF PROJECTS OWNED BY LOCAL LIMITED PARTNERSHIPS IN WHICH HOUSING PROGRAMS LIMITED HAS AN INVESTMENT DECEMBER 31, 2004
Financed Units Insured Authorized And For Rental Percentage of Percentage of No. of Subsidized Assistance Under Total Units Total Units Name and Location Units Under Section 8 (B) Occupied Occupied 2004 2003 Cloverdale 100 (A) 100 95% 95% Crawfordsville, IN Evergreen 330 -- 330 96% 99% Oshtemo, MI Jenny Lind Hall 78 (B) 78 98% 95% Springfield, MO Plaza Village 228 (A) 228 96% 97% Woonsocket, RI TOTAL 736 736
(A) The mortgage is insured by the Federal Housing Administration under the provisions of Section 236 of the National Housing Act. (B) Section 8 of Title II of the Housing and Community Development Act of 1974. The following table details the Partnership's ownership percentages of the Local Limited Partnerships and the cost of acquisition of such ownership. All interests are limited partner interests. Also included is the total mortgage encumbrance on each property for each of the Local Limited Partnerships as of December 31, 2004.
HPL Original Cost Percentage of Ownership Mortgage Partnership Interest Interests Notes (in thousands) Cloverdale 99% $ 456 $ 652 Oshtemo 99% 967 13,048 Jenny Lind Hall 99% 2,675 1,243 Plaza Village 99% 1,338 2,479
Although each Local Limited Partnership in which the Partnership has invested owns an apartment complex which must compete with other apartment complexes for tenants, government mortgage interest and rent subsidies make it possible to rent units to eligible tenants at below market rates. In general, this insulates the properties from market competition. ITEM 2. PROPERTIES See "Item 1. Description of Business" for the real estate owned by the Partnership through the ownership of limited partnership interest in Local Limited Partnerships. ITEM 3. LEGAL PROCEEDINGS The Corporate General Partner is involved in various lawsuits arising from transactions in the ordinary course of business. In the opinion of management and the Corporate General Partner, the claims will not result in any material liability to the Partnership. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the limited partners through the solicitation of proxies or otherwise during the quarter ended December 31, 2004. PART II. ITEM 5. MARKET FOR THE REGISTRANT'S PARTNERSHIP INTERESTS AND RELATED PARTNERSHIP MATTERS The Limited Partnership Interests are not traded on a public exchange, and it is not anticipated that any public market will develop for the purchase and sale of any Limited Partnership Interest; therefore an investor may be unable to sell or otherwise dispose of his or her interest in the partnership. Limited Partnership Interests may be transferred only if certain requirements are satisfied. Currently, there are 2,521 registered holders of Limited Partnership Interests in the Partnership. The Partnership has invested in certain government assisted projects under programs which in many instances restrict the cash return available to project owners. The Partnership was not designed to provide cash distributions to investors in circumstances other than refinancing or dispositions of its investments in Local Limited Partnerships. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This item should be read in conjunction with the financial statements and other items contained elsewhere in this report. The Corporate General Partner monitors developments in the area of legal and regulatory compliance. For example, the Sarbanes-Oxley Act of 2002 mandates or suggests additional compliance measures with regard to governance, disclosure, audit and other areas. In light of these changes, the Partnership expects that it will incur higher expenses related to compliance. Liquidity The properties in which the Partnership has invested, through its investments in the Local Limited Partnerships, receive one or more forms of assistance from the Federal Government. As a result, the Local Limited Partnerships' ability to transfer funds either to the Partnership or among themselves in the form of cash distributions, loans or advances is generally restricted by those government assistance programs. The Partnership's primary sources of funds include interest income earned from investing available cash and distributions from Local Limited Partnerships in which the Partnership has invested. 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 the Partnership's limited partners in any material amount. As of December 31, 2004, and 2003, the Partnership has cash and cash equivalents of approximately $284,000 and $226,000, respectively. The Partnership earned approximately $1,000 and $11,000 in interest income for the years ended December 31, 2004 and 2003, respectively. The amount of interest income varies with market rates available on deposits and with the amount of funds available for investment. The Partnership intends to continue investing available funds in this manner. Cash and cash equivalents increased approximately $58,000 for the year ended December 31, 2004 from the Partnership's previous year end due to cash provided by operating activities. Two of the Partnership's investments, Oshtemo and Plaza Village, involved purchases of partnership interests in Local Limited Partnerships from partners who subsequently withdrew from the Local Limited Partnership. The Partnership issued non-recourse notes payable totaling $4,600,000 to the sellers of the partnership interests, such notes bearing interest at 9.5% per annum. The notes matured in 1999. These obligations and related interest are collateralized by the Partnership's investment in the Local Limited Partnership, as defined in the notes. Unpaid interest was due at maturity of the notes. During the year ended December 31, 2003, Oshtemo refinanced the mortgage encumbering its investment property. The distribution from Oshtemo relating to the refinancing of approximately $6,765,000 was recognized as income in the accompanying statements of operations because the Partnership's investment balance had been reduced to zero. Pursuant to the agreement with the noteholders, approximately $6,615,000 of the proceeds were sent to a trustee in order to satisfy in full the principal of approximately $2,600,000 and approximately $4,015,000 of accrued interest. The trustee distributed the funds directly to the noteholders. The Partnership also recognized a gain on extinguishment of debt of approximately $102,000 due to the write off of the remaining accrued interest as it was forgiven by the noteholders. At December 31, 2004, the obligation relating to the Plaza Village note was $2,000,000 and accrued interest was approximately $3,703,000. AIMCO, which indirectly owns the Corporate General Partner of the Partnership, has a 15% interest in and is the trustee for the Plaza Village note payable. The Partnership has not made any payments on the Plaza Village note and is in default under the terms of the note. Management is attempting to negotiate extensions of the maturity date on the note payable. If the negotiations are unsuccessful, the Partnership could lose its investment in the Local Limited Partnership, Plaza Village Group, to foreclosure. The investment in Plaza Village is zero at December 31, 2004. One of the Local Limited Partnerships, Cloverdale Heights Apartments, Ltd., has outstanding purchase money notes and accrued interest that matured in December 2000. In addition, a second Local Limited Partnership, Jenny Lind Hall Second Limited Partnership, has a subordinated note and accrued interest that matured in December 1999. Each of these Local Limited Partnerships is in default on these obligations. The Partnership risks losing its investments in these Local Limited Partnerships through foreclosure. All of the investments in these Local Limited Partnerships were zero at December 31, 2004. In October 2003, the property in one of the Local Limited Partnerships, Lancaster Heights Associates, was sold to a third party. Proceeds from the sale were used to satisfy the purchase money note and accrued interest that had matured in December 2000. An affiliate of the Corporate General Partner received approximately $1,645,000 in payment of their interest in the notes. The remaining proceeds from the sale were distributed and the Partnership received approximately $1,400,000 which was recognized as distributions recognized as income because the Partnership's investment had been reduced to zero. Approximately $1,375,000 