10-K405 1 v70777e10-k405.txt FORM 10-K YEAR ENDED DECEMBER 31, 2000 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------------- FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Fiscal Year Ended DECEMBER 31, 2000 Commission File Number 0-13808 ------- HOUSING PROGRAMS LIMITED A CALIFORNIA LIMITED PARTNERSHIP (Formerly, Shearson Lehman/Coast Savings Housing Partners, Limited) I.R.S. Employer Identification No. 95-3906167 ------------ 9090 WILSHIRE BLVD., SUITE 201, BEVERLY HILLS, CALIFORNIA 90211 Registrant's Telephone Number, Including Area Code (310) 278-2191 Securities Registered Pursuant to Section 12(b) or 12(g) of the Act: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed with the Commission by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or 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 [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] 2 PART I. ITEM 1. BUSINESS Housing Programs Limited (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 general partners of the Partnership are National Partnership Investments Corp. ("NAPICO"), Housing Programs Corporation II and Coast Housing Investment Associates ("CHIA") (collectively, the "General Partners"). The business of the Partnership is conducted primarily by its General Partners as Housing Programs Limited has no employees of its own. Prior to December 30, 1998, NAPICO was a wholly owned subsidiary of Casden Investment Corporation ("CIC"), which is wholly owned by Alan I. Casden. On December 30, 1998, Casden Properties Operating Partnership, L.P. (the "Operating Partnership"), a majority owned subsidiary of Casden Properties Inc., a real estate investment trust organized by Alan I. Casden, purchased a 95.25% economic interest in NAPICO. The current members of NAPICO's Board of Directors are Charles H. Boxenbaum, Bruce E. Nelson and Alan I. Casden. LBI Group Inc. owns all of the stock of Housing Programs Corporation II. CHIA is a limited partnership formed under the California Limited Partnership Act and consists of Messrs. Nicholas G. Ciriello, an unrelated individual, as general partner and Charles H. Boxenbaum, as limited partner. The Partnership holds limited partnership interests in 8 and 10 local limited partnerships (referred herein as the "local" or "lower-tier" limited partnerships) as of December 31, 2000 and 1999, respectively, after selling its interests in 2 and 7 local limited partnerships, in 2000 and 1998, respectively. As of December 31, 2000 and 1999, an affiliate of NAPICO holds a general partnership interest in 3 and 5 of the local limited partnerships, respectively. The remaining local partnerships general partners are unaffiliated with the Partnership. Each of the local 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. 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. 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"), which was adopted in October 1997, provides for the restructuring of mortgage loans insured by the FHA with respect to 3 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 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 limited partnerships. Although each of the 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. 4 During 2000, 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, 2000, of the projects owned by local 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, 2000
Units Authorized For Rental Percentage of No. of Assistance Under Units Total Units Name and Location Units Section 8 Occupied Occupied ----------------- ----- ---------------- -------- --------- Cape LaCroix 125 0 122 98% Cape Girardeau, MO Cloverdale 100 100 94 94% Crawfordsville, IN Cloverleaf 94 94 93 99% Indianapolis, IN Evergreen Apts 330 330 319 97% Oshtemo, MI Jenny Lind Hall 78 78 78 100% Springfield, MO Lancaster Heights 198 0 191 96% Normal, IL Plaza Village 228 228 222 97% Woonsocket, RI Walnut Towers 78 77 78 100% ------ ---- ----- Winfield, KS TOTAL 1,231 907 1,197 97% ===== ==== =====
5 ITEM 2. PROPERTIES Through its investments in local limited partnerships, the Partnership holds interests in real estate properties. ITEM 3. LEGAL PROCEEDINGS On August 27, 1998, two investors holding an aggregate of eight units of limited partnership interests in Real Estate Associates Limited III (an affiliated partnership in which NAPICO is the managing general partner) and two investors holding an aggregate of five units of limited partnership interest in Real Estate Associates Limited VI (another affiliated partnership in which NAPICO is the managing general partner) commenced an action in the United States District Court for the Central District of California against the Partnership, NAPICO and certain other affiliated entities. The complaint alleges that the defendants breached their fiduciary duty to the limited partners of certain NAPICO managed partnerships and made materially false and misleading statements in the consent solicitation statements sent to the limited partners of such partnerships relating to approval of the transfer of partnership interests in limited partnerships, owning certain of the properties, to the Operating Partnership organized by an affiliate of NAPICO. The plaintiffs seek equitable relief, as well as compensatory damages and litigation related costs. On August 4, 1999, one investor holding one unit of limited partnership interest in the Partnership commenced a virtually identical action in the United States District Court for the Central District of California against the Partnership, NAPICO and certain other affiliated entities. The second action has been subsumed in the first action, which has been certified as a class action. The managing general partner of such NAPICO managed partnerships and the other defendants believe that the plaintiff's claims are without merit and intend to contest the actions vigorously. As of December 31, 2000, NAPICO was a plaintiff or defendant in several lawsuits. None of these suits are related to the Partnership. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS In August 1998, a consent solicitation statement was sent to the limited partners setting forth the terms and conditions of the purchase of the limited partners' interests, held for investment by the Partnership, by the Operating Partnership, together with certain amendments to the Partnership Agreement and other disclosures of various conflicts of interest in connection with the proposed transaction. Prior to the sale of the partnership interests in 1998, the consents of the limited partners to the sale and amendments to the Partnership Agreement were obtained. PART II. ITEM 5. MARKET FOR THE REGISTRANT'S PARTNERSHIP INTERESTS AND RELATED SECURITY HOLDER 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. Limited Partnership Interests may be transferred only if certain requirements are satisfied. Currently, there are 2,750 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 limited partnerships. In March 1999, the Partnership made distributions of $695,687 to the limited partners and $7,027 to the general partners, which included using proceeds from the sale of the partnership interests. No other distributions have been made since the inception of the Partnership. 6 ITEM 6. SELECTED FINANCIAL DATA:
Year Ended December 31, ---------------------------------------------------------------------------------------- 2000 1999 1998 1997 1996 ------------ ------------ ------------ ------------ ------------ Loss From Operations $ (875,582) $ (910,387) $ (1,510,232) $ (1,554,011) $ (1,698,332) Gain on Sale of Limited Partnership Interests 488,759 -- 5,398,913 -- -- Distribution From Limited Partnerships Recognized as Income 146,765 821,124 489,499 468,618 387,721 Equity in Income (Loss) of Limited Partnerships and amortization of acquisition costs -- -- (9,591,534) 367,144 142,894 Extraordinary gain - debt forgiveness -- -- -- 2,149,096 -- ------------ ------------ ------------ ------------ ------------ Net Income (Loss) $ (240,058) $ (89,261) $ (5,213,354) $ 1,430,847 $ (1,167,717) ============ ============ ============ ============ ============ Net Income (Loss) per Limited Partner Interest $ (19) $ (7) $ (417) $ 115 $ (93) ============ ============ ============ ============ ============ Total assets $ 387,546 $ 817,796 $ 1,034,465 $ 14,571,452 $ 15,312,532 ============ ============ ============ ============ ============ Investments in Limited Partnerships $ -- $ -- $ -- $ 13,409,054 $ 14,364,056 ============ ============ ============ ============ ============ Notes payable $ 4,600,000 $ 4,600,000 $ 4,600,000 $ 8,669,743 $ 10,169,743 ============ ============ ============ ============ ============ Fees and Expenses Due to General Partners $ 1,097,089 $ 1,730,608 $ 1,355,519 $ 1,562,552 $ 1,317,044 ============ ============ ============ ============ ============
