-----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, Lqedh5Qifym7efjfzngL9UtamvaWJHL9EDsp1g1adpbG9voWPi/bPY2610t73FVD 9ZPUFk5BDpmtTwExIbrcFQ== 0000950148-98-002608.txt : 19981123 0000950148-98-002608.hdr.sgml : 19981123 ACCESSION NUMBER: 0000950148-98-002608 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981120 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: 10-Q SEC ACT: SEC FILE NUMBER: 000-13808 FILM NUMBER: 98755932 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 10-Q 1 FORM 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended SEPTEMBER 30, 1998 Commission File Number 0-13808 HOUSING PROGRAMS LIMITED (A California Limited Partnership) I.R.S. Employer Identification No. 95-3906167 9090 WILSHIRE BLVD., SUITE 201 BEVERLY HILLS, CALIF. 90211 Registrant's Telephone Number, Including Area Code (310) 278-2191 Indicate by check mark whether the registrant (1) has filed all documents and reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve 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 [ ] 2 HOUSING PROGRAMS LIMITED (A CALIFORNIA LIMITED PARTNERSHIP) INDEX TO FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1998 PART I. FINANCIAL INFORMATION Item 1. Financial Statements Balance Sheets, September 30, 1998 and December 31, 1997 .................1 Statements of Operations, Nine and Three Months Ended September 30, 1998 and 1997..........2 Statement of Partners' Deficiency, Nine Months Ended September 30, 1998 ............................3 Statements of Cash Flow, Nine Months Ended September 30, 1998 and 1997....................4 Notes to Financial Statements ............................................5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation.............................11 PART II. OTHER INFORMATION Item 1. Legal Proceedings.......................................................14 Item 6. Exhibits and Reports on Form 8-K........................................14 Signatures ................................................................15
3 HOUSING PROGRAMS LIMITED (A CALIFORNIA LIMITED PARTNERSHIP) BALANCE SHEETS SEPTEMBER 30, 1998 AND DECEMBER 31, 1997 ASSETS
1998 (Unaudited) 1997 ------------ ------------ INVESTMENTS IN LIMITED PARTNERSHIPS (Notes 1 and 2) $ 13,555,416 $ 13,409,054 CASH AND CASH EQUIVALENTS (Note 1) 1,379,882 1,162,398 OTHER ASSETS 67,499 -- ------------ ------------ TOTAL ASSETS $ 15,002,797 $ 14,571,452 ============ ============ LIABILITIES AND PARTNERS' DEFICIENCY LIABILITIES: Notes payable (Notes 3 and 6) $ 8,669,743 $ 8,669,743 Accrued fees and expenses due general partners (Note 4) 1,879,908 1,562,552 Accrued interest payable (Notes 3 and 6) 10,474,777 9,921,172 Accounts payable 52,802 3,855 ------------ ------------ 21,077,230 20,157,322 ------------ ------------ COMMITMENTS AND CONTINGENCIES (Notes 2, 4 and 5) PARTNERS' DEFICIENCY: General partners (311,490) (306,605) Limited partners (5,762,943) (5,279,265) ------------ ------------ (6,074,433) (5,585,870) ------------ ------------ TOTAL LIABILITIES AND PARTNERS' DEFICIENCY $ 15,002,797 $ 14,571,452 ============ ============
The accompanying notes are an integral part of these financial statements. 1 4 HOUSING PROGRAMS LIMITED (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENTS OF OPERATIONS NINE AND THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (Unaudited)
Nine months Three months Nine months Three months ended ended ended ended Sept. 30, 1998 Sept. 30, 1998 Sept. 30, 1997 Sept. 30, 1997 -------------- -------------- -------------- -------------- INTEREST INCOME $ 44,066 $ 14,401 $ 41,582 $ 16,586 ----------- ----------- ----------- ----------- OPERATING EXPENSES: Management fees - general partner (Note 4) 369,720 123,240 382,354 119,029 General and administrative (Note 4) 102,463 63,461 56,771 24,639 Legal and accounting (Note 4) 113,935 36,630 96,058 21,434 Interest (Notes 3 and 4) 617,718 205,906 711,469 205,906 ----------- ----------- ----------- ----------- Total operating expenses 1,203,836 429,237 1,246,652 371,008 ----------- ----------- ----------- ----------- LOSS FROM OPERATIONS (1,159,770) (414,836) (1,205,070) (354,422) DISTRIBUTIONS FROM LIMITED PARTNERSHIPS RECOGNIZED AS INCOME 395,207 16,322 439,020 -- EQUITY IN INCOME OF LIMITED PARTNERSHIPS AND AMORTIZATION OF ACQUISITION COSTS (Note 2) 276,000 92,000 109,134 36,378 ----------- ----------- ----------- ----------- NET LOSS BEFORE EXTRAORDINARY GAIN (488,563) (306,514) (656,916) (318,044) EXTRAORDINARY GAIN - DEBT FORGIVENESS (NOTE 3) -- -- 2,149,096 -- ----------- ----------- ----------- ----------- NET INCOME (LOSS) AFTER EXTRAORDINARY GAIN $ (488,563) $ (306,514) $ 1,492,180 $ (318,044) =========== =========== =========== =========== NET LOSS PER LIMITED PARTNERSHIP INTEREST INTEREST BEFORE EXTRAORDINARY GAIN $ (40) $ (25) $ (53) $ (26) =========== =========== =========== =========== NET INCOME (LOSS) PER LIMITED PARTNERSHIP INTEREST AFTER EXTRAORDINARY GAIN $ (40) $ (25) $ 121 $ (26) =========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements. 2 5 HOUSING PROGRAMS LIMITED (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENTS OF PARTNERS' DEFICIENCY NINE MONTHS ENDED SEPTEMBER 30, 1998 (Unaudited)