of the proceeds was used to pay accrued management fees due to an affiliate of the Corporate General Partner during the fourth quarter of 2003. The Partnership received a final distribution of approximately $399,000 during the year ended December 31, 2004, which was recognized as distributions recognized as income. In October 2003, the property in one of the Local Limited Partnerships, Cloverleaf Apartments Ltd., was sold to a third party. Proceeds from the sale were used to satisfy the purchase money note and accrued interest that had matured in December 2000. The remaining proceeds from the sale were distributed and the Partnership received approximately $120,000. This amount was recognized as distributions recognized as income because the Partnership's investment had been reduced to zero. In November 2003, the property in one of the Local Limited Partnerships, Cape LaCroix Apartments Ltd., was sold to a third party. Proceeds from the sale were used to satisfy the purchase money note and accrued interest that had matured in December 2000. The remaining proceeds from the sale were distributed and the Partnership received approximately $143,000. This amount was recognized as distributions recognized as income because the Partnership's investment had been reduced to zero. Results of Operations The Partnership was formed to provide various benefits to its partners as discussed in Item 1. 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. The Partnership accounts for its investments in the Local Limited Partnerships on the equity method, thereby adjusting its investment balance by its proportionate share of the income or loss of the Local Limited Partnerships. At December 31, 2004, the Partnership has investments in four Local Limited Partnerships, all of which own housing projects that were substantially all rented. The Partnership, as a limited partner, does not exercise control over the activities and operations, including refinancing or selling decisions of the Local Limited Partnerships. Accordingly, the Partnership accounts for its investment in the Local Limited Partnerships using the equity method. Thus the individual investments are carried at cost plus the Partnership's share of the Local Limited Partnership's profits less the Partnership's share of the Local Limited Partnership's losses, distributions and impairment charges. However, since the Partnership is not legally liable for the obligations of the Local Limited Partnerships, or is not otherwise committed to provide additional support to them, it does not recognize losses once its investment in each of the Local Limited Partnerships reaches zero. Distributions from the Local Limited Partnerships are accounted for as a reduction of the investment balance until the investment balance is reduced to zero. Subsequent distributions received are recognized as income in the accompanying statements of operations. During the years ended December 31, 2004 and 2003, the Partnership received approximately $399,000 and $8,483,000, respectively, in distributions from Local Limited Partnerships that were recognized as income. (See previous discussion on the refinancing at Oshtemo and the sales of Lancaster Heights, Cloverleaf, and Cape LaCroix.) For those investments where the Partnership has determined that the carrying value of its investments approximates the estimated fair value of those investments, the Partnership's policy is to recognize equity in income of the Local Limited Partnerships only to the extent of distributions received and amortization of acquisition costs from those Local Limited Partnerships. Partnership revenues consist primarily of interest income earned on investment of funds. The Partnership also receives distributions from the Local Limited Partnerships in which it has invested. During the years ended December 31, 2004 and 2003, the Partnership received approximately $399,000 and $8,428,000, respectively, from the refinancing of the investment property at one of the Local Limited Partnerships and the sales of three other investment properties, as previously discussed. In addition, the Partnership received approximately $55,000 from the operations of the Local Limited Partnerships during the year ended December 31, 2003. These amounts were recognized as income because the Partnership had no remaining basis in these investments. Except for investing cash in money market funds, the Partnership's investments consist entirely of interests in Local Limited Partnerships owning government-assisted housing projects. Available cash not invested in Local Limited Partnerships is invested in these money market funds to provide interest income as reflected in the statements of operations. These funds can be converted to cash to meet obligations as they arise. The Partnership intends to continue investing available funds in this manner. An annual management fee is payable to the general partners of the Partnership and is calculated at 0.5 percent of the Partnership's invested assets. The management fee is paid to the general partners for their continuing management of Partnership affairs. The fee is payable beginning with the month following the Partnership's initial investment in a Local Limited Partnership. Management fees were approximately $148,000 and $199,000 for the years ended December 31, 2004 and 2003. These fees decreased for 2004 due to the sales of Lancaster Heights, Cape LaCroix and Cloverleaf in 2003. In accordance with the Partnership Agreement, the Corporate General Partner has advanced the Partnership funds to assist in paying for normal operating expenses. These advances do not accrue interest. At December 31, 2004, the Corporate General Partner had advanced approximately $101,000 for such purposes. Operating expenses, other than management fees and interest expense, consist of legal and accounting fees for services rendered to the Partnership and general and administrative expenses. Legal and accounting fees were approximately $99,000 and $85,000 for the years ended December 31, 2004 and 2003, respectively. General and administrative expenses were approximately $31,000 and $56,000 for the years ended December 31, 2004 and 2003, respectively. Legal and accounting fees increased due to an increase in legal expenses associated with the preparation of consent solicitations. General and administrative expense decreased due to a decrease in administrative expenses charged to the Partnership. Interest expense was approximately $191,000 and $304,000 for the years ended December 31, 2004 and 2003, respectively. The decrease in interest expense was due to the payoff of the note for Evergreen in 2003. Total revenues from continuing operations for the Local Limited Partnerships were approximately $5,120,000 and $4,866,000 for the years ended December 31, 2004 and 2003, respectively. Total expenses from continuing operations for the Local Limited Partnerships were approximately $5,854,000 and $12,789,000 for the years ended December 31, 2004 and 2003, respectively. The total net loss for the Local Limited Partnerships for the years ended December 31, 2004 and 2003 was approximately $734,000 and $8,042,000, respectively. The losses allocated to the Partnership were approximately $727,000 and $7,962,000 for 2004 and 2003, respectively. The losses allocated to the Partnership were not recognized as the investments in the Local Limited Partnerships have been reduced to zero. The cumulative amount of the unrecognized equity in losses of certain Local Limited Partnerships was approximately $17,866,000 as of December 31, 2004. Under recently adopted law and policy, the United States Department of Housing and Urban Development ("HUD") has determined not to renew the Housing Assistance Payment ("HAP") Contracts on a long term basis on the existing terms. In connection with renewals of the HAP Contracts under such new law and policy, the amount of rental assistance payments under renewed HAP Contracts will be based on market rentals instead of above market rentals, which may be generally the case under existing HAP Contracts. The payments under the renewed HAP Contracts may not be in an amount that would provide sufficient cash flow to permit owners of properties subject to HAP Contracts to meet the debt service requirements of existing loans insured by the Federal Housing Administration of HUD ("FHA") unless such mortgage loans are restructured. In order to address the reduction in payments