7 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS: LIQUIDITY The Partnership's primary sources of funds include interest income on money market accounts and certificates of deposit and distributions from local partnerships in which the Partnership has invested. It is not expected that any of the local 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. The Partnership sold its interest in 7 local limited partnerships on December 30, 1998, which resulted in cash proceeds to the Partnership of $202,714. In March 1999, the Partnership distributed $695,687 to the limited partners and $7,027 to the general partners. CAPITAL RESOURCES The Partnership received $30,920,000 in subscriptions for units of Limited Partnership Interests (at $5,000 per unit) during the period September 12, 1984, to June 30, 1986, pursuant to a registration statement filed on Form S-11. The Partnership made its capital contributions to the local limited partnerships in stages, over a period of two to five years, with each contribution due on a specified date, provided that certain conditions regarding construction or operation of the project were fulfilled. The Partnership has no further capital commitments to the local limited partnerships. RESULTS OF OPERATIONS The Partnership was formed to provide various benefits to its partners as discussed in Item 1. It is anticipated that the local limited partnerships in which the Partnership has invested could produce tax losses for as long as 20 years. Tax benefits will decline over time as the advantages of accelerated depreciation are greatest in the earlier years, as deductions for interest expense will decrease as mortgage principal is amortized and as the Tax Reform Act of 1986 limits the deductions available. At December 31, 2000, the Partnership has investments in 8 limited partnerships, all of which own housing projects that were substantially all rented. The Partnership sold its interest in 2 and 7 local partnerships in December 2000 and 1998, respectively. The Partnership, as a limited partner, is entitled to 99% of the profits and losses of the local limited partnerships. 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. Equity in losses of limited partnerships is recognized in the financial statements until the limited partnership investment account is reduced to a zero balance. Losses incurred after the limited partnership investment account is reduced to zero are not recognized. Limited partners are not liable for losses beyond their contributed capital. Distributions received from limited partnerships are recognized as return of capital until the investment balance has been reduced to zero or to a negative amount equal to future capital contributions required. Subsequent distributions received are recognized as income. The total losses from the local partnerships that were allocated to the Partnership was approximately $202,000, $996,000 and $606,000 for the years ended December 31, 2000, 1999 and 1998, respectively. However, because losses incurred after the investment account is reduced to a zero balance are not recognized, the Partnership recognized no equity in income of limited partnerships for the years ended December 31, 2000 and 1999 and recognized equity in income of $281,486 for the year ended December 31, 1998. In addition, the loss recorded by the Partnership in 1998 includes impairment losses of approximately $9,873,020 recognized to the carrying values of the investments in certain local limited partnerships. The cumulative amount of the unrecognized equity in losses of certain limited partnerships was approximately $8,231,000 and $15,382,000 as of December 31, 2000 and 1999, respectively. 8 Distributions from the local limited partnerships in which the Partnership did not have a positive investment balance were approximately $147,000, $821,000 and $489,000 for the years ended December 31, 2000, 1999 and 1998, respectively. These amounts were recognized as income on the accompanying statements of operations, in accordance with the equity method of accounting. As of December 31, 2000, 1999 and 1998, the Partnership has cash and cash equivalents of $372,546, $817,796 and $831,751, respectively. Substantially all of these amounts are on deposit primarily with high quality financial institutions, earning interest. This resulted in the Partnership earning approximately $20,000 and $56,000 in interest income for the years ended December 31, 1999 and 1998, respectively. The amount of interest income varies with market rates available on deposits and with the amount of funds available for investment. Cash equivalents can be converted to cash to meet obligations of the Partnership as they arise. The Partnership intends to continue investing available funds in this manner. A recurring partnership expense is the annual management fee. The fee is payable to the General Partners of the Partnership and is calculated at .5 percent of the Partnership's original remaining 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. Because of the decrease in invested assets at the end of 1998 as a result of the sale of partnership interests, management fees decreased from $492,960 for the year ended 1998, to $231,180, $310,790 for the years ended December 31, 2000 and 1999, respectively. The Partnership is obligated on non-recourse notes payable of $4,600,000 which bear interest at 9.5 percent per annum and matured on December 31,1999. The Partnership was relieved of notes payable in the amount of $4,069,743 in connection the sale of the partnership interests to the Operating Partnership. The notes and related interest are payable from cash flow generated from operations of the related rental properties as defined in the notes. These obligations are collateralized by the Partnership's investments in the limited partnerships. Unpaid interest is due at maturity of the notes. Interest expense totaled $437,000, $437,000 and $823,624 for 2000, 1999 and 1998, respectively. Interest expense has decreased from 1998 due to the relief of notes payable in 1998. 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 generally consistent and were $103,954, $93,124 and $124,902 for the years ended December 31, 2000, 1999 and 1998, respectively. General and administrative expenses were $103,798, $89,302 and $128,108 for the years ended December 31, 2000, 1999 and 1998, respectively. Included in general and administrative expenses are reimbursements to NAPICO for certain expenses, which totaled approximately $20,000 for each of the years ended December 31,2000, 1999 and 1998. Also included in general and administrative expenses in 1999 and 1998 is $17,962 and $37,556, respectively, in expenses related to the third party review of the properties discussed below. Accounts payable at December 31, 1998 includes $153,452 of such costs. Revenues and expenses of the local limited partnerships decreased during the year ended December 31, 2000 and 1999 as compared to 1998, as a result of the sale of 7 partnership interests on December 30, 1998. Total revenue for the local partnerships decreased from $16,839,000 for the year ended December 31, 1998, to $7,569,000 and $10,322,000 for the years ended December 31, 2000 and 1999, respectively. Total expenses for the local partnerships decreased from $17,451,000 for the year ended December 31, 1998, to $7,773,000 and $11,328,000 for the years ended December 31, 2000 and 1999, respectively. The total net loss for the local partnerships for 2000, 1999 and 1998 aggregated $204,000, $1,006,000 and $612,000, respectively. The losses allocated to the Partnership were $202,000, $996,000 and $606,000 for 2000, 1999 and 1998, respectively. 