UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
- ------ EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 2002
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ------ EXCHANGE ACT OF 1934
Commission File Number 0-12634
CAMBRIDGE + RELATED HOUSING
PROPERTIES LIMITED PARTNERSHIP
------------------------------
(Exact name of registrant as specified in its charter)
Massachusetts 13-3161322
- ---------------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
625 Madison Avenue, New York, New York 10022
- ---------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212)421-5333
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
PART I - Financial Information
Item 1. Financial Statements
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
============ ============
August 31, February 28,
2002 2002
------------ ------------
ASSETS
Property and equipment, net of
accumulated depreciation of
$11,031,088 and $10,819,771,
respectively $ 5,730,449 $ 5,941,766
Property and equipment-held for
sale, net of accumulated
depreciation of $14,646,604
and $17,546,742, respectively 12,959,520 16,273,634
Cash and cash equivalents 1,818,771 780,650
Cash - restricted for tenants'
security deposits 223,735 235,380
Mortgage escrow deposits 6,019,618 6,203,393
Rents receivable 107,612 194,567
Prepaid expenses and other assets 553,994 1,291,316
----------- -----------
Total assets $27,413,699 $30,920,706
=========== ===========
2
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
(continued)
============ =============
August 31, February 28,
2002 2002
------------ -------------
LIABILITIES AND PARTNERS'
DEFICIT
Liabilities:
Mortgage notes payable $ 13,960,444 $ 16,740,978
Purchase Money Notes payable
(Note 2) 12,251,393 16,329,543
Due to selling partners (Note 2) 18,961,151 24,698,606
Deferred revenue on sale of
properties 5,735,908 0
Accounts payable, accrued
expenses and other liabilities 1,333,523 2,362,862
Tenants' security deposits payable 223,735 235,380
Due to general partners of
subsidiaries and their affiliates 63,423 8,423
Due to general partners and
affiliates 3,976,837 2,447,759
------------ ------------
Total liabilities 56,506,414 62,823,551
------------ ------------
Minority interest 24,924 153,784
------------ ------------
Commitments and contingencies
(Note 6)
Partners' deficit:
Limited partners (28,377,935) (31,287,535)
General partners (739,704) (769,094)
------------ ------------
Total partners' deficit (29,117,639) (32,056,629)
------------ ------------
Total liabilities and partners' deficit $ 27,413,699 $ 30,920,706
============ ============
See Accompanying Notes to Consolidated Financial Statements.
3
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
========================== ==========================
Three Months Ended Six Months Ended
August 31, August 31,
-------------------------- --------------------------
2002 2001 2002 2001
-------------------------- --------------------------
Revenues:
Rentals, net $ 2,300,053 $ 3,055,959 $ 4,805,962 $ 6,008,307
Other 261,397 102,380 323,326 206,753
(Loss) gain on sale
of properties
(Note 4) (260,869) (19,299) 400,411 (87,622)
----------- ----------- ----------- -----------
Total revenues 2,300,581 3,139,040 5,529,699 6,127,438
----------- ----------- ----------- -----------
Expenses
Administrative and
management 557,049 672,626 1,279,082 1,553,000
Administrative and
management-
related parties
(Note 3) 311,888 392,980 625,102 780,273
Operating 449,500 551,499 960,217 1,246,296
Repairs and
maintenance 503,909 782,255 1,019,060 1,423,391
Taxes and
insurance 289,996 339,091 586,891 690,817
Interest 358,092 575,756 795,324 1,147,705
Depreciation 105,659 337,721 211,317 625,744
----------- ----------- ----------- -----------
Total expenses 2,576,093 3,651,928 5,476,993 7,467,226
----------- ----------- ----------- -----------
(Loss) income before
minority interest
and extraordinary
item (275,512) (512,888) 52,706 (1,339,788)
Minority interest in
(income) loss
of subsidiaries (2,848) (832) 122,867 (1,294)
----------- ----------- ----------- -----------
(Loss) income before
extraordinary
item (278,360) (513,720) 175,573 (1,341,082)
Extraordinary item-
forgiveness of
indebtedness
income (Note 4) 0 0 2,427,492 901,219
----------- ----------- ----------- -----------
Net (loss) income $ (278,360) $ (513,720) $ 2,603,065 $ (439,863)
=========== =========== =========== ===========
See Accompanying Notes to Consolidated Financial Statements.