under HAP Contracts as a result of this new policy, the Multi-family Assisted Housing Reform and Affordability Act of 1997 ("MAHRAA") provides for the restructuring of mortgage loans insured by the FHA with respect to properties subject to the Section 8 program. Under MAHRAA, an FHA-insured mortgage loan can be restructured into a first mortgage loan which will be amortized on a current basis and a low interest second mortgage loan payable to FHA which will only be payable on maturity of the first mortgage loan. This restructuring results in a reduction in annual debt service payable by the owner of the FHA-insured mortgage loan and is expected to result in an insurance payment from FHA to the holder of the FHA-insured loan due to the reduction in the principal amount. MAHRAA also phases out project-based subsidies on selected properties serving families not located in rental markets with limited supply, converting such subsidies to a tenant-based subsidy. When the HAP Contracts are subject to renewal, there can be no assurance that the Local Limited Partnerships in which the Partnership has an investment will be permitted to restructure its mortgage indebtedness under MAHRAA. In addition, the economic impact on the Partnership of the combination of the reduced payments under the HAP Contracts and the restructuring of the existing FHA-insured mortgage loans under MAHRAA is uncertain. The Partnership, as a Limited Partner in the Local Limited Partnerships in which it has invested, is subject to the risks incident to the management and ownership of improved real estate. The Partnership investments are also subject to adverse general economic conditions, and, accordingly, the status of the national economy, including substantial unemployment, concurrent inflation and changing legislation, could increase vacancy levels, rental payment defaults, and operating expenses, which in turn, could substantially increase the risk of operating losses for the projects. Recent Accounting Pronouncements As of December 31, 2004, the Partnership adopted FASB Interpretation No. 46 "Consolidation of Variable Interest Entities" (or "FIN 46") and applied its requirements to all local limited partnerships in which the Partnership held a variable interest. FIN 46 addresses the consolidation by business enterprises of variable interest entities. Generally, a variable interest entity, or VIE, is an entity with one or more of the following characteristics: (a) the total equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support; (b) as a group the holders of the equity investment at risk lack (i) the ability to make decisions about an entity's activities through voting or similar rights, (ii) the obligation to absorb the expected losses of the entity, or (iii) the right to receive the expected residual returns of the entity; or (c) the equity investors have voting rights that are not proportional to their economic interests and substantially all of the entity's activities either involve, or are conducted on behalf of, an investor that has disproportionately few voting rights. FIN 46 requires a VIE to be consolidated in the financial statements of the entity that is determined to be the primary beneficiary of the VIE. The primary beneficiary generally is the entity that will receive a majority of the VIE's expected losses, receive a majority of the VIE's expected residual returns, or both. Upon adoption of FIN 46, the Partnership determined it held variable interests in four VIE's for which the Partnership was not the primary beneficiary. Those four VIE's consist of local limited partnerships in which the Partnership acquired an interest prior to the adoption of FIN 46 that are directly engaged in the ownership and management of four apartment properties with a total of 736 units. The Partnership is involved with those VIE's as a non-controlling limited partner equity holder. The Partnership's maximum exposure to loss as a result of its involvement with the unconsolidated VIE is limited to the Partnership's recorded investments in and receivables from this VIE, which was zero at December 31, 2004. The Partnership may be subject to additional losses to the extent of any financial support that the Partnership voluntarily provides in the future. Critical Accounting Policies and Estimates A summary of the Partnership's significant accounting policies is included in "Note 1 -Summary of Significant Accounting Policies" which is included in the financial statements in "Item 7. Financial Statements". The Corporate General Partner believes that the consistent application of these policies enables the Partnership to provide readers of the financial statements with useful and reliable information about the Partnership's operating results and financial condition. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the Partnership to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements as well as reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Judgments and assessments of uncertainties are required in applying the Partnership's accounting policies in many areas. The following may involve a higher degree of judgment and complexity. Method of Accounting for Investment in Local Limited Partnerships The Partnership, as a limited partner, does not exercise control over the activities and operations, including refinancing or selling decisions, of the Local Limited Partnerships. Accordingly, the Partnership accounts for its investments in the Local Limited Partnerships using the equity method. The Partnership is allocated profits and losses of the Local Limited Partnerships based upon its respective ownership percentage of 99%. Distributions of surplus cash from operations from most of the Local Limited Partnerships are restricted by the Local Limited Partnerships' Regulatory Agreements with the United States Department of Housing and Urban Development ("HUD"). These restrictions limit the distribution to a portion, generally less than 10%, of the initial invested capital. The excess surplus cash is deposited into a residual receipts reserve, of which the ultimate realization by the Partnership is uncertain as HUD frequently retains it upon sale or dissolution of the Local Limited Partnership. The Partnership is allocated profits and losses and receives distributions from refinancings and sales in accordance with the Local Limited Partnerships' partnership agreements. These agreements usually limit the Partnership's distributions to an amount substantially less than its ownership percentage in the Local Limited Partnership. The individual investments are carried at cost plus the Partnership's share of the Local Limited Partnership's profits less the Partnership's share of the Local Limited Partnership's losses, distributions and impairment charges. See "Note 1 - Summary of Significant Accounting Policies" for a description of the impairment policy. The Partnership is not legally liable for the obligations of the Local Limited Partnerships and is not otherwise committed to provide additional support to them. Therefore, it does not recognize losses once its investment in each of the Local Limited Partnerships reaches zero. Distributions from the Local Limited Partnerships are accounted for as a reduction of the investment balance until the investment balance is reduced to zero. When the investment balance has been reduced to zero, subsequent distributions received are recognized as income in the accompanying statements of operations. For those investments where the Partnership has determined that the carrying value of its investments approximates the estimated fair value of those investments, the Partnership's policy is to recognize equity in income of the Local Limited Partnerships only to the extent of distributions received and amortization of acquisition costs from those Local Limited Partnerships. Therefore, the Partnership limits its recognition of equity earnings to the amount it expects to ultimately realize. ITEM 7. FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm Balance Sheet - December 31, 2004. Statements of Operations - Years ended December 31, 2004 and 2003. Statements of Partners' Deficit - Years ended December 31, 2004 and 2003. Statements of Cash Flows - Years ended December 31, 2004 and 2003. Notes to financial statements. Report of Independent Registered Public Accounting Firm The Partners Housing Programs Limited We have audited the accompanying balance sheet of Housing Programs Limited as of December 31, 2004, and the related statements of operations, partners' deficit and cash flows for each of the two years in the period ended December 31, 2004. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Partnership's internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Housing Programs Limited as of December 31, 2004, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2004 in conformity with accounting principles generally accepted in the United States. /s/Ernst & Young LLP Greenville, South Carolina April 7, 2005 HOUSING PROGRAMS LIMITED (a California limited partnership) BALANCE SHEET (in thousands) DECEMBER 31, 2004 ASSETS Investments in local limited partnerships (Note 2) $ -- Cash and cash equivalents 284 Total assets $ 284 LIABILITIES AND PARTNERS' DEFICIT Liabilities: Note payable in default (Note 3) $ 2,000 Accrued interest payable in default (Note 3) 3,703 Accounts payable 33 Advances due to affiliates (Note 4) 101 5,837 Partners' deficit: General partners (306) Limited partners (5,247) (5,553) Total liabilities and partners' deficit $ 284 The accompanying notes are an integral part of these statements. HOUSING PROGRAMS LIMITED (a California limited partnership) STATEMENTS OF OPERATIONS (in thousands, except per unit data) Years Ended December 31, 2004 2003 INTEREST INCOME $ 1 $ 11 OPERATING EXPENSES: Management fees - partners (Note 4) 148 199 General and administrative (Note 4) 31 56 Legal and accounting 99 85 Interest 191 304 Total operating expenses 469 644 Loss from partnership operations (468) (633) Gain on extinguishment of debt (Note 3) -- 102 Distributions from local limited partnerships recognized as income (Note 2) 399 8,483 Net (loss) income (Note 6) $ (69) $ 7,952 Net (loss) income to general partners (1%) $ (1) $ 80 Net (loss) income to limited partners (99%) (68) 7,872 $ (69) $ 7,952 Net (loss) income per limited partnership interest (Note 1) $ (5.55) $636.48 The accompanying notes are an integral part of these statements. HOUSING PROGRAMS LIMITED (a California limited partnership) STATEMENTS OF CHANGES IN PARTNERS' DEFICIT (in thousands)
General Limited Partners Partners Total DEFICIT, December 31, 2002 $(385) $(13,051) $(13,436) Net income, 2003 80 7,872 7,952 DEFICIT, December 31, 2003 (305) (5,179) (5,484) Net loss, 2004 (1) (68) (69) DEFICIT, December 31, 2004 $(306) $ (5,247) $ (5,553) Percentage interest at December 31, 2004 1% 99% 100% (A)
Consists of 12,250 partnership interests at December 31, 2004 and 12,260 partnership interests at December 31, 2003. During the years ended December 31, 2004 and 2003, 10 and 108 interests were abandoned, respectively (Note 5). The accompanying notes are an integral part of these statements. HOUSING PROGRAMS LIMITED (a California limited partnership) STATEMENTS OF CASH FLOWS (in thousands)
Years Ended December 31, 2004 2003 CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) income $ (69) $ 7,952 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Distributions from local limited partnerships -- (6,615) Gain on extinguishment of debt -- (102) Increase (decrease) in: Accrued interest payable 191 304 Accounts payable and accrued expenses 23 (138) Accrued fees due to affiliates (87) (1,180) Net cash provided by operating activities 58 221 NET INCREASE IN CASH AND CASH EQUIVALENTS 58 221 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 226 5 CASH AND CASH EQUIVALENTS, END OF YEAR $ 284 $ 226 SUPPLEMENTAL DISCLOSURE OF NON-CASH INFORMATION: In 2003, distribution of proceeds from a local limited partnership of approximately $6,615,000 were sent directly to a trustee which, in turn, paid the proceeds directly to the noteholders in satisfaction of the principal and accrued interest on the notes. (See "Note 3 - Note Payable".) The accompanying notes are an integral part of these statements.
HOUSING PROGRAMS LIMITED (a California limited partnership) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization The Partnership was organized under the California Uniform Limited Partnership Act on May 15, 1984. The Partnership was formed to invest primarily in other limited partnerships which own or lease and operate federal, state or local government-assisted housing projects. The general partners of the Partnership are National Partnership Investments Corp. ("NAPICO" or the "Corporate General Partner"), Housing Programs Corporation II and National Partnership Investment Associates (collectively, the "General Partners"). NAPICO is a subsidiary of Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The Partnership shall be dissolved only upon the expiration of 50 complete calendar years (December 31, 2034) from the date of the formation of the Partnership or upon the occurrence of various other events as described in the terms of the Partnership agreement. Upon total or partial liquidation of the Partnership or the disposition or partial disposition of a project or project interest and distribution of the proceeds, the general partners will be entitled to a liquidation fee as stipulated in the Partnership agreement. The limited partners will have a priority return equal to their invested capital attributable to the project(s) or project interest(s) sold and shall receive from the sale of the project(s) or project interest(s) an amount sufficient to pay state and federal income taxes, if any, calculated at the maximum rate then in effect. The general partners' liquidation fee may accrue but shall not be paid until the limited partners have received distributions equal to 100 percent of their capital contributions. Basis of Presentation The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Method of Accounting for Investments in Local Limited Partnerships The investments in local limited partnerships are accounted for on the equity method. Acquisition, selection fees and other costs related to the acquisition of the projects have been capitalized to the investment account and are being amortized by the straight line method over the estimated lives of the underlying assets, which is generally 30 years. Net (Loss) Income Per Limited Partnership Interest Net (loss) income per limited partnership interest was computed by dividing the limited partners' share of net (loss) income by the number of limited partnership interests outstanding at the beginning of the year. The number of limited partnership interests was 12,250 at December 31, 2004 and 12,260 at December 31, 2003. Cash and Cash Equivalents Cash and cash equivalents include cash on hand and in banks. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Cash balances include approximately $284,000 at December 31, 2004 that are maintained by the affiliated management company on behalf of affiliated entities in cash concentration accounts. Impairment of Long-Lived Assets The Partnership reviews its investments in long-lived assets to determine if there has been any permanent impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If the sum of the expected future cash flows is less than the carrying amount of the assets, the Partnership recognizes an impairment loss. No impairment losses were recognized during the years ended December 31, 2004 and 2003, as all investments have been reduced to zero. Segment Reporting Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosure about Segments of an Enterprise and Related Information" established standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports. It also established standards for related disclosures about products and services, geographic areas, and major customers. As defined in SFAS No. 131, the Partnership has only one reportable segment. Fair Value of Financial Instruments SFAS No. 107, "Disclosures About Fair Value of Financial Instruments," requires disclosure of fair value information about significant financial instruments, when it is practicable to estimate that value and excessive costs would not be incurred. To estimate the fair value of the note payable and the balances due to the Corporate General Partner and accrued interest thereon, excessive costs would be incurred and, therefore, no estimate has been made. The Partnership believes that the carrying value of other assets and liabilities reported on the statement of financial position that require such disclosure approximates fair value. Recent Accounting Pronouncements As of December 31, 2004, the Partnership adopted FASB Interpretation No. 46 "Consolidation of Variable