9 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"), which was adopted in October 1997, 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. As a result of the foregoing, the Partnership in 1997 undertook an extensive review of disposition, refinancing or re-engineering alternatives for the properties in which the limited partnerships have invested and are subject to HUD mortgage and rental subsidy programs. The Partnership has incurred expenses in connection with this review by various third party professionals, including accounting, legal, valuation, structural and engineering costs, which amounted to $37,556 and $5,540 for the years ended December 31, 1998 and 1997, respectively, and are included in general and administrative expenses. On December 30, 1998, the Partnership sold its limited partnership interests in 7 local limited partnerships, with a total carrying value of $3,691,082, to the Operating Partnership. The sale resulted in proceeds to the Partnership of $202,714 and a net gain of $5,398,913, after being relieved of notes and interest payable of $9,172,563 and incurring selling costs of $285,282, most of which are included in accounts payable at December 31, 1998. The cash proceeds were held in escrow at December 31, 1998 and were received in 1999. In March 1999, the Partnership made cash distributions of $695,687 to the limited partners and $7,027 to the general partners, which included using proceeds from the sale of the partnership interests. The Operating Partnership purchased such limited partner interests for cash, which it raised in connection with a private placement of its equity securities. The purchase was subject to, among other things, (i) the purchase of the general partner interests in the local limited partnerships by the Operating Partnership; (iii) the approval of HUD and certain state housing finance agencies; and (iii) the consent of the limited partners to the sale of the local limited partnership interests held for investment by the Partnership. In August 1998, a consent solicitation statement was sent to the limited partners setting forth the terms and conditions of the purchase of the limited partners' interests held for investment by the Partnership, together with certain amendments to the Partnership Agreement and other disclosures of various conflicts of interest in connection with the 10 proposed transaction. Prior to the sale of the partnership interests, the consents of the limited partners to the sale and amendments to the Partnership Agreement were obtained. The Partnership, as a Limited Partner in the local partnerships in which it has invested, is subject to the risks incident to the construction, 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. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA: The Financial Statements and Supplementary Data are listed under Item 14. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE: Not applicable. 11 HOUSING PROGRAMS LIMITED (a California limited partnership) FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES AND REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS DECEMBER 31, 2000 12 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Partners of Housing Programs Limited (A California limited partnership) We have audited the accompanying balance sheets of Housing Programs Limited (a California limited partnership) as of December 31, 2000 and 1999, and the related statements of operations, partners' deficiency and cash flows for each of the three years in the period ended December 31, 2000. Our audits also included the financial statement schedules listed in the index in Item 14. These financial statements and financial statement schedules are the responsibility of the management of the Partnership. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We did not audit the financial statements of certain limited partnerships, the investments in which are reflected in the accompanying financial statements using the equity method of accounting. The equity in loss of these limited partnerships represents 5 percent of the total net loss of the Partnership for the year ended December 31, 1998, and these limited partnerships represent a substantial portion of the investee information in Note 2 and the financial statement schedules. The financial statements of these limited partnerships were audited by other auditors. Their reports have been furnished to us and our opinion, insofar as it relates to the amounts included for these limited partnerships, is based solely on the reports of the other auditors. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe our audits and the reports of other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the reports of other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of Housing Programs Limited as of December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, based on our audits and the reports of other auditors, such financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. The accompanying financial statements have been prepared assuming that the Partnership will continue as a going concern. As discussed in Note 3 to the financial statements, the Partnership's recurring losses from operations, partners' deficiency and past due notes and related accrued interest payable of $11,051,861 raise substantial doubt about the Partnership's ability to continue as a going concern. Management's plans concerning these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. DELOITTE & TOUCHE LLP Los Angeles, California March 28, 2001 13 HOUSING PROGRAMS LIMITED (A CALIFORNIA LIMITED PARTNERSHIP) BALANCE SHEETS DECEMBER 31, 2000 AND 1999 ASSETS
2000 1999 ------------ ------------ INVESTMENTS IN LIMITED PARTNERSHIPS (Notes 1 and 2) $ -- $ -- CASH AND CASH EQUIVALENTS (Note 1) 372,546 817,796 DUE FROM ESCROW (NOTE 2) 15,000 ------------ ------------ TOTAL ASSETS $ 387,546 $ 817,796 ============ ============ LIABILITIES AND PARTNERS' DEFICIENCY LIABILITIES: Notes payable (Notes 3 and 7) $ 4,600,000 $ 4,600,000 Accrued fees and expenses due general partners (Note 4) 1,097,089 1,730,608 Accrued interest payable (Notes 3 and 7) 6,451,861 6,014,861 Accounts payable (Note 2) 69,855 63,528 ------------ ------------ 12,218,805 12,408,997 ------------ ------------ COMMITMENTS AND CONTINGENCIES (Notes 2, 4 and 6) PARTNERS' DEFICIENCY: General partners (369,060) (366,659) Limited partners (11,462,199) (11,224,542) ------------ ------------ (11,831,259) (11,591,201) ------------ ------------ TOTAL LIABILITIES AND PARTNERS' DEFICIENCY $ 387,546 $ 817,796 ============ ============
The accompanying notes are an integral part of these financial statements. 14 HOUSING PROGRAMS LIMITED (a California limited partnership) STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
2000 1999 1998 ----------- ----------- ----------- INTEREST AND OTHER INCOME $ 350 $ 19,829 $ 59,362 ----------- ----------- ----------- OPERATING EXPENSES: Management fees - general partner (Note 4) 231,180 310,790 492,960 General and administrative (Note 4) 103,798 89,302 128,108 Legal and accounting 103,954 93,124 124,902 Interest (Note 3) 437,000 437,000 823,624 ----------- ----------- ----------- Total operating expenses 875,932 930,216 1,569,594 ----------- ----------- ----------- LOSS FROM OPERATIONS (875,582) (910,387) (1,510,232) GAIN ON SALE OF LIMITED PARTNERSHIP INTERESTS (Note 2) 488,759 -- 5,398,913 DISTRIBUTIONS FROM LIMITED PARTNERSHIPS RECOGNIZED AS INCOME (Note 2) 146,765 821,124 489,499 EQUITY IN LOSS OF LIMITED PARTNERSHIPS AND AMORTIZATION OF ACQUISITION COSTS (Note 1 and 2) -- -- (9,591,534) ----------- ----------- ----------- NET LOSS $ (240,058) $ (89,263) $(5,213,354) =========== =========== =========== NET LOSS PER LIMITED PARTNERSHIP INTEREST $ (19) $ (7) $ (417) =========== =========== ===========