General Limited Partners Partners Total ----------- ----------- ----------- PARTNERSHIP INTERESTS 12,368 =========== DEFICIENCY, January 1, 1998 $ (306,605) $(5,279,265) $(5,585,870) Net loss for the nine months ended September 30, 1998 (4,886) (483,677) (488,563) ----------- ----------- ----------- DEFICIENCY, September 30, 1998 $ (311,490) $(5,762,943) $(6,074,433) =========== =========== ===========
The accompanying notes are an integral part of these financial statements. 3 6 HOUSING PROGRAMS LIMITED (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENTS OF CASH FLOWS NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (Unaudited)
1998 1997 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) income $ (488,563) $ 1,492,180 Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Equity in income of limited partnerships and amortization of acquisition costs (276,000) (109,134) Extraordinary gain - Debt forgiveness -- (1,500,000) Increase in other assets (67,499) (64,299) Increase in accrued interest payable 553,605 (1,078,700) Increase in accrued fees and expenses due general partners 317,356 232,357 Increase (decrease) in accounts payable 48,947 (10,679) ----------- ----------- Net cash provided by (used in) operating activities 87,846 (1,038,275) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Distributions from limited partnerships recognized as a return of capital 129,638 1,287,681 ----------- ----------- NET INCREASE IN CASH AND CASH EQUIVALENTS 217,484 249,406 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,162,398 948,476 ----------- ----------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,379,882 $ 1,197,882 =========== ===========
The accompanying notes are an integral part of these financial statements. 4 7 HOUSING PROGRAMS LIMITED (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1998 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES GENERAL The information contained in the following notes to the financial statements is condensed from that which would appear in the annual audited financial statements; accordingly, the financial statements included herein should be reviewed in conjunction with the financial statements and related notes thereto contained in the Housing Programs Limited (the "Partnership") annual report for the year ended December 31, 1997. National Partnership Investments Corp. ("NAPICO") is a general partner for the Partnership. Accounting measurements at interim dates inherently involve greater reliance on estimates than at year end. The results of operations for the interim period presented are not necessarily indicative of the results for the entire year. In the opinion of NAPICO, the accompanying unaudited financial statements contain all adjustments (consisting primarily of normal recurring accruals) necessary to present fairly the financial position of the Partnership at September 30, 1998 and the results of operations for the nine and three months then ended and changes in cash flows for the nine months then ended. ORGANIZATION 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 6,000 limited partnership interests and warrants to purchase a maximum of 6,000 additional limited partnership interests through a public offering . The general partners of the Partnership are NAPICO, Housing Programs Corporation II and Coast Housing Investment Associates ("CHIA"). LBI Group Inc. owns 100 percent of the stock of Housing Programs Corporation II. NAPICO is a wholly owned subsidiary of Casden Investment Corporation, which is wholly owned by Alan I. Casden. 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. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles 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. 5 8 HOUSING PROGRAMS LIMITED (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 1998 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) METHOD OF ACCOUNTING FOR INVESTMENT IN 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 amortized on a straight line basis over the estimated lives of the underlying assets. NET LOSS PER LIMITED PARTNERSHIP INTEREST Net income (loss) per limited partnership interest was computed by dividing the limited partners' share of net income (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. 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 primarily with one money market mutual fund. Such cash and cash equivalents are uninsured. 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. 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. NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS The Partnership currently holds limited partnership interests in 17 limited partnerships. The 17 lower-tier limited partnerships own residential rental projects consisting of a total of 2,542 apartment units. The mortgage loans encumbering these projects are insured by United States Department of Housing and Urban Development ("HUD") or state governmental agencies. 