Interest Entities" (or "FIN 46") and applied its requirements to all local limited partnerships in which the Partnership held a variable interest. FIN 46 addresses the consolidation by business enterprises of variable interest entities. Generally, a variable interest entity, or VIE, is an entity with one or more of the following characteristics: (a) the total equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support; (b) as a group the holders of the equity investment at risk lack (i) the ability to make decisions about an entity's activities through voting or similar rights, (ii) the obligation to absorb the expected losses of the entity, or (iii) the right to receive the expected residual returns of the entity; or (c) the equity investors have voting rights that are not proportional to their economic interests and substantially all of the entity's activities either involve, or are conducted on behalf of, an investor that has disproportionately few voting rights. FIN 46 requires a VIE to be consolidated in the financial statements of the entity that is determined to be the primary beneficiary of the VIE. The primary beneficiary generally is the entity that will receive a majority of the VIE's expected losses, receive a majority of the VIE's expected residual returns, or both. Upon adoption of FIN 46, the Partnership determined it held variable interests in four VIE's for which the Partnership was not the primary beneficiary. Those four VIE's consist of local limited partnerships in which the Partnership acquired an interest prior to the adoption of FIN 46 that are directly engaged in the ownership and management of four apartment properties with a total of 736 units. The Partnership is involved with those VIE's as a non-controlling limited partner equity holder. The Partnership's maximum exposure to loss as a result of its involvement with the unconsolidated VIE is limited to the Partnership's recorded investments in and receivables from this VIE, which was zero at December 31, 2004. The Partnership may be subject to additional losses to the extent of any financial support that the Partnership voluntarily provides in the future. NOTE 2 - INVESTMENTS IN AND ADVANCES TO LOCAL LIMITED PARTNERSHIPS As of December 31, 2004, the Partnership holds limited partnership interests in four local limited partnerships (the "Local Limited Partnerships"). The Local Limited Partnerships own residential low income rental projects consisting of 736 apartment units. The mortgage loans of these projects are payable to or insured by various governmental agencies. The Partnership, as a limited partner, does not exercise control over the activities and operations, including refinancing or selling decisions, of the Local Limited Partnerships. Accordingly, the Partnership accounts for its investments in the Local Limited Partnerships using the equity method. The Partnership is allocated profits and losses of the Local Limited Partnerships based upon its respective ownership percentage of 99%. Distributions of surplus cash from operations from most of the Local Limited Partnerships are restricted by the Local Limited Partnerships' Regulatory Agreements with the United States Department of Housing and Urban Development ("HUD"). These restrictions limit the distribution to a portion, generally less than 10%, of the initial invested capital. The excess surplus cash is deposited into a residual receipts reserve, of which the ultimate realization by the Partnership is uncertain as HUD frequently retains it upon sale or dissolution of the Local Limited Partnership. The Partnership is allocated profits and losses and receives distributions from refinancings and sales in accordance with the Local Limited Partnerships' partnership agreements. These agreements usually limit the Partnership's distributions to an amount substantially less than its ownership percentage in the Local Limited Partnership. The individual investments are carried at cost plus the Partnership's share of the Local Limited Partnership's profits less the Partnership's share of the Local Limited Partnership's losses, distributions and impairment charges. See "Note 1 - Summary of Significant Accounting Policies" for a description of the impairment policy. The Partnership is not legally liable for the obligations of the Local Limited Partnerships and is not otherwise committed to provide additional support to them. Therefore, it does not recognize losses once its investment in each of the Local Limited Partnerships reaches zero. Distributions from the Local Limited Partnerships are accounted for as a reduction of the investment balance until the investment balance is reduced to zero. When the investment balance has been reduced to zero, subsequent distributions received are recognized as income in the accompanying statements of operations. For those investments where the Partnership has determined that the carrying value of its investments approximates the estimated fair value of those investments, the Partnership's policy is to recognize equity in income of the Local Limited Partnerships only to the extent of distributions received and amortization of acquisition costs from those Local Limited Partnerships. Therefore, the Partnership limits its recognition of equity earnings to the amount it expects to ultimately realize. The Partnership has no carrying value in investments in the Local Limited Partnerships as of December 31, 2004. The difference between the investment per the accompanying balance sheet at December 31, 2004, and the equity per the limited partnerships' combined financial statements is due primarily to cumulative unrecognized equity in losses of certain limited partnerships, costs capitalized to the investment account, cumulative distributions recognized as income and recognition of impairment losses. One of the Local Limited Partnerships, Cloverdale Heights Apartments, Ltd., has outstanding purchase money notes and accrued interest that matured in December 2000. In addition, a second Local Limited Partnership, Jenny Lind Hall Second Limited Partnership, has a subordinated note and accrued interest that matured in December 1999. Each of these Local Limited Partnerships is in default on these obligations. The Partnership risks losing its investments in these Local Limited Partnerships through foreclosure. All of the investments in these Local Limited Partnerships were zero at December 31, 2004. The Partnership's value of its investments and its equity in the income/loss and/or distributions from the Local Limited Partnerships are, for certain Local Limited Partnerships, individually, not material to the overall financial position of the Partnership. The financial information from the unaudited condensed combined financial statements of such Local Limited Partnerships at December 31, 2004 and for each of the two years in the periods then ended is presented below. The Partnership's value of its investment in Oshtemo Limited Dividend Housing Associates ("Oshtemo") is material to its financial position and the amounts included below for Oshtemo are included on an audited basis. Condensed Combined Balance Sheet of the Local Limited Partnerships (in thousands)
December 31, 2004 Assets Unaudited Oshtemo Total Land $ 513 $ 617 $ 1,130 Building and improvements, net of Accumulated depreciation 1,400 6,261 7,661 Other assets 2,525 4,184 6,709 Total assets $ 4,438 $ 11,062 $ 15,500 Liabilities and Partners Deficit: Liabilities: Mortgage notes payable $ 4,374 $ 13,048 $ 17,422 Notes payable 3,307 -- 3,307 Accrued interest on notes payable 3,276 -- 3,276 Other liabilities 397 496 893 11,354 13,544 24,898 Partners' deficit General partners (131) (46) (177) Limited partners (6,785) (2,436) (9,221) (6,916) (2,482) (9,398) Total liabilities and partners' $ 4,438 $ 11,062 $ 15,500 deficit
Condensed Combined Results of Operations of the Local Limited Partnerships (in thousands) 2004 2004 2004 2003 2003 2003 Revenues: (Unaudited) Oshtemo Total (Unaudited) Oshtemo Total Rental income $ 2,485 $ 2,297 $ 4,782 $ 2,034 $ 2,304 $ 4,338 Other income 87 251 338 76 452 528 Total revenues 2,572 2,548 5,120 2,110 2,756 4,866 Expenses: Operating expenses 1,655 1,295 2,950 1,788 1,342 3,130 Financial expenses 285 806 1,091 53 717 770 Interest on notes payable 757 -- 757 647 -- 647 Depreciation 410 646 1,056 479 648 1,127 Loss on refinancing of -- -- -- -- 7,115 7,115 debt Total expenses 3,107 2,747 5,854 2,967 9,822 12,789 Loss from continuing (535) (199) (734) (857) (7,066) (7,923) operations Loss from discontinued operations -- -- -- (119) -- (119) Net loss $ (535) $ (199) $ (734) $ (976) $(7,066) $(8,042)
