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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 June 25, 2002
OR
- ------- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-13782
CAMBRIDGE ADVANTAGED
PROPERTIES LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Delaware 13-3228969
- ------------------------------- -------------------
(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 ADVANTAGED PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
------------ ------------
June 25, March 25,
2002 2002*
------------ ------------
ASSETS
Property and equipment - less
accumulated depreciation of
$7,764,929 and $7,639,553,
respectively $ 5,339,024 $ 5,470,303
Property and equipment -
held for sale - less accumulated
depreciation of $11,828,782 and
$16,326,084, respectively 9,460,690 11,548,976
Cash and cash equivalents 5,344,051 4,967,577
Cash - restricted for tenants'
security deposits 299,378 304,539
Mortgage escrow deposits 4,290,951 4,376,911
Prepaid expenses and other assets 842,005 758,693
------------ ------------
Total assets $ 25,576,099 $ 27,426,999
============ ============
2
CAMBRIDGE ADVANTAGED PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(continued)
------------- -------------
June 25, March 25,
2002 2002*
------------- -------------
LIABILITIES AND PARTNERS' DEFICIT
Liabilities
Mortgage notes payable $ 10,891,274 $ 13,137,483
Purchase Money Notes payable
(Note 2) 5,513,598 9,861,837
Due to selling partners (Note 2) 14,422,825 22,957,424
Deferred revenue on sale of
properties 11,217,122 5,905,828
Accounts payable, accrued
expenses and other liabilities 3,242,690 587,491
Tenants' security deposits payable 263,176 283,920
Due to general partners of
subsidiaries and their affiliates 113,095 114,744
Due to general partners and
affiliates 3,176,170 3,329,471
------------- -------------
Total liabilities 48,839,950 56,178,198
------------- -------------
Minority interest 157,030 222,153
------------- -------------
Commitments and contingencies
(Note 5)
Partners' deficit:
Limited partners (22,649,148) (28,146,094)
General partners (771,733) (827,258)
------------- -------------
Total partners' deficit (23,420,881) (28,973,352)
------------- -------------
Total liabilities and partners' deficit $ 25,576,099 $ 27,426,999
============= =============
*Reclassified for comparative purposes.
See accompanying notes to consolidated financial statements.
3
CAMBRIDGE ADVANTAGED PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
---------------------------
Three Months Ended
June 25,
---------------------------
2002 2001
---------------------------
Revenues:
Rentals, net $ 1,556,843 $ 3,358,054
Other 163,491 186,115
Gain (loss) on sale of property
(Note 4) 262,373 (1,007,538)
----------- -----------
Total revenues 1,982,707 2,536,631
----------- -----------
Expenses
Administrative and management 339,622 680,838
Administrative and management-
related parties (Note 3) 376,451 484,237
Operating 354,203 803,118
Repairs and maintenance 324,355 781,397
Taxes and insurance 239,802 409,658
Interest 415,661 1,541,543
Depreciation 128,546 444,788
----------- -----------
Total expenses 2,178,640 5,145,579
----------- -----------
Net loss before minority interest (195,933) (2,608,948)
Minority interest in loss of
subsidiaries 64,728 241,128
----------- -----------
Loss before extra-ordinary item (131,205) (2,367,820)
Extraordinary item-forgiveness of
indebtedness income (Note 4) 5,683,676 3,839,356
----------- -----------
Net income $ 5,552,471 $ 1,471,536
=========== ===========
Limited Partners Share:
Loss before extraordinary item $ (129,893) $(2,344,141)
Extraordinary item 5,626,839 3,800,962
----------- -----------
Net income $ 5,496,946 $ 1,456,821
=========== ===========
4
CAMBRIDGE ADVANTAGED PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(continued)
---------------------------
Three Months Ended
June 25,
---------------------------
2002 2001
---------------------------
Number of units outstanding 12,074 12,074
=========== ===========
Loss before extraordinary item per
limited partner unit $ (11) $ (194)
Extraordinary item per limited
partner unit 466 315
----------- -----------
Net income per limited partner unit $ 455 $ 121
=========== ===========
See accompanying notes to consolidated financial statements.
5
CAMBRIDGE ADVANTAGED PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
------------------------------------------
Limited General
Total Partners Partners
------------------------------------------
Balance -
March 26, 2002 $(28,973,352) $(28,146,094) $ (827,258)
Net income 5,552,471 5,496,946 55,525
------------- ------------- ------------
Balance -
June 25, 2002 $(23,420,881) $(22,649,148) $ (771,733)
============= ============= ============
See accompanying notes to consolidated financial statements.