4
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
(continued)
========================== ==========================
Three Months Ended Six Months Ended
August 31, August 31,
-------------------------- --------------------------
2002 2001 2002 2001
-------------------------- --------------------------
(Loss) income before
extraordinary
item - limited
partners $ (275,576) $ (508,583) $ 173,817 $(1,327,671)
Extraordinary item -
limited partners 0 0 2,403,217 892,207
----------- ----------- ----------- -----------
Net (loss) income -
limited partners $ (275,576) $ (508,583) $ 2,577,034 $ (435,464)
=========== =========== =========== ===========
Number of limited
partnership
units outstanding 10,038 10,038 10,038 10,038
=========== =========== =========== ===========
(Loss) income before
extraordinary
item per limited
partnership unit $ (27.45) $ (50.66) $ 17.32 $ (132.26)
Extraordinary item
per limited
partnership unit 0 0 239.41 88.88
----------- ----------- ----------- -----------
Net (loss) income
per limited
partnership unit $ (27.45) $ (50.66) $ 256.73 $ (43.38)
=========== =========== =========== ===========
See Accompanying Notes to Consolidated Financial Statements.
5
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Consolidated Statement of Partners' Deficit
(Unaudited)
===============================================
Limited General
Total Partners Partners
-----------------------------------------------
Balance-
March 1, 2002 $(32,056,629) $(31,287,535) $ (769,094)
Prior period
adjustment (Note 5) 335,925 332,566 3,359
Net income -
six months ended
August 31, 2002 2,603,065 2,577,034 26,031
------------ ------------ -----------
Balance-
August 31, 2002 $(29,117,639) $(28,377,935) $ (739,704)
============ ============ ===========
See Accompanying Notes to Consolidated Financial Statements.
6
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Consolidated Statement of Partners' Deficit
(Unaudited)
==========================
Six Months Ended
August 31,
--------------------------
2002 2001
--------------------------
Cash flows from operating activities:
Net income (loss) $ 2,603,065 $ (439,863)
----------- -----------
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Prior period adjustment (Note 5) 335,925 0
(Gain) loss on sale of properties
(Note 4) (400,411) 87,622
Extraordinary item - forgiveness
of indebtedness income (Note 4) (2,427,492) (901,219)
Depreciation 211,317 625,744
Minority interest in (income) loss
of subsidiaries (122,867) 1,294
Increase in cash-restricted
for tenants' security deposits (16,567) (3,094)
Decrease in mortgage escrow deposits 427,519 54,647
Decrease in rents receivable 82,190 58,909
Decrease (increase) in prepaid
expenses and other assets 358,088 (432,153)
Increase in due to selling partners 619,292 967,017
Decrease in accounts payable, accrued
expenses and other liabilities (506,272) (360,206)
Increase (decrease) in tenants' security
deposits payable 1,502 (3,085)
Increase in due to general partners
of subsidiaries and their affiliates 55,000 92,947
Decrease in due to general partners of
subsidiaries and their affiliates 0 (112,998)
Increase in due to general partners
and affiliates 1,529,079 196,252
----------- -----------
Total adjustments 146,303 271,677
----------- -----------
Net cash provided by (used in)
operating activities 2,749,368 (168,186)
----------- -----------
7
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Consolidated Statement of Cash Flows
Increase (decrease) in Cash and Cash Equivalents
(Unaudited)
(continued)
==========================
Six Months Ended
August 31,
--------------------------
2002 2001
--------------------------
Cash flows from investing activities:
Proceeds from sale of properties 84,741 475,000
Acquisitions of property and
equipment (42,781) (237,038)
Increase in mortgage escrow deposits (328,794) (282,723)
----------- -----------
Net cash used in investing activities (286,834) (44,761)
----------- -----------
Cash flows from financing activities:
Principal payments of mortgage
notes payable (345,566) (810,664)
Decrease in minority interest (5,993) (1,179)
Distributions paid to partners 0 (516,300)
(Decrease) increase in Purchase
Money Note extension fees payable (262,350) 21,450
Principal payments of Purchase Money
Notes payable (340,000) (110,707)
Payments to selling partners (470,504) (22,083)
----------- -----------
Net cash used in financing activities (1,424,413) (1,439,483)
----------- -----------
Net increase (decrease) in cash and
cash equivalents 1,038,121 (1,652,430)
Cash and cash equivalents at
beginning of period 780,650 2,477,459
----------- -----------
Cash and cash equivalents at
end of period $ 1,818,771 $ 825,029
=========== ===========
8
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Consolidated Statement of Cash Flows
Increase (decrease) in Cash and Cash Equivalents
(Unaudited)
(continued)
==========================
Six Months Ended
August 31,
--------------------------
2002 2001
--------------------------