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 144, the combined results of operations for the year ended December 31, 2003 reflect the operations of Lancaster Heights, Cape LaCroix and Cloverleaf as loss from discontinued operations as these properties were sold in 2003. In October 2003, the property in one of the Local Limited Partnerships, Lancaster Heights Associates, was sold to a third party. Proceeds from the sale were used to satisfy the purchase money note and accrued interest that had matured in December 2000. An affiliate of the Corporate General Partner received approximately $1,645,000 in payment of their interest in the notes. The remaining proceeds from the sale were distributed and the Partnership received approximately $1,400,000 which was recognized as distributions recognized as income because the Partnership's investment had been reduced to zero. Approximately $1,375,000 of the proceeds was used to pay accrued management fees due to an affiliate of the Corporate General Partner during the fourth quarter of 2003. The Partnership received a final distribution of approximately $377,000 during the year ended December 31, 2004, which was recognized as distributions recognized as income. In October 2003, the property in one of the Local Limited Partnerships, Cloverleaf Apartments Ltd., was sold to a third party. Proceeds from the sale were used to satisfy the purchase money note and accrued interest that had matured in December 2000. The remaining proceeds from the sale were distributed and the Partnership received approximately $120,000. This amount was recognized as distributions recognized as income because the Partnership's investment had been reduced to zero. In November 2003, the property in one of the Local Limited Partnerships, Cape LaCroix Apartments Ltd., was sold to a third party. Proceeds from the sale were used to satisfy the purchase money note and accrued interest that had matured in December 2000. The remaining proceeds from the sale were distributed and the Partnership received approximately $143,000. This amount was recognized as distributions recognized as income because the Partnership's investment had been reduced to zero. Under recently adopted law and policy, the United States Department of Housing and Urban Development ("HUD") has determined not to renew the Housing Assistance Payment ("HAP") Contracts on a long term basis on the existing terms. In connection with renewals of the HAP Contracts under such new law and policy, the amount of rental assistance payments under renewed HAP Contracts will be based on market rentals instead of above market rentals, which may be the case under existing HAP Contracts. The payments under the renewed HAP Contracts may not be in an amount that would provide sufficient cash flow to permit owners of properties subject to HAP Contracts to meet the debt service requirements of existing loans insured by the Federal Housing Administration of HUD ("FHA") unless such mortgage loans are restructured. In order to address the reduction in payments under HAP Contracts as a result of this new policy, the Multi-family Assisted Housing Reform and Affordability Act of 1997 ("MAHRAA") provides for the restructuring of mortgage loans insured by the FHA with respect to properties subject to the Section 8 program. Under MAHRAA, an FHA-insured mortgage loan can be restructured into a first mortgage loan which will be amortized on a current basis and a low interest second mortgage loan payable to FHA which will only be payable on maturity of the first mortgage loan. This restructuring results in a reduction in annual debt service payable by the owner of the FHA-insured mortgage loan and is expected to result in an insurance payment from FHA to the holder of the FHA-insured loan due to the reduction in the principal amount. MAHRAA also phases out project-based subsidies on selected properties serving families not located in rental markets with limited supply, converting such subsidies to a tenant-based subsidy. When the HAP Contracts are subject to renewal, there can be no assurance that the Local Limited Partnerships in which the Partnership has an investment will be permitted to restructure its mortgage indebtedness under MAHRAA. In addition, the economic impact on the Partnership of the combination of the reduced payments under the HAP Contracts and the restructuring of the existing FHA-insured mortgage loans under MAHRAA is uncertain. NAPICO is the general partner in one of the Local Limited Partnerships at December 31, 2004. Another affiliate served as the property manager for one and two of the Local Limited Partnerships' properties, receiving property management fees of approximately $30,000 and $83,000 for 2004 and 2003, respectively. NOTE 3 - NOTE PAYABLE Two of the Partnership's investments, Oshtemo and Plaza Village, involved purchases of partnership interests in Local Limited Partnerships from partners who subsequently withdrew from the Local Limited Partnership. The Partnership issued non-recourse notes payable totaling $4,600,000 to the sellers of the partnership interests, such notes bearing interest at 9.5% per annum. The notes matured in 1999. These obligations and related interest are collateralized by the Partnership's investment in the Local Limited Partnership, as defined in the notes. Unpaid interest was due at maturity of the notes. During the year ended December 31, 2003, Oshtemo refinanced the mortgage encumbering its investment property. The distribution from Oshtemo relating to the refinancing of approximately $6,765,000 was recognized as income in the accompanying statements of operations because the Partnership's investment balance had been reduced to zero. Pursuant to the agreement with the noteholders, approximately $6,615,000 of the proceeds were sent to a trustee in order to satisfy in full the principal of approximately $2,600,000 and approximately $4,015,000 of accrued interest. The trustee distributed the funds directly to the noteholders. The Partnership also recognized a gain on extinguishment of debt of approximately $102,000 due to the write off of the remaining accrued interest as it was forgiven by the noteholders. At December 31, 2004, the obligation relating to the Plaza Village note was $2,000,000 and accrued interest was approximately $3,703,000. AIMCO, which indirectly owns the Corporate General Partner of the Partnership, has a 15% interest in and is the trustee for the Plaza Village note payable. The Partnership has not made any payments on the Plaza Village note and is in default under the terms of the note. Management is attempting to negotiate extensions of the maturity date on the note payable. If the negotiations are unsuccessful, the Partnership could lose its investment in the Local Limited Partnership, Plaza Village Group, to foreclosure. The investment in Plaza Village was zero at December 31, 2004. NOTE 4 - TRANSACTIONS WITH AFFILIATED PARTIES Under the terms of the Restated Certificate and Agreement of the Limited Partnership, the Partnership is obligated to pay to the general partners an annual asset management fee equal to 0.5% of the original invested assets of the Local Limited Partnerships. Invested assets is defined as the costs of acquiring project interests including the proportionate amount of the mortgage loans related to the Partnership's interest in the capital accounts of the respective Local Limited Partnerships. For the years ended December 31, 2004 and 2003, approximately $148,000 and $199,000 has been expensed, respectively. The Partnership reimburses NAPICO for certain expenses. The reimbursement to NAPICO was approximately $19,000 for both the years ended December 31, 2004 and 2003 and is included in general and administrative expenses. In accordance with the Partnership Agreement, the Corporate General Partner may advance the Partnership funds to assist in paying for normal operating expenses. These advances do not accrue interest. As of December 31, 2004, the Corporate General Partner had advanced approximately $101,000 for such purposes. AIMCO, which indirectly owns the Corporate General Partner of the Partnership, has a 15% interest in and is the trustee for the Plaza Village note payable. NOTE 5 - ABANDONMENT OF LIMITED PARTNERSHIP INTERESTS During