The accompanying notes are an integral part of these financial statements. 15 HOUSING PROGRAMS LIMITED (a California limited partnership) STATEMENTS OF PARTNERS' DEFICIENCY FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
General Limited Partners Partners Total ------------ ------------ ------------ DEFICIENCY, January 1, 1998 $ (306,605) $ (5,279,265) $ (5,585,870) Net loss, 1998 (52,134) (5,161,220) (5,213,354) ------------ ------------ ------------ DEFICIENCY, December 31, 1998 (358,739) (10,440,485) (10,799,224) Distributions to partners (7,027) (695,687) (702,714) Net loss, 1999 (893) (88,370) (89,263) ------------ ------------ ------------ DEFICIENCY, December 31, 1999 (366,659) (11,224,542) (11,591,201) Net loss, 2000 (2,401) (237,657) (240,058) ------------ ------------ ------------ DEFICIENCY, December 31, 2000 $ (369,060) $(11,462,199) $(11,831,259) ============ ============ ============
The accompanying notes are an integral part of these financial statements. 16 HOUSING PROGRAMS LIMITED (a California limited partnership) STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
2000 1999 1998 ----------- ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (240,058) $ (89,263) $(5,213,354) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Gain on sale of partnership interests (488,759) -- (5,398,913) Equity in loss of limited partnerships -- -- 9,559,407 Amortization of acquisition costs -- -- 32,127 Increase in accrued interest payable 437,000 437,000 759,509 (Decrease) increase in accrued fees and expenses due general partners (633,519) 375,089 (207,033) Due from escrow (15,000) -- -- Increase (decrease) in accounts payable 6,327 (236,781) 296,454 ----------- ----------- ----------- Net cash (used in) provided by operating activities (934,009) 486,045 (171,803) ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Costs related to the sale of partnership interests -- -- (285,282) Capital contributions to limited partnerships -- -- (556,697) Distributions from limited partnerships recognized as a return of capital -- -- 683,135 Proceeds from sale of limited partnership interests -- 202,714 -- ----------- ----------- ----------- Net cash provided by (used in) investing activities 488,759 202,714 (158,844) ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Distributions to partners 488,759 (702,714) -- ----------- ----------- ----------- NET DECREASE IN CASH AND CASH EQUIVALENTS (445,250) (13,955) (330,647) CASH AND CASH EQUIVALENTS, beginning of year 817,796 831,751 1,162,398 ----------- ----------- ----------- CASH AND CASH EQUIVALENTS, end of year $ 372,546 $ 817,796 $ 831,751 =========== =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the year for interest $ -- $ -- $ 64,113 =========== =========== =========== SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES See Note 2 to financial statements regarding notes and interest payable
The accompanying notes are an integral part of these financial statements. 17 HOUSING PROGRAMS LIMITED (a California limited partnership) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2000 1. Summary of Significant Accounting Policies Organization Housing Programs Limited (the "Partnership"), formed under the California Uniform Limited Partnership Act, was organized 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), and Coast Housing Investment Associates (CHIA), a limited partnership and Housing Programs Corporation II. The business of the Partnership is conducted primarily by its general partners. Prior to December 30, 1998, NAPICO was a wholly owned subsidiary of Casden Investment Corporation ("CIC"), which is wholly owned by Alan I. Casden. On December 30, 1998, Casden Properties Operating Partnership, L.P., (the "Operating Partnership") a majority owned subsidiary of Casden Properties Inc., a real estate investment trust organized by Alan I. Casden, purchased a 95.25% economic interest in NAPICO. The limited partner of CHIA is an officer of NAPICO. The Partnership offered and issued 6,184 units of limited partnership interests through a public offering. Each unit was comprised of two limited partnership interests and one warrant, which entitled the investor two additional limited partnership interests. An additional 6,184 of interests were issued from the exercise of warrants and the sale of interests associated with warrants not exercised. The general partners have a 1 percent interest in profits and losses of the Partnership. The limited partners have the remaining 99 percent interest in proportion to their respective investments. 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 18 HOUSING PROGRAMS LIMITED (a California limited partnership) NOTES TO FINANCIAL STATEMENTS(CONTINUED) DECEMBER 31, 2000 1. Summary of Significant Accounting Policies (Continued) 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. On December 30, 1998, the Partnership sold its limited partnership interests in 7 local limited partnerships for net proceeds of $202,714 to the Operating Partnership. 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 of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Method of Accounting for Investments in Limited Partnerships The investments in local limited partnerships are accounted for on the equity method. Acquisition, selection and other costs related to the acquisition of the projects have been capitalized to the investment account and are being amortized on a straight line basis over the estimated lives of the underlying assets, which is generally 30 years. Net Loss Per Limited Partnership Interest Net loss per limited partnership interest was computed by dividing the limited partners' share of net loss by the number of limited partnership interests outstanding during the year. The number of limited partnership interests was 12,368 for all years presented. 19 HOUSING PROGRAMS LIMITED (a California limited partnership) NOTES TO FINANCIAL STATEMENTS(CONTINUED) DECEMBER 31, 2000 1. Summary of Significant Accounting Policies (Continued) Cash and Cash Equivalents Cash and cash equivalents consist of cash and bank certificates of deposit with an original maturity of three months or less. The Partnership has its cash and cash equivalents on deposit with high quality financial institutions. Such cash and cash equivalents are in excess of FDIC insurance limit. Impairment of Long-Lived Assets The Partnership reviews 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. During 1998, the Partnership recognized an impairment loss of $9,873,020 related to certain investments in local limited partnerships, which has been included in equity in loss of limited partnerships. 2. Investments in Limited Partnerships The Partnership holds limited partnership interests in 8 and 10 limited partnerships as of December 31, 2000 and 1999, respectively, after selling its interests in 2 and 7 limited partnerships in 2000 and 1998, respectively. The limited partnerships own residential low income rental projects consisting of 1231 apartment units. The mortgage loans of these projects are payable to or insured by various governmental agencies. The Partnership, as a limited partner, is entitled to 99 percent of the profits and losses of the limited partnerships. Equity in losses of limited partnerships is recognized in the financial statements until the limited partnership investment account is reduced to a zero balance. Losses incurred after the investment account is reduced to zero are not recognized. The cumulative amount of unrecognized equity in losses of certain limited partnerships was approximately $8,231,000 and $15,382,000 as of December 31, 2000 and 1999, respectively. Distributions from the limited partnerships are recognized as a reduction of capital until the investment balance has been reduced to zero or to a negative amount equal to further capital contributions required. Subsequent distributions are recognized as income. 20 HOUSING PROGRAMS LIMITED (a California limited partnership) NOTES TO FINANCIAL STATEMENTS(CONTINUED) DECEMBER 31, 2000 2. Investments in Limited Partnerships (Continued) The Partnership has not carrying value in investments in limited partnerships as of December 31, 2000 and 1999. The difference between the investment per the accompanying balance sheets at December 31, 2000 and 1999, 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. Selected financial information from the combined financial statements of the limited partnerships at December 31, 2000 and 1999 and for each of the three years in the period ended December 31, 2000 is as follows: Balance Sheets