Supplemental disclosures of noncash activities:
Increase in deferred revenue on
sale of properties reclassified from
Purchase Money Notes payable and
due to selling partners $ 5,735,908 $ 3,731,150
Forgiveness of indebtedness
Decrease in Purchase Money
Notes payable (720,000) (321,973)
Decrease in due to selling partners (1,685,795) (579,246)
Decrease in accounts payable,
accrued expenses and other liabilities (21,697) 0
Summarized below are the components
of the gain on sale of properties:
Decrease in property and
equipment held for sale, net
of accumulated depreciation 3,356,895 649,092
Decrease in cash-restricted for
tenants' security deposits 28,212 4,970
Decrease in mortgage escrow deposits 85,050 24,607
Decrease in prepaid expenses and
other assets 379,234 5,976
Decrease (increase) in accounts payable,
accrued (501,371) 109,761
(Decrease) increase in tenants'
security deposits payable (13,147) 1,209
Decrease in due to general
partners of subsidiaries and
their affiliates 0 (92,947)
Decrease in due to selling partners (764,540) (99,838)
Decrease in Purchase Money Notes
payable (455,800) 0
Decrease in mortgage notes payable (2,434,968) 0
Decrease in due to general partner
and their affiliates 0 (40,208)
Decrease in rent receivable 4,765 0
See Accompanying Notes to Consolidated Financial Statements.
9
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
August 31, 2002
(Unaudited)
Note 1 - General
The consolidated financial statements for the six months ended August 31, 2002
and 2001, include the accounts of Cambridge + Related Housing Properties Limited
Partnership, a Massachusetts limited partnership (the "Partnership"), and
fourteen and nineteen Subsidiary Partnerships ("Subsidiaries", "Subsidiary
Partnerships" or "Local Partnerships"), respectively. The Partnership is a
limited partner, with an ownership interest of 98.99% in each of the Subsidiary
Partnerships. Through the rights of the Partnership and/or one of its general
partners (a "General Partner"), which General Partner has a contractual
obligation to act on behalf of the Partnership, the right to remove the local
general partner of the Subsidiary Partnerships and to approve certain major
operating and financial decisions, the Partnership has a controlling financial
interest in the Subsidiary Partnerships.
For financial reporting purposes, the Partnership's fiscal quarter ends on
August 31. All Subsidiaries have fiscal quarters ending June 30. Accounts of
Subsidiaries have been adjusted for intercompany transactions from July 1
through August 31. The Partnership's fiscal quarter ends on August 31 in order
to allow adequate time for the Subsidiaries' financial statements to be prepared
and consolidated. The books and records of the Partnership are maintained on the
accrual basis of accounting, in accordance with generally accepted accounting
principles ("GAAP").
All intercompany accounts and transactions have been eliminated in
consolidation.
Increases (decreases) in the capitalization of consolidated Subsidiaries
attributable to minority interest arise from cash contributions from and cash
distributions to the minority interest partners.
Losses attributable to minority interests which exceed the minority interests'
investment in a Subsidiary have been charged to the Partnership. Such losses
aggregated approximately $0 for both the three and six months ended August 31,
2002 and 2001, respectively. The Partnership's investment in each Subsidiary is
equal to the respective Subsidiary's partners' equity less minority interest
capital, if any.
10
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
August 31, 2002
(Unaudited)
These unaudited financial statements have been prepared on the same basis as the
audited financial statements included in the Partnership's Form 10-K for the
year ended February 28, 2002. In the opinion of the General Partners, the
accompanying unaudited financial statements contain all adjustments (consisting
only of normal recurring adjustments) necessary to present fairly the financial
position of the Partnership as of August 31, 2002, the results of operations for
the three and six months ended August 31, 2002 and 2001 and cash flows for the
six months ended August 31, 2002 and 2001. However, the operating results for
the six months ended August 31, 2002 August not be indicative of the results for
the year.
Certain information and note disclosures normally included in financial
statements prepared in accordance with GAAP have been omitted. It is suggested
that these consolidated financial statements should be read in conjunction with
the financial statements and notes thereto included in the Partnership's
February 28, 2002 Annual Report on Form 10-K.
Note 2 - Purchase Money Notes Payable
Nonrecourse Purchase Money Notes (the "Purchase Money Notes") were issued to the
selling partners of the Subsidiary Partnerships as part of the purchase price,
and are secured only by the Partnership's interest in the Subsidiary Partnership
to which the Purchase Money Note relates.