the years ended December 31, 2004 and 2003, the number of Limited Partnership Interests decreased by 10 and 108 interests, respectively, due to limited partners abandoning their units. In abandoning his or her Limited Partnership Interest(s), a limited partner relinquishes all right, title, and interest in the Partnership as of the date of abandonment. However, the limited partner is allocated his or her share of net income or loss for that year. The income or loss per Limited Partnership Interest in the accompanying statements of operations is calculated based on the number of interests outstanding at the beginning of the year. NOTE 6 - INCOME TAXES The Partnership is not taxed on its income. The partners are taxed in their individual capacities based upon their distributive share of the Partnership's taxable income or loss and are allowed the benefits to be derived from off-setting their distributive share of the tax losses against taxable income from other sources subject to passive loss limitations. The taxable income or loss differs from amounts included in the statements of operations because different methods are used in determining the losses of the Local Limited Partnerships as discussed below. The tax loss is allocated to the partner groups in accordance with Section 704(b) of the Internal Revenue Code and therefore is not necessarily proportionate to the interest percentage owned. A reconciliation follows: Years Ended December 31, 2004 2003 (in thousands) Net (loss) income per financial statements $ (69) $ 7,952 Other 245 (999) Partnership's share of Local Limited Partnership 476 (2,264) Income (loss) per tax return $ 652 $ 4,689 Income (loss) per limited partnership interest $ 52.69 $361.60 The following is a reconciliation between the Partnership's reported amounts and the federal tax basis of net liabilities: December 31, 2004 (in thousands) Net deficit as reported $ (5,553) (Deduct) add: Investment in Partnerships (14,415) Deferred Offering 9,843 Other (66) Net deficit - federal tax basis $(10,191) NOTE 7 - REAL ESTATE AND ACCUMULATED DEPRECIATION OF LOCAL LIMITED PARTNERSHIPS IN WHICH THE PARTNERSHIP HAS INVESTED (1) Schedule of Encumbrances (all amounts unaudited except for those amounts relative to Oshtemo - see Note 2) (in thousands):
Notes Payable and Mortgage Accrued Partnership Name Notes Interest Total Cloverdale $ 652 $ 2,467 $ 3,119 Oshtemo 13,048 -- 13,048 Jenny Lind Hall 1,243 4,116 5,359 Plaza Village 2,479 -- 2,479 Total $17,422 $ 6,583 $24,005
(2) Schedule of Investment Properties (all amounts unaudited except for those amounts relative to Oshtemo - see Note 2) (in thousands):
Buildings And Related Personal Accumulated Year of Description Encumbrances Land Property Total Depreciation Construction Cloverdale $ 652 $ 100 $ 2,052 $ 2,152 $ (1,416) 1972 Oshtemo 13,048 617 16,967 17,584 (10,707) 1978 Jenny Lind Hall 1,243 32 1,014 1,046 (422) 1977 Plaza Village 2,479 381 7,200 7,581 (7,027) 1975 Total $17,422 $ 1,130 $27,233 $28,363 $(19,572)
(3) Reconciliation of real estate and accumulated depreciation(all amounts unaudited except for those amounts relative to Oshtemo - see Note 2):
Years Ended December 31, 2004 2004 2004 2003 2003 2003 (Unaudited) Oshtemo Total (Unaudited)Oshtemo Total Real estate: Balance at beginning of $11,357 $16,871 $28,228 $21,064 $17,300 $38,364 year Improvements during the 39 114 153 261 188 449 year Disposal of property -- (18) (18) (10 585) -- (10,585) Balance at end of year $11,396 $16,967 $28,363 $10,740 $17,488 $28,228
Years Ended December 31, 2004 2004 2004 2003 2003 2003 (Unaudited) Oshtemo Total (Unaudited)Oshtemo Total Accumulated depreciation: Balance at beginning of year $ 8,458 $10,071 $18,529 $13,739 $ 9,423 $23,162 Depreciation expense for the year 410 646 1,056 772 648 1,420 Disposal of property (3) (10) (13) (6,053) -- (6,053) Balance at end of year $ 8,865 $10,707 $19,572 $ 8,458 $10,071 $18,529
NOTE 8 - CONTINGENCIES The Corporate General Partner is involved in various lawsuits arising from transactions in the ordinary course of business. In the opinion of management and the Corporate General Partner, the claims will not result in any material liability to the Partnership. As previously disclosed, the Central Regional Office of the United States Securities and Exchange Commission (the "SEC") is conducting a formal investigation relating to certain matters. Although the staff of the SEC is not limited in the areas that it may investigate, AIMCO believes the areas of investigation include AIMCO's miscalculated monthly net rental income figures in third quarter 2003, forecasted guidance, accounts payable, rent concessions, vendor rebates, capitalization of payroll and certain other costs, and tax credit transactions. AIMCO is cooperating fully. AIMCO is not able to predict when the matter will be resolved. AIMCO does not believe that the ultimate outcome will have a material adverse effect on its consolidated financial condition or results of operations. Similarly, the Corporate General Partner does not believe that the ultimate outcome will have a material adverse effect on the Partnership's financial condition or results of operations. ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ITEM 8A. CONTROLS AND PROCEDURES (a) Disclosure Controls and Procedures. The Partnership's management, with the participation of the principal executive officer and principal financial officer of the Corporate General Partner, who are the equivalent of the Partnership's principal executive officer and principal financial officer, respectively, has evaluated the effectiveness of the Partnership's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this report. Based on such evaluation, the principal executive officer and principal financial officer of the Corporate General Partner, who are the equivalent of the Partnership's principal executive officer and principal financial officer, respectively, have concluded that, as of the end of such period, the Partnership's disclosure controls and procedures are effective. (b) Internal Control Over Financial Reporting. There have not been any changes in the Partnership's internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fourth quarter of 2004 that have materially affected, or are reasonably likely to materially affect, the Partnership's internal control over financial reporting. Item 8b. OTHER INFORMATION None. PART III. ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Housing Programs Limited (the "Partnership" or the "Registrant") has no directors or officers. The general partner responsible for conducting the business of the Partnership is National Partnership Investments Corp a California Corporation ("NAPICO" or the "Corporate General Partner"). The names and ages of, as well as the positions and offices held by, the present directors and officers of NAPICO are set forth below. The Corporate General Partner manages and controls substantially all of the Partnership's affairs and has general responsibility and ultimate authority in all matters affecting its business. There are no family relationships between or among any directors or officers. Name Age Position David R. Robertson 38 President and Chief Executive Officer Harry G. Alcock 42 Director and Executive Vice President Charles McKinney 53 Senior Vice President and Director of Asset Management Jeffrey H. Sussman 39 Senior Vice President, General Counsel and Secretary Brian H. Shuman 42 Senior Vice President and Chief Financial Officer David R. Robertson has been President, Chief Executive Officer and a Director of the Corporate General Partner since October 2002. Mr. Robertson has been an Executive Vice President of AIMCO since February 2002, and was appointed President and Chief Executive Officer of AIMCO Capital in October 2002. Mr. Robertson is responsible for property operations, asset management and transaction activities within AIMCO Capital's portfolio of affordable properties, and for redevelopment and construction activities for both the conventional and affordable property portfolios. Since February 1996, Mr. Robertson has been Chairman and Chief Executive Officer of Robeks Corporation, a privately held chain of specialty food stores. Harry G. Alcock was appointed as a Director of the Corporate General Partner in October 2004 and was appointed Executive Vice President of the Corporate General Partner in February 2004 and has been Executive Vice President and Chief Investment Officer