2000 1999 -------- -------- (in thousands) Land and buildings, net $ 17,881 $ 29,567 ======== ======== Total assets $ 32,287 $ 44,197 ======== ======== Mortgages payable $ 17,718 $ 27,953 ======== ======== Total liabilities $ 33,512 $ 52,534 ======== ======== Deficit of Housing Programs Limited $ (1,016) $ (8,019) ======== ======== Deficit of other partners $ (209) $ (318) ======== ========
21 HOUSING PROGRAMS LIMITED (a California limited partnership) NOTES TO FINANCIAL STATEMENTS(CONTINUED) DECEMBER 31, 2000 2. Investments in Limited Partnerships (Continued) Statements of Operations
2000 1999 1998 -------- -------- -------- (in thousands) Total revenues $ 7,569 $ 10,322 $ 16,839 ======== ======== ======== Interest expense $ 967 $ 1,751 $ 3,251 ======== ======== ======== Depreciation $ 1,449 $ 2,067 $ 3,363 ======== ======== ======== Total expenses $ 7,773 $ 11,328 $ 17,451 ======== ======== ======== Net loss $ (204) $ (1,006) $ (612) ======== ======== ======== Net loss allocable to Housing Programs Limited $ (202) $ (996) $ (606) ======== ======== ========
During the year ended December 31, 2000, the Partnership sold its interest in two limited partnerships for a net payment of $488,759. The Partnership recognized a gain of $488,759 from the sale because it had no investment balance related to these partnerships. In January 2001, the Partnership sold its interest in the Walnut Towers property for a net payment and gain of $65,000. At December 31, 20000, the Partnership had a deposit in escrow of $15,000 related to this sale, which was also collected in January 2001. Prior to the sale of certain partnership interests on December 30, 1998, an affiliate of NAPICO was the general partner in 10 of the limited partnerships included above, and another affiliate of NAPICO received property management fees of approximately 5 to 6 percent of revenues from 4 of these partnerships. Subsequent to the sale of certain partnership interests, NAPICO is the general partner in three and five of the limited partnerships at December 2000 and 1999, and another affiliate manages one of the limited partnership's property. The affiliate received property management fees of $65,494, $57,228 and $187,166 in 2000, 1999 and 1998, respectively. The following sets forth the significant data for the partnerships in which an affiliate of NAPICO is currently the general partner, reflected in the accompanying financial statements using the equity method of accounting: 22 HOUSING PROGRAMS LIMITED (a California limited partnership) NOTES TO FINANCIAL STATEMENTS(CONTINUED) DECEMBER 31, 2000 2. Investments in Limited Partnerships (Continued)
2000 1999 1998 -------- -------- -------- (in thousands) Total assets $ 6,179 $ 18,210 ======== ======== Total liabilities $ 12,608 $ 31,407 ======== ======== Deficiency of Housing Programs Limited $ (6,287) $(12,949) ======== ======== Deficiency of other partners $ (142) $ (248) ======== ======== Total revenue $ 1,857 $ 4,719 $ 8,383 ======== ======== ======== Net loss $ (652) $ (1,502) $ (616) ======== ======== ========
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"), which was adopted in October 1997, 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. 23 HOUSING PROGRAMS LIMITED (a California limited partnership) NOTES TO FINANCIAL STATEMENTS(CONTINUED) DECEMBER 31, 2000 2. Investments in Limited Partnerships (Continued) 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. As a result of the foregoing, the Partnership, in 1997, commenced an extensive review of disposition, refinancing or re-engineering alternatives for the properties in which the limited partnerships have invested and are subject to HUD mortgage and rental subsidy programs. The Partnership has incurred expenses in connection with this review by various third party professionals, including accounting, legal, valuation, structural and engineering costs, which amounted to $17,962 and $37,556 for the years ended December 31, 1999 and 1998, respectively, and are included in general and administrative expenses. Accounts payable at December 31, 1998 includes $153,452 of such costs. On December 30, 1998, the Partnership sold its limited partnership interests in 7 local limited partnerships, with a total carrying value of $3,691,082, to the Operating Partnership. The sale resulted in proceeds to the Partnership of $202,714 and a net gain of $5,398,913, after being relieved of notes and interest payable of $9,172,563 and incurring selling costs of $285,282, most of which are included in accounts payable at December 31, 1998. The cash proceeds were held in escrow at December 31, 1998 and were received in 1999. In March 1999, the Partnership made cash distributions of $695,687 to the limited partners and $7,027 to the general partners, which included using proceeds from the sale of the partnership interests. The Operating Partnership purchased such limited partner interests for cash, which it raised in connection with a private placement of its equity securities. The purchase was subject to, among other things, (i) the purchase of the general partner interests in the local limited partnerships by the Operating Partnership; (ii) the approval of HUD and certain state housing finance agencies; and (iii) the consent of the limited partners to the sale of the local limited partnership interests held for investment by the Partnership. 24 HOUSING PROGRAMS LIMITED (a California limited partnership) NOTES TO FINANCIAL STATEMENTS(CONTINUED) DECEMBER 31, 2000 2. Investments in Limited Partnerships (Continued) In August 1998, a consent solicitation statement was sent to the limited partners setting forth the terms and conditions of the purchase of the limited partners' interests held for investment by the Partnership, together with certain amendments to the Partnership Agreement and other disclosures of various conflicts of interest in connection with the proposed transaction. Prior to the sale of the partnership interests, the consents of the limited partners to the sale and amendments to the Partnership Agreement were obtained. 3. Notes Payable Certain of the Partnership's investments involved purchases of partnership interests from partners who subsequently withdrew from the operating partnership. The Partnership is obligated for non-recourse notes payable of $4,600,000 to the sellers of the partnership interests, bearing interest at 9.5 percent. The Partnership was relieved of notes payable in the amount of $4,069,743 in connection with the sale of the partnership interests to the Operating Partnership in 1998. The notes matured in December 1999. These obligations and the related interest are collateralized by the Partnership's investment in the investee limited partnerships and are payable only out of cash distributions from the investee partnerships, as defined in the notes. Unpaid interest is due at maturity of the notes. Notes payable and related accrued interest payable aggregating $11,051,861 as of December 31, 2000 become payable on December 31, 2000. The Partnership has not made any payments and is in default under the terms of the notes. Due to the Partnership's lack of cash and partners' deficiency, there is substantial doubt about its ability to make these payments, which would result in the possible foreclosure of the investments in the local limited partnerships. As a result, there is substantial doubt about the Partnerships' ability to continue as a going concern. Management is in process of attempting to negotiate extensions of the maturity dates on the notes payable. 