The Purchase Money Notes, which provide for simple interest, will not be in
default if not less than 60% of the cash flow actually distributed to the
Partnership by the corresponding Subsidiary Partnership (generated by the
operations, as defined) is applied first to accrued interest and then to current
interest thereon. As of August 31, 2002, the maturity dates of the Purchase
Money Notes associated with the remaining properties owned by the Subsidiary
Partnerships were extended for the fifth year (see below and Note 6). These are
the final extensions for these Purchase Money Notes. Any interest not paid
currently accrues, without further interest thereon, through the extended due
date of each of the Purchase Money Notes, respectively. Continued accrual of
such interest without payment would impact the effective rate of the Purchase
Money Notes, specifically by reducing the current effective interest rate of 9%.
The exact effect is not determinable inasmuch as it is dependent on the actual
future interest payments and ultimate repayment dates of the Purchase Money
Notes. Unpaid interest of $18,945,151 and $24,682,606 at August 31, 2002 and
February 28, 2002, respectively, has been accrued and is included in the caption
due to selling partners. In general, the interest on and the principal of each
Purchase Money Note is also payable to the extent of the Partnership's actual
receipt of proceeds from the sale or refinancing of the apartment complex, or in
some cases the Local Partnerships interest ("Local Partnership Interest") to
which the Purchase Money Note relates.
11
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
August 31, 2002
(Unaudited)
The Partnership was permitted to extend the term of the Purchase Money Notes for
up to five additional years. In connection with such extensions, the Partnership
incurred an extension fee of 1 and 1/2% per annum of the outstanding principal
balance of the Purchase Money Notes. The Partnership sent an extension notice to
each Purchase Money Note holder that pursuant to the Purchase Money Note, it was
extending the maturity. However in certain cases, the Partnership did not pay
the extension fee at that time, deferring such payment to the future. Extension
fees in the amount of $708,212 were incurred by the Partnership through August
31, 2002. All Purchase Money Notes are now extended with maturity dates ranging
from August 2003 to October 2003. These are the final extensions for the
Purchase Money Notes. Extension fees of $389,676 were accrued and added to the
Purchase Money Note balance.
The Partnership expects that upon final maturity it will be required to
refinance or sell its investments in the Local Partnerships in order to pay the
Purchase Money Notes and accrued interest thereon. Based on the historical
operating results of the Local Partnerships and the current economic conditions
including changes in tax laws, it is unlikely that the proceeds from such sales
will be sufficient to meet the outstanding balances. Management is working with
the Purchase Money Note holders to restructure and/or refinance the Purchase
Money Notes. No assurance can be given that management's efforts will be
successful. The Purchase Money Notes are without personal recourse to either the
Partnership or any of its partners and the sellers' recourse, in the event of
non-payment, would be to foreclose on the Partnership's interests in the
respective Local Partnerships.
During the six months ended August 31, 2002 and 2001, the Partnership received
cash flow distributions aggregating $126,618 and $66,320, respectively, of which
$56,419 and $22,083 was used to pay interest on the Purchase Money Notes. In
addition, the Partnership received distributions of proceeds from the sales of
Local Partnerships aggregating $1,643,610 and $163,458 of which $340,000 and
$110,707 was used to pay principal and interest on the Purchase Money Notes
during the six months ended August 31, 2002 and 2001, respectively.
12
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
August 31, 2002
(Unaudited)
Note 3 - Related Party Transactions
The costs incurred to related parties for the three and six months ended August
31, 2002 and 2001 were as follows:
=================== ===================
Three Months Ended Six Months Ended
August 31, August 31,
------------------- -------------------
2002 2001 2002 2001
------------------- -------------------
Partnership management
fees (a) $242,779 $241,954 $485,557 $483,907
Expense reimbursement
(b) 34,682 47,568 70,691 78,026
Local administrativefee (d) 3,125 4,000 6,250 8,000
-------- -------- -------- --------
Total general and
administrative-General
Partners 280,586 293,522 562,498 569,933
-------- -------- -------- --------
Property management fees
incurred to affiliates of the
Subsidiary Partnerships'
general partners (c) 31,302 99,458 62,604 210,340
-------- -------- -------- --------
Total general and
administrative-related
parties $311,888 $392,980 $625,102 $780,273
======== ======== ======== ========
(a) After all other expenses of the Partnership are paid, an annual Partnership
management fee of up to .5% of invested assets is payable to the Partnership's
General Partners and affiliates. Partnership management fees owed to the General
Partners amounting to approximately $2,195,000 and $1,759,000 were accrued and
unpaid as of August 31, 2002 and February 28, 2002, respectively. The General
Partners' fees are being paid currently, other than the Partnership management
fees that were accrued and continue to be deferred.