6 9 HOUSING PROGRAMS LIMITED (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 1998 NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED) The Partnership, as a limited partner, is entitled to 99 percent of the income and losses of the lower-tier 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. Distributions from the limited partnerships are recognized as a reduction of capital until the investment balance has been reduced to zero or a negative amount equal to future capital contributions required. Subsequent distributions are recognized as income. The following is a summary of the Partnership's investment in lower-tier limited partnerships for the nine and three months ended September 30, 1998: Balance, beginning of period $13,409,054 Amortization of acquisition costs (24,000) Equity in income of limited partnerships 300,000 Distribution recognized as return of capital (129,638) ----------- Balance, end of period $13,555,416 ===========
The difference between the investment per the accompanying balance sheets at September 30, 1998 and December 31, 1997, and the deficiency per the unaudited combined estimated statements of operations is due primarily to cumulative unrecognized equity in losses of certain limited partnerships, costs capitalized to the investment account and cumulative distributions recognized as income. The following are unaudited combined estimated statements of operations for the nine and three months ended September 30, 1998 and 1997 for the limited partnerships in which the Partnership has investments:
Nine months Three months Nine months Three months ended ended ended ended Sept. 30, 1998 Sept. 30, 1998 Sept. 30, 1997 Sept. 30, 1997 -------------- -------------- -------------- -------------- INCOME Rental and Other $ 13,224,000 $ 4,408,000 $ 13,452,000 $ 4,484,000 ------------ ------------ ------------ ------------ EXPENSES Depreciation 2,580,000 860,000 2,649,000 883,000 Interest 2,586,000 862,000 2,730,000 910,000 Operating 8,427,000 2,809,000 8,946,000 2,982,000 ------------ ------------ ------------ ------------ Total expenses 13,593,000 4,531,000 14,325,000 4,775,000 ------------ ------------ ------------ ------------ NET LOSS $ (369,000) $ (123,000) $ (873,000) $ (291,000) ============ ============ ============ ============
7 10 HOUSING PROGRAMS LIMITED (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 1998 NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED) Under recently adopted law and policy, HUD has determined not to renew HAP contracts on their existing terms. In connection with renewals of the housing assistance payments contracts ("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 was generally the case under existing HAP Contracts. As a result, existing HAP Contracts that are renewed in the future on projects insured by the Federal Housing Administrative of HUD ("FHA") will not provide sufficient cash flow to permit owners of properties to meet the debt service requirements of these existing FHA-insured mortgages. 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 HAP Contracts that have been renewed under the new policy. The restructured loans will be held by the current lender or another lender. Under MAHRAA, an FHA-insured mortgage loan can be restructured to reduce the annual debt service on such loan. There can be no assurance that the Partnership will be permitted to restructure its mortgage indebtedness pursuant to the new HUD rules implementing MAHRAA or that the Partnership would choose to restructure such mortgage indebtedness if it were eligible to participate in the MAHRAA program. It should be noted that there are uncertainties as to 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. Accordingly, the General Partners are unable to predict with certainty their impact on the Partnership's future cash flow. A real estate investment trust ("REIT") organized by affiliates of NAPICO has advised the Partnership that it intends to make a proposal to purchase from the Partnership certain of the limited partnership interests held for investment by the Partnership. The REIT proposes to purchase such limited partnership interests for cash, which it plans to raise in connection with a private placement of its equity securities. The purchase is subject to, among other things, (i) consummation of such private placement by the REIT; (ii) the purchase of the general partnership interests in the local limited partnerships by the REIT; (iii) the approval of HUD and certain state housing finance agencies; (iv) the consent of the limited partners to the sale of the local limited partnership interests held for investment by the Partnership; and (v) the consummation of a minimum number of purchase transactions with other NAPICO affiliated partnerships. A consent solicitation statement has been 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. As of November 2, 1998, the consents of the limited partners to the sale of the partnership interests and amendments to the Partnership Agreement have been obtained. In addition, the REIT has completed buy-out negotiations with a majority of the general partners of the local limited partnerships and has obtained approval from HUD. 8 11 HOUSING PROGRAMS LIMITED (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 1998 NOTE 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 $8,669,743 to the sellers of the partnership interests, bearing interest at 9.5 percent per annum to the various sellers of the partnership interests. The notes have principal maturity dates ranging from December 31, 1999 to December 2001 or upon sale or refinancing of the underlying partnership properties. 