25 HOUSING PROGRAMS LIMITED (a California limited partnership) NOTES TO FINANCIAL STATEMENTS(CONTINUED) DECEMBER 31, 2000 4. Fees and Expenses Due General Partners Under the terms of the Restated Certificate and Agreement of the Limited Partnership, the Partnership is obligated to the general partners for an annual asset management fee equal to .5% of the original remaining invested assets of the 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 limited partnerships. The Partnership reimburses NAPICO for certain expenses. The reimbursement to NAPICO was approximately $20,000 for each of the years ended December 31, 2000, 1999 and 1998, and is included in general administrative expenses. As of December 31, 2000, the fees and expenses due the general partners exceeded the Partnership's cash. The general partners, during the forthcoming year, will not demand payment of amounts due in excess of such cash or such that the Partnership would not have sufficient operating cash; however, the Partnership will remain liable for all such amounts. 5. Income Taxes No provision has been made for income taxes in the accompanying financial statements since such taxes, if any, are the liability of the individual partners. The major differences in tax and financial reporting result from the use of different bases and depreciation methods for the properties held by the limited partnerships. Differences in tax and financial reporting also arise as losses are not recognized for financial reporting purposes when the investment balance has been reduced to zero or to a negative amount equal to further capital contributions required. 6. Contingencies On August 27, 1998, two investors holding an aggregate of eight units of limited partnership interests in Real Estate Associates Limited III (an affiliated partnership in which NAPICO is the managing general partner) and two investors holding an aggregate of five units of limited partnership interest in Real Estate Associates Limited VI (another affiliated partnership in which NAPICO is the managing general partner) commenced an action in the United States District Court for the Central District of California against the Partnership, NAPICO and certain other affiliated entities. The complaint alleges that the defendants breached their fiduciary duty to the limited partners of certain NAPICO managed partnerships and made materially false and misleading statements in the consent solicitation statements sent to the limited partners of such partnerships relating to approval of the transfer of partnership interests in limited partnerships, owning certain of the properties, to the Operating Partnership organized by an affiliate of NAPICO. The plaintiffs seek equitable relief, as well as compensatory damages and litigation related costs. On August 4, 1999, one investor holding one unit of limited partnership interest in the Partnership commenced a 26 HOUSING PROGRAMS LIMITED (a California limited partnership) NOTES TO FINANCIAL STATEMENTS(CONTINUED) DECEMBER 31, 2000 6. Contingencies (Continued) virtually identical action in the United States District Court for the Central District of California against the Partnership, NAPICO and certain other affiliated entities. The second action has been subsumed in the first action, which has been certified as a class action. The managing general partner of such NAPICO managed partnerships and the other defendants believe that the plaintiffs' claims are without merit and intend to contest the actions vigorously. NAPICO is a plaintiff in various lawsuits and has also been named as a defendant in other lawsuits arising from transactions in the ordinary course of business. In the opinion of management and NAPICO, the claims will not result in any material liability to the Partnership. 7. Fair Value of Financial Instruments Statement of Financial Accounting Standards No. 107, "Disclosure about Fair Value of Financial Instruments," requires disclosure of fair value information about financial instruments, when it is practicable to estimate that value. The notes payable are collateralized by the Partnership's investments in investee limited partnerships, which account for the Partnership's primary source of revenues, are subject to various government rules, regulations and restrictions which make it impracticable to estimate the fair value of the notes and related accrued interest payable. It is impracticable to estimate the fair value of the amounts due general partner due to their related party nature. The carrying amount of other assets and liabilities reported on the balance sheets that require such disclosure approximates fair value due to their short-term maturity. 8. Fourth-Quarter Adjustment The Partnership's policy is to record its equity in the loss of limited partnerships on a quarterly basis using estimated financial information furnished by the various local operating general partners. The equity in (loss) income of limited partnerships reflected in the accompanying financial statements is based primarily upon audited financial statements of the investee limited partnerships. 27 SCHEDULE HOUSING PROGRAMS LIMITED INVESTMENTS IN LIMITED PARTNERSHIPS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
Year Ended December 31, 2000 -------------------------------------------------------------------------------------------------------- Cash Balance Distri- Balance January Capital butions Equity in December Limited Partnerships 1, 2000 Contributions Received Income/(Loss) Sale 31, 2000 --------------- -------------- -------------- -------------- --------------- --------------- Cape La Croix $ $ $ $ $ $ Cloverdale Cloverleaf Evergreen Apts. Jenny Lind Hall Lancaster Heights Plaza Village Walnut Towers --------------- -------------- --------------- -------------- --------------- --------------- $ $ $ $ $ $ =============== ============== =============== ============== =============== ===============
28 SCHEDULE (CONTINUED) HOUSING PROGRAMS LIMITED INVESTMENTS IN LIMITED PARTNERSHIPS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
Year Ended December 31, 1999 -------------------------------------------------------------------------------------------------------- Cash Balance Distri- Balance January Capital butions Equity in December Limited Partnerships 1, 1999 Contributions Received Income/(Loss) Sale 31, 1999 --------------- -------------- -------------- -------------- --------------- --------------- Cape La Croix $ $ $ $ $ $ Cloverdale Cloverleaf 24,899 (24,899) -- Evergreen Apts. Jenny Lind Hall Lancaster Heights Midpark Towers Plaza Village Santa Fe Towers 72,808 (72,808) -- Walnut Towers --------------- -------------- -------------- -------------- --------------- --------------- $ $ 97,707 $ (97,707) $ $ $ -- =============== ============== ============== ============== =============== ===============
29 SCHEDULE (CONTINUED) HOUSING PROGRAMS LIMITED INVESTMENTS IN LIMITED PARTNERSHIPS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
Year Ended December 31, 1998 ----------------------------------------------------------------------------------------------------------- Cash Balance Distri- Balance January Capital butions Equity in December Limited Partnerships 1, 1998 Contributions Received Income/(Loss) Sale 31, 1998 -------------------- ------------- ------------- ------------- ------------- ------------- ------------- Bannock Arms $ 615,775 $ $ $ 68,680 $ (684,455) $ -- Berkeley Gardens 288,107 (90,957) (197,150) -- Cape La Croix 2,237 (2,237) -- Cloverdale 29,843 (29,843) -- Cloverleaf 95,763 (95,763) -- Evergreen Apts 9,181,872 (77,702) (9,104,170) -- Friendship Arms 2,055,500 (35,039) (98,171) (1,922,290) -- Jenny Lind Hall Lancaster Heights 21,858 (21,858) -- Locust House* 979,769 (16,897) (78,885) (883,987) -- Midpark Towers 236,732 (236,732) -- Oxford Towers* 3,200 (3,200) -- Plaza Village 288,031 (288,031) -- Round Barn Manor* Santa Fe Towers 87,818 (87,818) -- Walnut Towers 48,005 (48,005) -- Westwood Terrace* 31,241 (31,241) -- ------------- ------------- ------------- ------------- ------------- ------------- $ 13,409,054 $ 556,697 $ (683,135) $ (9,591,534) $ (3,691,082) $ -- ============= ============= ============= ============= ============= =============