13
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
August 31, 2002
(Unaudited)
(b) The Partnership reimburses the General Partners and their affiliates for
actual Partnership operating expenses incurred by the General Partners and their
affiliates on the Partnership's behalf. The amount of reimbursement from the
Partnership is limited by the provisions of the partnership agreement. Another
affiliate of the General Partners performs asset monitoring for the Partnership.
These services include site visits and evaluations of the Subsidiary
Partnerships' performance.
(c) Property management fees incurred by Local Partnerships to affiliates of the
Local Partnerships amounted to $31,302 and $99,458 and $62,604 and $210,340, for
the three and six months ended August 31, 2002 and 2001, respectively.
(d) Cambridge/Related Housing Associates Limited Partnership, the special
limited partner of each of the Subsidiary Partnerships, owning .01%, is entitled
to receive a local administrative fee of up to $2,500 per year from each
Subsidiary Partnership.
Note 4 - Sale of Properties
General
- -------
The Partnership is currently in the process of winding up its operations and
disposing of its investments. It is anticipated that this process will take a
number of years. As of August 31, 2002, the Partnership has disposed of
thirty-three of its forty-four original investments. Five additional investments
are listed for sale and the Partnership anticipates that the six remaining
investments will be listed for sale by December 31, 2002. There may be no
assurance as to when the Partnership will dispose of its last remaining
investments or the amount of proceeds which may be received. However, based on
the historical operating results of the Local Partnerships and the current
economic conditions including changes in tax laws, it is unlikely that the
proceeds from such sales received by the Partnership will be sufficient to
return to the limited partners their original investment.
14
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
August 31, 2002
(Unaudited)
On March 16, 2001, the property and the related assets and liabilities of
Char-Mur Apartments ("Char-Mur") were sold to an affiliate of the Local General
Partner for $475,000, resulting in a loss in the amount of approximately
$193,000. The Partnership used approximately $85,000 to settle the associated
Purchase Money Note and accrued interest thereon, which had a total outstanding
balance of approximately $986,000, resulting in forgiveness of indebtedness
income of $901,000. In addition, approximately $21,000 of accounts payable to an
unrelated party were forgiven in the current year.
On August 31, 2001, the property and the related assets and liabilities of
Rolling Meadows Apartments, Ltd. ("Rolling Meadows") were sold to an
unaffiliated third party purchaser for $1,925,000 resulting in a loss in the
amount of approximately $485,000. The Partnership used approximately $201,000 to
settle the associated Purchase Money Note and accrued interest thereon, which
had a total outstanding balance of approximately $3,757,000 resulting in
forgiveness of indebtedness income of approximately $3,556,000.
On March 27, 2002, the Partnership's limited partnership interest in Eastwyck
III, Ltd. Limited Partnership ("Eastwyck") was sold to the Local General
Partners for approximately $5,000 resulting in a loss of approximately $337,000.
No proceeds were used to settle the associated Purchase Money Note and accrued
interest thereon, which had a total outstanding balance of approximately
$1,220,000 resulting in a gain on sale of approximately $1,220,000.
On March 27, 2002, the property and the related assets and liabilities of
Ziegler Boulevard, Ltd. ("Ziegler") were sold to an unaffiliated third party
purchaser for approximately $2,379,000 resulting in a loss in the amount of
approximately $483,000. The Partnership used approximately $340,000 to settle
the associated Purchase Money Note and accrued interest thereon, which had a
total outstanding balance of approximately $2,746,000 resulting in forgiveness
of indebtedness income of approximately $2,406,000.
15
CAMBRIDGE + RELATED HOUSING PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
August 31, 2002
(Unaudited)
On July 12, 2002, the property and the related assets and liabilities of San
Diego-Logan Square Gardens Company ("Logan") were sold to the Local General
Partners for approximately $9,241,000 resulting in a gain in the amount of
approximately $5,450,000, which will be recognized in the November 30, 2002
10-Q. The Partnership used approximately $5,740,000 to fully settle the
associated Purchase Money Note and accrued interest thereon.
Note 5 - Prior Period Adjustment
During the quarter ended November 30, 2001, extension fees in connection with
the Purchase Money Notes were overaccrued by $671,850. Such extension fees were
capitalized and amortized over the period of extension, and during the fiscal
year end February 28, 2002 the Partnership amortized $335,925 of such extension
fees resulting in net income being understated for that year. To correct the
misstatement Partners' deficit has been increased by $335,925.