of AIMCO since October 1999. Prior to October 1999 Mr. Alcock served as a Vice President of AIMCO from July 1996 to October 1997, when he was promoted to Senior Vice President Acquisitions where he served until October 1999. Mr. Alcock has had responsibility for acquisition and financing activities of AIMCO since July 1994. Charles McKinney has been Senior Vice President and Director of Asset Management of the Corporate General Partner and AIMCO Capital since January 2003 and has overall responsibility for monitoring the construction, lease-up, operations and compliance issues for all assets constituting a part of AIMCO's affordable portfolio. Mr. McKinney joined AIMCO as Vice President of Transactions in the Affordable Group in June 2002 and had responsibility for value added dispositions of affordable properties in the Western portion of the United States. From September 2000 through May 2002, Mr. McKinney was Managing Underwriter for Real Estate Recovery, Inc. where he was responsible for the real estate loan underwriting and loan review for the company's clients. From March 1998 through August 2000, Mr. McKinney was the Executive Managing Director of American Capital Advisors, Inc. an investment banking company. Jeffrey H. Sussman has been Senior Vice President, General Counsel and Secretary of the Corporate General Partner since joining NAPICO in 1998. Mr. Sussman is responsible for the legal affairs of NAPICO and its affiliates. Prior to joining NAPICO in 1998, Mr. Sussman was an associate with the law firm of Rus, Miliband, Williams & Smith in Irvine, California. His practice emphasized real estate finance and insolvency law and included the representation of borrowers, lenders, and court-appointed trustees in matters involving apartment complexes, retail centers and hotels. Brian H. Shuman has been Senior Vice President and Chief Financial Officer of the Corporate General Partner since joining NAPICO in 2000. Mr. Shuman is responsible for the financial affairs of NAPICO as well as the limited partnership sponsored by it. From 1996 until joining NAPICO in August 2000, Mr. Shuman was Vice President - Finance for Preferred Health Management Inc., the largest provider of worker compensation diagnostic imaging services in California formed in 1996, and was responsible for establishing and managing the accounting, billing, collection, treasury and financial reporting departments. The board of directors of the Corporate General Partner does not have a separate audit committee. As such, the board of directors of the Corporate General Partner fulfills the functions of an audit committee. The board of directors has determined that David R. Robertson meets the requirement of an "audit committee financial expert". The directors and officers of the Corporate General Partner with authority over the Partnership are all employees of subsidiaries of AIMCO. AIMCO has adopted a code of ethics that applies to such directors and officers that is posted on AIMCO's website (www.AIMCO.com). AIMCO's website is not incorporated by reference to this filing. ITEM 10. EXECUTIVE COMPENSATION None of the directors and officers of the Corporate General Partner received any remuneration from the Partnership during the year ended December 31, 2004. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) Security Ownership of Certain Beneficial Owners The General Partners own all of the outstanding general partnership interests of Housing Programs Limited. No person is known to own beneficially in excess of 5% of the outstanding limited partnership interests. (b) None of the officers or directors of the Corporate General Partner own directly or beneficially any limited partnership interests in the Partnership. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Under the terms of the Restated Certificate and Agreement of the Limited Partnership, the Partnership is obligated to pay to the general partners an annual asset management fee equal to 0.5% of the original invested assets of the Local Limited Partnerships. Invested assets is defined as the costs of acquiring project interests including the proportionate amount of the mortgage loans related to the Partnership's interest in the capital accounts of the respective Local Limited Partnerships. For the years ended December 31, 2004 and 2003, approximately $148,000 and $199,000 has been expensed, respectively. The Partnership reimburses NAPICO for certain expenses. The reimbursement to NAPICO was approximately $19,000 for both the years ended December 31, 2004 and 2003 and is included in general and administrative expenses. In accordance with the Partnership Agreement, the Corporate General Partner may advance the Partnership funds to assist in paying for normal operating expenses. These advances do not accrue interest. As of December 31, 2004, the Corporate General Partner had advanced approximately $101,000 for such purposes. AIMCO, which indirectly owns the Corporate General Partner of the Partnership, has a 15% interest in and is the trustee for the Plaza Village note payable. ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K Exhibits See exhibit index. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The Corporate General Partner has reappointed Ernst & Young LLP as independent auditors to audit the financial statements of the Partnership for 2005. The aggregate fees billed for services rendered by Ernst & Young LLP for 2004 and 2003 are described below. Audit Fees. Fees for audit services totaled approximately $49,000 and $44,000 for 2004 and 2003, respectively. Fees for audit services also include fees for the reviews of the Partnership's Quarterly Reports on Form 10-QSB. Tax Fees. Fees for tax services totaled approximately $8,000 and $28,000 for 2004 and 2003, respectively. SIGNATURES In accordance with the requirements of Section 13 or 15(d) of the Exchange Act the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. HOUSING PROGRAMS LIMITED (a California Limited Partnership) By: NATIONAL PARTNERSHIP INVESTMENTS CORP. Corporate General Partner By: /s/David R. Robertson David R. Robertson President and Chief Executive Officer By: /s/Brian H. Shuman Brian H. Shuman Senior Vice President and Chief Financial Officer Date: April 8, 2005 In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. /s/David R. Robertson President, Chief Executive Date: April 8,2005 David R. Robertson Officer and Director /s/Harry G. Alcock Director and Executive Date: April 8, 2005 Harry G. Alcock Vice President /s/Brian H. Shuman Senior Vice President and Date: April 8, 2005 Brian H. Shuman Chief Financial Officer HOUSING PROGRAM LIMITED EXHIBIT INDEX Exhibit Description of Exhibit 31.1 Certification of equivalent of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of equivalent of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Exhibit 31.1 CERTIFICATION I, David R. Robertson, certify that: 1. I have reviewed this annual report on Form 10-KSB of Housing Programs Limited; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: April 8, 2005 /s/David R. Robertson David R. Robertson President and Chief Executive Officer of National Partnership Investments Corporation, equivalent of the chief executive officer of the Partnership Exhibit 31.2 CERTIFICATION I, Brian H. Shuman, certify that: 1. I have reviewed this annual report on Form 10-KSB of Housing Programs Limited; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: April 8, 2005 /s/Brian H. Shuman Brian H. Shuman Senior Vice President and Chief Financial Officer of National Partnership Investments Corporation, equivalent of the chief financial officer of the Partnership Exhibit 32.1 Certification of CEO and CFO Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the Annual Report on Form 10-KSB of Housing Programs Ltd. (the "Partnership"), for the year ended December 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), David R. Robertson, as the equivalent of the chief executive officer of the Partnership, and Brian H. Shuman, as the equivalent of the chief financial officer of the Partnership, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership. /s/David R. Robertson Name: David R. Robertson Date: April 8, 2005 /s/Brian H. Shuman Name: Brian H. Shuman Date: April 8, 2005 This certification is furnished with this Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Partnership for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. -----END PRIVACY-ENHANCED MESSAGE-----