30 SCHEDULE (CONTINUED) HOUSING PROGRAMS LIMITED INVESTMENTS IN LIMITED PARTNERSHIPS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 NOTES: 1. Equity in income (losses) of the limited partnerships represents the Partnership's allocable share of the net income (loss) from the limited partnerships for the year. Equity in losses of the limited partnerships will be recognized until the investment balance is reduced to zero or below zero to an amount equal to future capital contributions to be made by the Partnership. 2. Cash distributions from the limited partnerships will be treated as a return on the investment and will reduce the investment balance until such time as the investment is reduced to an amount equal to additional contributions. Distributions subsequently received will be recognized as income. 31 HOUSING PROGRAMS LIMITED SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION OF PROPERTY HELD BY LOCAL LIMITED PARTNERSHIPS IN WHICH H P L HAS INVESTMENTS DECEMBER 31, 2000
Buildings, Furnishings and Equipment Number Outstanding Amount Carried of Mortgage at Close of Accumulated Partnership/Location Apts. Loan Land Period Total Depreciation ----------- ----------- ----------- ----------- ----------- ------------ Jenny Lind Hall 78 $ 672,328 $ 32,000 $ 886,202 $ 918,202 $ 169,402 Springfield, MO Lancaster Heights 198 1,881,930 200,000 4,901,938 5,101,938 2,593,036 Normal, IL Walnut Towers 78 1,306,552 85,229 3,056,802 3,142,031 1,688,800 Winfield, KS Cape La Croix 125 1,213,030 169,000 2,484,615 2,653,615 1,408,111 Cape Girardeau, MO Cloverdale 100 871,140 100,000 2,051,596 2,151,596 1,155,077 Crawfordsville, IN Cloverleaf 94 804,940 123,000 1,927,274 2,050,274 1,090,981 Indianapolis, IN Evergreen Apts 330 7,948,474 617,369 15,694,782 16,312,151 8,200,143 Oshtemo, MI Plaza Village 228 3,019,405 369,700 7,199,237 7,568,937 5,712,078 Woonsocket, RI ----------- ----------- ----------- ----------- ----------- ----------- 1,231 $17,717,799 $ 1,696,298 $38,202,446 $39,898,744 $22,017,628 =========== =========== =========== =========== =========== ===========
32 SCHEDULE III (Continued) HOUSING PROGRAMS LIMITED REAL ESTATE AND ACCUMULATED DEPRECIATION OF PROPERTY HELD BY LOCAL LIMITED PARTNERSHIPS IN WHICH HPL HAS INVESTMENTS DECEMBER 31, 2000 NOTES: 1. Each local limited partnership has developed, owns and operates the housing project. Substantially all project costs, including construction period interest expense, were capitalized by the local limited partnerships. 2. Depreciation is provided for by various methods over the estimated useful lives of the projects. The estimated composite useful lives of the buildings are from 25 to 40 years. 3. Investments in property and equipment - limited partnerships:
Buildings, Furnishings, And Land Equipment Total ------------ ------------ ------------ Balance, January 1, 1998 3,924,878 93,032,611 96,957,489 Net additions in 1998 -- 1,005,225 1,005,225 Sale of Properties (1,300,263) (34,280,580) (35,580,843) ------------ ------------ ------------ Balance, December 31, 1998 2,624,615 59,757,256 62,381,871 Net additions in 1999 (79,000) (1,492,643) (1,571,643) ------------ ------------ ------------ Balance, December 31, 1999 2,545,615 58,264,613 60,810,228 Net additions in 2000 201,364 201,364 Sale of Properties (849,317) (20,263,531) (21,112,848) ------------ ------------ ------------ Balance, December 31, 2000 $ 1,696,298 $ 38,202,446 $ 39,898,744 ============ ============ ============
33 SCHEDULE III (CONTINUED) HOUSING PROGRAMS LIMITED REAL ESTATE AND ACCUMULATED DEPRECIATION OF PROPERTY HELD BY LOCAL LIMITED PARTNERSHIPS IN WHICH HPL HAS INVESTMENTS DECEMBER 31, 2000
Buildings, Furnishings, And Equipment ------------ Accumulated Depreciation: Balance, January 1, 1998 $ 45,808,298 Net additions for 1998 3,281,218 Sale of Properties (18,630,725) ------------ Balance, December 31, 1998 30,458,791 Net additions for 1999 784,752 ------------ Balance, December 31, 1999 31,243,543 Net additions for 2000 1,433,029 Sale of Properties (10,658,944) ------------ Balance, December 31, 2000 $ 22,017,628 ============
34 PART III. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT: HOUSING PROGRAMS LIMITED (the "Partnership") has no directors or executive officers of its own. The general partners of the Partnership are National Partnership Investments Corp. ("NAPICO"), Coast Housing Investments Associates (an affiliate of NAPICO) and Housing Programs Corporation II. Prior to December 30, 1998, NAPICO was a wholly owned subsidiary of Casden Investment Corporation ("CIC"), which is wholly owned by Alan I. Casden. On December 30, 1998, Casden Properties Operating Partnership, L.P., (the "Operating Partnership") a majority owned subsidiary of Casden Properties Inc., a real estate investment trust organized by Alan I. Casden, purchased a 95.25% economic interest in NAPICO. Housing Programs Corporation II is a wholly-owned subsidiary of LB I Group Inc. The following biographical information is presented for the directors and executive officers of NAPICO and officers of Housing Programs Corporation II with principal responsibility for the Partnership's affairs. CHARLES H. BOXENBAUM, 71, Chairman of the Board of Directors and Chief Executive Officer of NAPICO. Mr. Boxenbaum has been associated with NAPICO since its inception. He has been active in the real estate industry since 1960, and prior to joining NAPICO was a real estate broker with the Beverly Hills firm of Carl Rhodes Company. Mr. Boxenbaum has been a member of the Board of Directors of Casden Properties Inc. since 1998. Mr. Boxenbaum has been a guest lecturer at national and state realty conventions, certified properties exchanger's seminars, Los Angeles Town Hall, National Association of Home Builders, International Council of Shopping Centers, Society of Conventional Appraisers, California Real Estate Association, National Institute of Real Estate Brokers, Appraisal Institute, various mortgage banking seminars, and the North American Property Forum held in London, England. He is one of the founders and a past director of the First Los Angeles Bank, organized in November 1974. Since March 1995, Mr. Boxenbaum has served on the Board of Directors of the National Housing Council. Mr. Boxenbaum received his Bachelor of Arts degree from the University of Chicago. BRUCE E. NELSON, 49, President, Chief Operating Officer and a director of NAPICO. Mr. Nelson joined NAPICO in 1980 and became President in February 1989. He is responsible for the operations of all NAPICO sponsored limited partnerships. Prior to that he was primarily responsible for the securities aspects of the publicly offered real estate investment programs. Mr. Nelson is also involved in the identification, analysis, and negotiation of real estate investments. Mr. Nelson is a member of the Board of Directors of Casden Properties Inc. and is a Director of the Affordable Housing Tax Credit Coalition. From February 1979 to October 1980, Mr. Nelson held the position of Associate General Counsel at Western Consulting Group, Inc., private residential and commercial real estate syndicators. Prior to that time, Mr. Nelson was engaged in the private practice of law in Los Angeles. Mr. Nelson received his Bachelor of Arts degree from the University of Wisconsin and is a graduate of the University of Colorado School of Law. He is a member of the State Bar of California and is a licensed real estate broker in California and Texas. ALAN I. CASDEN, 55, Chairman of the Board of Directors and Chief Executive Officer of Casden Properties Inc., a director and member of the audit committee of NAPICO, and chairman of the Executive Committee of NAPICO. Mr. Casden has been involved in approximately $3 billion of real estate financings and sales and has been responsible for the development and construction of more than 12,000 apartment units and 5,000 single-family homes and condominiums. 