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. During 1997, the lower-tier partnership that owns Deep Lake Hermitage Apartments ("Deep Lake") consummated the sale of the apartment complex for $4,800,000. There were two notes payable by the Partnership to sellers of interests in the lower-tier partnership that owns the Deep Lake property in the aggregate principal amount of $1,500,000, which were secured by the Partnership's interest in the local limited partnership. The notes had accrued interest of $1,650,696, for a total amount due of $3,150,696. The Partnership entered into an agreement with the note holders, who accepted a reduced payment of $1,001,600 in full satisfaction of all obligations, in order to enable the sale of property. This was paid by the lower tier partnership from proceeds of the sale, and approximated the Partnership's investment balance in Deep Lake. In addition, the apartment complex had a first mortgage note of approximately $3,500,000 which was paid off from proceeds of the sale. In 1997, the Partnership recognized an extraordinary gain of $2,149,096 from the forgiveness of the debt. NOTE 4 - FEES AND EXPENSES DUE TO 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 management fee equal to 0.5 percent of the original 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 interests in the capital accounts of the respective limited partnerships. As of September 30, 1998, 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. NOTE 5 - CONTINGENCIES NAPICO is a plaintiff in various lawsuits and has also been named as defendant in other lawsuits arising from transactions in the ordinary course of business. In the opinion of NAPICO, the claims will not result in any material liability to the Partnership. 9 12 HOUSING PROGRAMS LIMITED (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 1998 NOTE 5 - CONTINGENCIES (CONTINUED) The Partnership has assessed the potential impact of the Year 2000 computer systems issue on its operations. The Partnership believes that no significant actions are required to be taken by the Partnership to address the issue and that the impact of the Year 2000 computer systems issue will not materially affect the Partnership's future operating results or financial condition. NOTE 6 - 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 and are payable only out of cash distributions from the investee partnerships. The cash flow generated by operations of the 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 payable and related accrued interest. 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. 10 13 HOUSING PROGRAMS LIMITED (A CALIFORNIA LIMITED PARTNERSHIP) SEPTEMBER 30, 1998 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES The Partnership's primary sources of funds include interest income on money market accounts and certificates of deposit and distributions from 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. RESULTS OF OPERATIONS Partnership revenues consist primarily of interest income earned on certificates of deposit and other temporary investment of funds. The Partnership also receives distributions from the lower-tier limited partnerships in which it has invested. 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. Except for certificates of deposit and money market funds, the Partnership's investments consist entirely of interests in other limited partnerships owning government assisted housing projects. Available cash is invested 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. 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 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 $369,720 and $382,354 for the nine months ended September 30, 1998 and 1997, respectively. The fees have decreased due to the sale of a property owned by a local partnership in 1997, which reduced the invested assets. The Partnership is obligated on non-recourse notes payable of $8,669,743 at September 30, 1998 and December 31, 1997, which bear interest at 9.5 percent per annum and have principal maturities ranging from December 1999 to December 2001. 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. 11 14 HOUSING PROGRAMS LIMITED (A CALIFORNIA LIMITED PARTNERSHIP) SEPTEMBER 30, 1998 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) RESULTS OF OPERATION (CONTINUED) Operating expenses, other than management fees and interest expense, consist of legal and accounting fees for services rendered to the Partnership and administrative expenses, which were generally consistent for periods presented. Legal and accounting fees were $113,935 and $96,058 for the nine months ended September 30, 1998 and 1997, respectively. General and administrative expenses were $102,463 and $56,771 for the periods ended September 30, 1998 and 1997, respectively. 