Note 6 - Commitments and Contingencies
The following disclosure includes changes and/or additions to disclosures
regarding the Subsidiary Partnership which were included in the Partnership's
Annual Report on Form 10-K for the period ended February 28, 2002.
a) Purchase Money Notes
As part of the purchase price of its investment in the Local Partnerships, the
Partnership issued approximately $61,029,000 of Purchase Money Notes. As of
August 31, 2002, unpaid accrued interest on the Purchase Money Notes amounted to
approximately $18,945,000. The principal of and all accrued interest on the
Purchase Money Notes is due at maturity. The Partnership was permitted to extend
the term of the Purchase Money Notes for up to five additional years. In
connection with such extensions, the Partnership incurred an extension fee of 1
and 1/2% per annum of the outstanding principal balance of the assets. The
Partnership sent an extension notice to each Purchase Money Note holder that
pursuant to the note, it was extending the maturity. However in certain cases,
the Partnership did not pay the extension fee at that time, deferring such
payment to the future. The holders of the Note could argue that until the fee is
paid the Note has not been properly extended.
16
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 are (i) cash distributions from
operations (ii) cash distributions from sales of the Local Partnerships in which
the Partnership has invested, (iii) interest earned on funds and (iv) cash in
working capital reserves. All of these sources of funds are available to meet
the obligations of the Partnership.
During the six months ended August 31, 2002 and 2001, the Partnership received
cash flow distributions aggregating $126,618 and $66,320, respectively, of which
$56,419 and $22,083, respectively, was used to pay interest on the Purchase
Money Notes. In addition, the Partnership received distributions of proceeds
from the sales of Local Partnerships aggregating $1,643,610 and $163,458, of
which $340,000 and $110,707 was used to pay principal and interest on the
Purchase Money Notes during the six months ended August 31, 2002 and 2001,
respectively.
During the six months ended August 31, 2002, cash and cash equivalents of the
Partnership and its consolidated Local Partnerships increased approximately
($1,038,000). This increase was due to cash provided by operations ($2,749,000)
and proceeds from sale of properties ($85,000) which exceeded principal payments
of mortgage notes payable ($346,000), an increase in mortgage escrow deposits
relating to investing activities ($329,000), payments to selling partners
($471,000), acquisitions of property and equipment ($43,000), a decrease in
minority interest relating to financing activities ($6,000), a decrease in
Purchase Money Note extension fees payable ($262,000) and principal payments of
Purchase Money Notes payable ($340,000). Included in the adjustments to
reconcile the net income to cash provided by operating activities is gain on
sale of properties ($400,000), forgiveness of indebtedness income ($2,427,000)
and depreciation ($211,000).
The Partnership has a working capital reserve of approximately $1,382,000 at
August 31, 2002. The working capital reserve is temporarily invested in money
market accounts which can be easily liquidated to meet obligations as they
arise. The General Partners believe that the Partnership's reserves, net
proceeds from future sales and future cash flow distributions will be adequate
for its operating needs, and plan to continue investing available reserves in
short term investments. In March 2001, a distribution of approximately $511,000
and $5,000 was paid to the limited partners and General Partners, respectively,
from net proceeds from the sale of properties. None of the total distributions
of approximately $516,000 for the six months ended August 31, 2001, were deemed
to be a return of capital in accordance with GAAP.
17
Partnership management fees owed to the General Partners amounting to
approximately $2,195,000 and $1,759,000 were accrued and unpaid as of August 31,
2002 and February 28, 2002, respectively. The General Partners' fees are being
paid currently, other than the Partnership management fees that were accrued and
continue to be deferred.
The Local Partnerships that receive government assistance are subject to
low-income use restrictions which limit the owners' ability to sell or refinance
the properties. In order to maintain the existing inventory of affordable
housing, Congress passed a series of related acts including the Emergency Low
Income Preservation Act of 1987, the Low-Income Housing Preservation and
Resident Homeownership Act of 1990 (together the "Preservation Acts") and the
Housing Opportunity Program Extension Act of 1996 (the "1996 Act"). In exchange
for maintaining the aforementioned use restrictions, the Preservation Acts
provided financial incentives for owners of government assisted properties. The
1996 Act provided financial assistance by funding the sale of such properties to
not-for-profit owners and also restores the owners ability to prepay their U.S.