35 Mr. Casden is a member of the American Institute of Certified Public Accountants and of the California Society of Certified Public Accountants. Mr. Casden is a member of the advisory board of the National Multi-Family Housing Conference, the Multi-Family Housing Council, the President's Council of the California Building Industry Association and the Urban Land Institute. He also serves on the Board of Trustees of the University of Southern California. He holds a Bachelor of Science degree and a Masters in Business Administration degree from the University of Southern California. BRIAN H. SHUMAN, 38, Vice President and Chief Financial Officer. Mr. Shuman joined NAPICO in 2000, and is responsible for the financial affairs of NAPICO, as well as the limited partnerships 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. From 1994 to 1996, he was the Controller for DVI Business Credit Corporation, which provides asset based lending to a wide range of health concerns. From 1985 to 1994, Mr. Shuman served in senior management positions, as a director or manager of finance, a portfolio tax analyst, and a senior accountant/tax consultant. He holds a Bachelor of Arts degree in economics and accounting from the University of Maryland. Mr. Shuman is a Certified Public Accountant and is a member of American Institute of Certified Public Accountants and the California Society of Public Accountants. PATRICIA W. TOY, 71, Senior Vice President - Communications and Assistant Secretary. Mrs. Toy joined NAPICO in 1977, following her receipt of an MBA from the Graduate School of Management, UCLA. From 1952 to 1956, Mrs. Toy served as a U.S. Naval Officer in communications and personnel assignments. She holds a Bachelor of Arts Degree from the University of Nebraska. JEFFREY H. SUSSMAN, 34, Senior Vice President, General Counsel and Secretary. Mr. Sussman joined NAPICO in 1998, and is responsible for the legal affairs of NAPICO and its affiliates. He is also the President of NPEI and a member of the preliminary investment committee. Prior to joining NAPICO in April 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. Mr. Sussman received a Bachelor of Arts degree from the University of California, Berkeley and Juris Doctor and Master in Business Administration degrees from the University of Southern California. He is a member of the State Bar of California, and holds Series 22, 39 and 63 licenses issued by the National Association of Securities Dealers, Inc. NAPICO and several of its officers, directors and affiliates, including Charles H. Boxenbaum, Bruce E. Nelson and Alan I. Casden, consented to the entry, on June 25, 1997, of an administrative cease and desist order by the U.S. Securities and Exchange Commission (the "Commission"), without admitting or denying any of the findings made by the Commission. The Commission found that NAPICO and others had violated certain federal securities laws in connection with transactions unrelated to the Partnership. The Commission's order did not impose any cost, burden or penalty on any partnership managed by NAPICO and does not impact NAPICO's ability to serve as the Partnership's Managing General Partner. 36 ITEM 11. MANAGEMENT REMUNERATION AND TRANSACTIONS: Housing Programs Limited has no officers, employees, or directors. However, under the terms of the Restated Certificate and Agreement of Limited Partnership, the Partnership is obligated to pay the general partners an annual management fee. The annual management fee is approximately equal to .5% of the invested assets, including the Partnership's allocable share of the mortgages related to real estate properties held by local limited partnerships. The fee is earned beginning in the month the Partnership makes its initial contribution to the lcoal partnership. In addition, the Partnership reimburses NAPICO for certain expenses. An affiliate of NAPICO is responsible for the on-site property management for certain properties owned by the limited partnerships in which the Partnership has invested. ITEM 12. 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) With the exception of the Initial Limited Partner, Bruce Nelson, who is an officer of NAPICO, none of the officers or directors of NAPICO own directly or beneficially any limited partnership interests in the Partnership. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS: The Partnership has no officers, directors or employees of its own. All of its affairs are managed by the Corporate General Partner, National Partnership Investments Corp. The Partnership is obligated to NAPICO for an annual management fee equal to .5 percent of the original remaining invested assets of the 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 partnerships. The management fee was $231,180, $310,790 and $492,960 for the years ended December 31, 2000, 1999 and 1998, respectively. The Partnership reimburses NAPICO for certain expenses. The reimbursement to NAPICO was approximately $20,000 for each of the years ended December 31, 2000, 1999 and 1998, and is included in general and administrative expenses. Prior to the sale of certain partnership interests on December 30, 1998, an affiliate of NAPICO was the general partner in 10 of the limited partnerships included above, and another affiliate of NAPICO received property management fees of approximately 5 to 6 percent of revenues from 4 of these partnerships. Subsequent to the sale of certain partnership interests, NAPICO is the general partner in five of the limited partnerships, and another affiliate manages one of the limited partnership's property. The affiliate received property management fees of $65,494, $57,228 and $187,166 in 2000, 1999 and 1998, respectively. On December 30, 1998, the Partnership sold its limited partnership interests in 7 local limited partnerships, with a total carrying value of $3,691,082, to the Operating Partnership. The sale resulted in proceeds to the Partnership of $202,714 and a net gain of $5,398,913, after being relieved of notes and interest payable of $9,172,563 and incurring selling costs of $285,282. In March 1999, the Partnership made cash distributions of $695,687 to the limited partners and $7,027 to the general partners, which included using proceeds from the sale of the partnership interests. 37 ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K: FINANCIAL STATEMENTS Reports of Independent Public Accountants. Balance Sheets as of December 31, 2000 and 1999. Statements of Operations for the years ended December 31, 2000, 1999 and 1998. Statements of Partners' Deficiency for the years ended December 31, 2000, 1999 and 1998. Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998. Notes to Financial Statements. FINANCIAL STATEMENT SCHEDULES APPLICABLE TO HOUSING PROGRAMS LIMITED AND LIMITED PARTNERSHIPS IN WHICH HOUSING PROGRAMS LIMITED HAS INVESTMENTS Schedule - Investments in Limited Partnerships for the years ended December 31, 2000, 1999 and 1998. Schedule III - Real Estate and Accumulated Depreciation of Property Held by Local Limited Partnerships, December 31, 2000, 1999 and 1998. The remaining schedules are omitted because the required information is included in the financial statements and notes thereto or they are not applicable or not required. EXHIBITS (3) Articles of incorporation and bylaws: The registrant is not incorporated. The Partnership Agreement was filed with Form S-11 #2-92352 incorporated herein by reference. (10) Material contracts: The registrant is not party to any material contracts, other than the Restated Certificate and Agreement of Limited Partnership dated May 15, l984, and the nineteen contracts representing the partnership's investment in local limited partnerships as previously filed at the Securities Exchange Commission, File #2-92352 which is hereby incorporated by reference. REPORTS ON FORM 8-K No reports on Form 8K were filed during the year ended December 31, 2000. 38 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Los Angeles, State of California. HOUSING PROGRAMS LIMITED By: NATIONAL PARTNERSHIP INVESTMENTS CORP. The General Partner /s/ CHARLES H. BOXENBAUM -------------------------------------- Charles H. Boxenbaum Chairman of the Board of Directors and Chief Executive Officer /s/ BRUCE E. NELSON -------------------------------------- Bruce E. Nelson Director and President /s/ ALAN I. CASDEN -------------------------------------- Alan I. Casden Director /s/ BRIAN H. SHUMAN -------------------------------------- Brian H. Shuman Chief Financial Officer