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. Losses incurred after the limited partnership investment account is reduced to zero are not recognized. During the year ended December 31, 1997, the lower-tier partnership that owns Deep Lake consummated the sale of the apartment complex for $4,800,000. There were two notes payable by the Partnership to sellers of interests in the lower-tier partnership that owns the Deep Lake property in the aggregate principal amount of $1,500,000, which were secured by the Partnership's interest in the local limited partnership. The notes had accrued interest of $1,650,696, for a total amount due of $3,150,696. The Partnership entered into an agreement with the note holders, who accepted a reduced payment of $1,001,600 in full satisfaction of all obligations, in order to enable the sale of property. This was paid by the lower tier partnership from proceeds of the sale, and approximated the Partnership's investment balance in Deep Lake. In addition, the apartment complex had a first mortgage note of approximately $3,500,000 which was paid off from proceeds of the sale. The Partnership recognized an extraordinary gain of $2,149,096 from the forgiveness of the debt in the second quarter of 1997. Under recently adopted law and policy, HUD has determined not to renew HAP contracts on their existing terms. In connection with renewals of the housing assistance payments contracts ("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 was generally the case under existing HAP Contracts. As a result, existing HAP Contracts that are renewed in the future on projects insured by the Federal Housing Administrative of HUD ("FHA") will not provide sufficient cash flow to permit owners of properties to meet the debt service requirements of these existing FHA-insured mortgages. 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 HAP Contracts that have been renewed under the new policy. The restructured loans will be held by the current lender or another lender. Under MAHRAA, an FHA-insured mortgage loan can be restructured to reduce the annual debt service on such loan. There can be no assurance that the Partnership will be permitted to restructure its mortgage indebtedness pursuant to the new HUD rules implementing 12 15 HOUSING PROGRAMS LIMITED (A CALIFORNIA LIMITED PARTNERSHIP) SEPTEMBER 30, 1998 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) RESULTS OF OPERATION (CONTINUED) MAHRAA or that the Partnership would choose to restructure such mortgage indebtedness if it were eligible to participate in the MAHRAA program. It should be noted that there are uncertainties as to 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. Accordingly, the General Partners are unable to predict with certainty their impact on the Partnership's future cash flow. A real estate investment trust ("REIT") organized by affiliates of NAPICO has advised the Partnership that it intends to make a proposal to purchase from the Partnership certain of the limited partnership interests held for investment by the Partnership. The REIT proposes to purchase such limited partnership interests for cash, which it plans to raise in connection with a private placement of its equity securities. The purchase is subject to, among other things, (i) consummation of such private placement by the REIT; (ii) the purchase of the general partnership interests in the local limited partnerships by the REIT; (iii) the approval of HUD and certain state housing finance agencies; (iv) the consent of the limited partners to the sale of the local limited partnership interests held for investment by the Partnership; and (v) the consummation of a minimum number of purchase transactions with other NAPICO affiliated partnerships. A consent solicitation statement has been 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. As of November 2, 1998, the consents of the limited partners to the sale of the partnership interests and amendments to the Partnership Agreement have been obtained. In addition, the REIT has completed buy-out negotiations with a majority of the general partners of the local limited partnerships and has obtained approval from HUD. 13 16 HOUSING PROGRAMS LIMITED (A CALIFORNIA LIMITED PARTNERSHIP) SEPTEMBER 30, 1998 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS NAPICO was a plaintiff or defendant in several lawsuits. None of these suits are related to the Partnership. In the opinion of NAPICO, the claims will not result in any material liability to the Partnership. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K A report 8-K relating to an unsolicited offer to buy units of limited partnership interests (the "Units"), as discussed below, was filed with the Securities and Exchange Commission during the quarter ended September 30, 1998. On July 10, 1998, Bond Purchase, L.L.C. (the "Buyer") made an unsolicited tender offer to buy a certain number of units in the Partnership for a price of $100 per Unit. The Buyer did not contact the Corporate General Partner prior to commencing its tender offer. By letter dated July 20, 1998, the Corporate General Partner advised limited partners that it had determined not to take a position with respect to the tender offer but cautioned limited partners to consider certain items before determining whether to tender their Units to the Buyer. A copy of the letter from the Buyer is attached as an Exhibit to this form 10-Q. 14 17 HOUSING PROGRAMS LIMITED (A CALIFORNIA LIMITED PARTNERSHIP) SEPTEMBER 30, 1998 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. HOUSING PROGRAMS LIMITED (a California limited partnership) By: National Partnership Investments Corp. General Partner /s/ PAUL PATIERNO -------------------------------------- Paul Patierno Chief Financial Officer Date: -------------------------------------- /s/ CHARLES BOXENBAUM -------------------------------------- Charles Boxenbaum Chief Executive Officer Date: -------------------------------------- 15 18 EXHIBIT 1 BOND PURCHASE, L.L.C. P.O. Box 26730 Kansas City, MO 64196 July 10, 1998 To the Holders of Limited Partnership Interests in Housing Programs, Ltd. RE: OFFER TO PURCHASE LIMITED PARTNERSHIP INTERESTS FOR $100.00 Dear Investor: We are offering you an opportunity to sell your limited partnership interests (the "Units") in Housing Programs, Ltd. (the "Partnership") for cash in the amount of $100.00 per Unit (which amount will be reduced by any cash distributions declared by the Partnership after the date of this letter). Our offer provides you with an opportunity to sell your Units now without the costly transfer fees and commission costs (typically up to 10%) usually paid by the seller in secondary market sales. ALL TRANSFER COSTS AND FEES WILL BE PAID BY BOND PURCHASE, L.L.C. We believe that it is appropriate for investors to have financial choices. Our offer gives you, the investor, the ability to make a decision about your continued involvement with the Partnership. You may no longer wish to continue with your investment in the Partnership for a number of reasons, including: * NO FURTHER IRS FILING * The partnership does not pay any cash distributions. * If you sell units, 1998 will be the final year for which you receive a K-1 tax form from the partnership. * You may be able to realize a tax loss that would reduce your taxes for 1998. * The Partnership was closed twelve years ago in 1986. Your money has been tied up for this long period with minimal return. * More immediate use for the cash tied up in your investment in the Units. 19 o The absence of a formal trading market for the Units and their resulting relative illiquidity. o General disenchantment with real estate investments, particularly long-term investments in limited partnerships; Our offer is limited to 300 of the 6,184 outstanding Units. If we were to acquire more than this amount, the administrative costs of our offer would become burdensome. If more than 300 units are offered to us, we will prorate our purchases ratably to all sellers. We will accept for purchase properly documented Units on a "first-received, first-buy" basis. You will be paid promptly following confirmation of a valid, properly executed Agreement of Transfer and other required transfer documents. We will pay for all Partnership transfer fees and costs. All tenders of Units will be irrevocable and may not be rescinded or withdrawn. We are real estate investors who are not affiliated with the Partnership or the General Partners. The General Partners of the Partnership have not analyzed, approved, endorsed or made any recommendation as to acceptance of the offer. The purchase offer has been determined solely at the discretion of Bond Purchase, L.L.C. and does not necessarily represent the true market value of each unit. We are seeking to acquire Units for investment purposes only and not with a view to their resale. An Agreement of Transfer is enclosed which you can use to accept our offer. Please execute page 3 of this document, as well as the Power of Attorney. Obtain all other required signatures and return the documentation in the enclosed envelop. Please note that all signatures must be medallion guaranteed. The transfer cannot be processed without signatures that are medallion guaranteed and failure to obtain them will result in needless delays. In addition, place your Unit Certificate in the enclosed envelope. We encourage you to act immediately if you are interested in accepting our offer as only 300 Units will be purchased. OUR OFFER WILL EXPIRE AT 5:00 PM ON AUGUST 31, 1998, UNLESS EXTENDED. Please call Kim Pham at (816) 421-4670 if you have any questions. Sincerely, Bond Purchase, L.L.C. EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE PARTNERSHIP'S STATEMENTS OF EARNINGS AND BALANCE SHEETS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS DEC-31-1998 JAN-01-1998 SEP-30-1998 1,379,882 0 0 0 0 1,447,381 0 0 15,002,797 52,802 0 0 0 0 6,074,433 15,002,797 0 715,273 0 0 586,118 0 617,718 (488,563) 0 (488,563) 0 0 0 (488,563) 0 0
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