Department of Housing and Urban Development ("HUD") mortgage and convert the
property to condominiums or market-rate rental housing. Local general partners
had filed for incentives under the Preservation Acts or the 1996 Act for the
following local partnerships: San Diego - Logan Square Gardens Company,
Albuquerque - Lafayette Square Apts. Ltd., Westgate Associates Limited,
Riverside Gardens Limited Partnership, Pacific Palms, Canton Commons Associates,
Rosewood Manor Associates, Bethany Glen Associates and South Munjoy Associates,
Limited. As of August 31, 2002, all of these Local Partnerships were sold except
for Lafayette Square. The Preservation Acts have subsequently been repealed or
revoked. The Local General Partner of the Lafayette Square property has signed a
purchase and sale contract.
For a discussion of Purchase Money Notes payable see Note 2 to the financial
statements.
For a discussion of the Partnership's sale of properties see Note 4 to the
financial statements.
18
For a discussion of contingencies affecting certain Local Partnerships, see Note
6 to the financial statements and Part II, Item 1 of this report. Since the
maximum loss the Partnership would be liable for is its net investment in the
respective Local Partnerships, the resolution of the existing contingencies is
not anticipated to impact future results of operations, liquidity or financial
condition in a material way although the Partnership would lose its entire
investment in the property and any ability for future appreciation.
Management is not aware of any trends or events, commitments or uncertainties
which have not otherwise been disclosed that will or are likely to impact
liquidity in a material way. Management believes the only impact would be from
laws that have not yet been adopted. The portfolio is diversified by the
location of the properties around the United States so that if one area of the
United States is experiencing downturns in the economy, the remaining properties
in the portfolio may be experiencing upswings. However, the geographic
diversifications of the portfolio may not protect against a general downturn in
the national economy.
Results of Operations
- ---------------------
During the periods ended August 31, 2002 and 2001, Char-Mur Apartments, Ltd.,
Rolling Meadows Apartments, Ltd. and Zeigler Boulevard Ltd. sold their
properties and the related assets and liabilities and the Partnership's Limited
Partnership Interest in Buena Vista Manor Apartments Ltd., Cedar Hill Apartments
Ltd., Crosset Apartments Ltd. and Eastwyck III, Ltd. were sold (collectively the
"Sold Assets"). Excluding the Sold Assets, the results of operations of the
Partnership, as well as the Local Partnerships, remained fairly consistent
during the three and six months ended August 31, 2002 and 2001, other than other
income, administrative and management, operating, gain on sale of properties and
forgiveness of indebtedness income. The majority of Local Partnership income
continues to be in the form of rental income with the corresponding expenses
being divided among operations, depreciation, and mortgage interest. In
addition, the Partnership incurred interest expense relating to the Purchase
Money Notes issued when the Local Partnership Interests were acquired.
Rental income decreased approximately 25% and 20% for the three and six months
ended August 31, 2002, as compared to 2001. Excluding the Sold Assets, rental
income increased approximately 1% and 5% primarily due to rental rate increases
and decreases in vacancies at several Local Partnerships.
19
Other income increased approximately $159,000 and $117,000 for the three and six
months ended August 31, 2002, as compared to 2001. Excluding the Sold Assets,
other income decreased approximately $53,000 and $76,000, primarily due to a
decrease of interest income due to a reduction in interest rates on reserve
accounts at several Local Partnerships as well as the Partnership level.
Total expenses, excluding the Sold Assets, administrative and management and
operating, remained fairly consistent with decreases of approximately 5% and 1%
for the three and six months ended August 31, 2002, as compared to 2001.
Administrative and management decreased approximately $116,000 and $274,000 for
the three and six months ended August 31, 2002, as compared to 2001. Excluding
the Sold Assets, administrative and management increased approximately $57,000
and decreased approximately $36,000. The increase for the three months is
primarily due to salary and management fee increases at one Local Partnership
and an underaccrual of accounting expenses in 2001 at a second Local
Partnership.
Operating decreased approximately $102,000 and $286,000 for the three and six
months ending August 31, 2002, as compared to 2001. Excluding the Sold Assets,
operating decreased approximately $37,000 and $150,000 primarily due to a
decrease in utility cost at several Local Partnerships.
Administrative and management-related parties, repairs and maintenance, taxes
and insurance, interest and depreciation expense decreased approximately $81,000
and $155,000, $278,000 and $404,000, $49,000 and $104,000, $218,000 and $352,000
and $232,000 and $414,000 for the three and six months ended August 31, 2002, as
compared to 2001, primarily due to decreases relating to the Sold Assets.
Wingate Associates, Limited, Albuquerque - Lafayette Square Apartments, Ltd., El
Paso - Gateway East Ltd., Bay Village Co. and Fort Worth - Northwood Apartments
Ltd. are not depreciated during the period ended August 31, 2002 because they
are classified as assets held for sale.
Losses and gains on sales of properties and forgiveness of indebtedness income
will continue to fluctuate as a result of the disposition of properties (see
Note 4 to the financial statements).
20
Item 3. Quantitative and Qualitative Disclosures about Market Risk
None
Item 4. Controls and Procedures
The Chief Executive Officer and Chief Financial Officer of Government Assisted
Properties, Inc. and Related Housing Programs Corporation, each of which is a
general partner of Cambridge + Related Housing Properties L.P. (the
"Partnership"), has evaluated the Partnership's disclosure controls and
procedures relating to the Partnership's quarterly report on Form 10-Q for the
period ending August 31, 2002 as filed with the Securities and Exchange
Commission and has judged such controls and procedures to be effective as of
August 31, 2002 (the "Evaluation Date").
There have been no significant changes in the internal controls or in other
factors that could significantly affect internal controls relating to the
Partnership since the Evaluation Date.
21
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - This information is incorporated by reference in
Note 6 to the Financial Statements.
Item 2. Changes in Securities and Use of Proceeds - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other information - None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
99.1 Certification Pursuant to 18 U.S.C. section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K - No reports on Form 8-K were filed during the
quarter.
22
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.
CAMBRIDGE + RELATED HOUSING
PROPERTIES LIMITED PARTNERSHIP
(Registrant)
By: GOVERNMENT ASSISTED PROPERTIES,
INC., a General Partner
Date: October 15, 2002
By: /s/ Alan P. Hirmes
------------------
Alan P. Hirmes,
President and Principal
Executive and Financial Officer
Date: October 15, 2002
By: /s/ Glenn F. Hopps
------------------
Glenn F. Hopps,
Treasurer and
Principal Accounting Officer
By: RELATED HOUSING PROGRAMS
CORPORATION, a General Partner
Date: October 15 2002
By: /s/ Alan P. Hirmes
------------------
Alan P. Hirmes,
President and Principal
Executive Financial Officer
Date: October 15, 2002
By: /s/ Glenn F. Hopps
------------------
Glenn F. Hopps,
Treasurer and
Principal Accounting Officer
23
CERTIFICATION
I, Alan P. Hirmes, Chief Executive Officer and Chief Financial Officer of
Government Assisted Properties, Inc. and Related Housing Programs Corporation
(the "General Partners"), each of which is a general partner of Cambridge +
Related Housing Properties L.P. (the "Partnership"), hereby certify that:
1. I have reviewed this quarterly report on Form 10-Q for the period ending
August 31, 2002 of the Partnership;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the Partnership as of, and for, the periods presented in this
quarterly report;
4. I am responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15-d-14) for the
Partnership and I have:
a) designed such disclosure controls and procedures to ensure the material
information relating to the Partnership is made known to me, particularly
during the period in which this quarterly report was being prepared;
b) evaluated the effectiveness of the Partnership's disclosure controls and
procedures as of August 31, 2002 (the "Evaluation Date"); and
24
c) presented in this quarterly report my conclusions about the
effectiveness of the disclosure controls and procedures based on my
evaluation as of the Evaluation Date;
5. I have disclosed, based on my most recent evaluation, to the Partnership's
auditors and to the boards of directors of the General Partners:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Partnership's ability to record,
process, summarize and report financial data and have identified for the
Partnership's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Partnership's internal
controls; and
6. I have indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of our most
recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Partnership has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
By: /s/ Alan P. Hirmes
------------------
Alan P. Hirmes
Chief Executive Officer and
Chief Financial Officer
October 15, 2002
25
Exhibit 99.1
CERTIFICATION PURSUANT TO
18.U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Cambridge + Related Housing
Properties Limited Partnership (the "Partnership") on Form 10-Q for the period
ending August 31, 2002 as filed with the Securities and Exchange Commission on
the date hereof (the "Report"), I, Alan P. Hirmes, Chief Executive Officer and
Chief Financial Officer of Government Assisted Properties, Inc. and Related
Housing Programs Corporation, each of which is a general partner of the
Partnership, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of the
Partnership.
By: /s/ Alan P. Hirmes
------------------
Alan P. Hirmes
Chief Executive Officer and
Chief Financial Officer
October 15, 2002