6
CAMBRIDGE ADVANTAGED PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(Unaudited)
(continued)
----------------------------
Three Months Ended
June 25,
----------------------------
2002 2001
----------------------------
Cash flows from operating activities:
Net income $ 5,552,471 $ 1,471,536
------------- -------------
Adjustments to reconcile net income
to net cash (used in) provided by
operating activities:
(Gain) loss on sale of properties (Note 4) (262,373) 1,007,538
Extraordinary item-forgiveness of
indebtedness income (Note 4) (5,683,676) (3,839,356)
Depreciation 128,546 444,788
Minority interest in loss of subsidiaries (64,728) (241,128)
(Increase) decrease in cash-restricted
for tenants' security deposits (17,261) 5,968
Decrease (increase) in mortgage
escrow deposits 110,963 (184,165)
Increase in prepaid
expenses and other assets (151,009) (190,635)
Increase in due to selling partners 364,044 1,452,585
Payments of interest to selling partners (25,471) 0
Increase in accounts payable, accrued
expenses and other liabilities 2,145,375 590,254
(Decrease) increase in tenants'
security deposits payable (16) 5,030
Decrease in due to general partners
of subsidiaries and their affiliates 0 (410)
(Decrease) increase in due to general
partners and affiliates (65,601) 143,917
------------- -------------
Total adjustments (3,521,207) (805,614)
------------- -------------
Net cash provided by
operating activities 2,031,264 665,922
------------- -------------
7
CAMBRIDGE ADVANTAGED PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(Unaudited)
(continued)
----------------------------
Three Months Ended
June 25,
----------------------------
2002 2001
----------------------------
Cash flows from investing activities:
Proceeds from sale of properties 2,945,677 1,188,000
Acquisitions of property and equipment (6,273) (128,004)
Increase in mortgage escrow deposits (422,977) (426,028)
------------- -------------
Net cash provided by investing activities 2,516,427 633,968
------------- -------------
Cash flows from financing activities:
Principal payment of mortgage
notes payable (2,246,209) (1,467,227)
Principal payments of purchase
money notes payable (1,924,613) (1,776,591)
Decrease in capitalization of
minority interest (395) (3,373)
------------- -------------
Net cash used in financing activities (4,171,217) (3,247,191)
------------- -------------
Net increase (decrease) in cash
and cash equivalents 376,474 (1,947,301)
Cash and cash equivalents -
beginning of period 4,967,577 4,943,694
------------- -------------
Cash and cash equivalents -
end of period $ 5,344,051 $ 2,996,393
============= =============
Supplemental disclosures of noncash activities:
Increase in property and equipment -
held for sale reclassified from
property and equipment $ 0 $ 2,182,138
Decrease in property and equipment,
net of accumulated depreciation (2,735) (1,677)
Increase in deferred revenue on sale
of properties reclassified from
purchase money notes payable
and due to selling partners 11,245,818 0
Decrease in Purchase Money Notes
payable 2,423,626 562,052
Decrease in due to selling partners 8,824,927 4,687,164
8
CAMBRIDGE ADVANTAGED PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(Unaudited)
(continued)
----------------------------
Three Months Ended
June 25,
----------------------------
2002 2001
----------------------------
Forgiveness of indebtedness income (Note 4):
Increase in deferred revenue
from sale of property 5,683,676 3,839,356
Summarized below are the
components of the gain on
sale of property:
Decrease in property and equipment,
and property and equipment-held for
sale 2,094,557 2,074,284
Decrease in cash - restricted for
tenants' security deposits 22,422 17,230
Decrease in mortgage escrow deposits 397,974 283,223
Decrease in prepaid expenses and
other assets 67,697 325,849
Decrease in due to selling partners (48,245) (185,354)
(Increase) decrease in accounts payable,
accrued expenses and other liabilities 258,976 (236,407)
Decrease in tenant's security
deposits payable (20,728) (17,230)
Decrease in due to
general partners and affiliates (87,700) (66,057)
Decrease in due to general partners
of subsidiaries and their affiliates (1,649) 0
See accompanying notes to consolidated financial statements.
9
CAMBRIDGE ADVANTAGED PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 25, 2002
(Unaudited)
Note 1 - General
The consolidated financial statements for the three months ended June 25, 2002
and 2001 include the accounts of Cambridge Advantaged Properties Limited
Partnership (the "Partnership") and fourteen and thirty subsidiary partnerships,
respectively ("subsidiaries," "subsidiary partnerships" or "Local
Partnerships"). 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 an affiliate of one of its General Partners (a "General
Partner"), which affiliate has a contractual obligation to act on behalf of the
Partnership, to remove the general partner of the subsidiary partnerships (the
"Local General Partner") 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 June 25.
All subsidiaries have fiscal quarters ending March 31. Accounts of the
subsidiary partnerships have been adjusted for intercompany transactions from
April 1 through June 25. The Partnership's fiscal quarter ends on June 25 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 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 $5,000 and $20,000 for the three months ended June 25,
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. In consolidation, all subsidiary partnership losses are
included in the Partnership's capital account except for losses allocated to
minority interest capital.
10
CAMBRIDGE ADVANTAGED PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 25, 2002
(Unaudited)
The 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 March 25, 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 June 25, 2002, and the results of operations
and cash flows for the three months ended June 25, 2002 and 2001. However, the
operating results for the three months ended June 25, 2002 may 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 March
25, 2002 Annual Report on Form 10-K.
Note 2 - Purchase Money Notes Payable
Purchase Money Notes (the "Purchase Money Notes") in the original amount of
$85,458,825 were issued to the selling partners of the subsidiary partnerships
as part of the purchase price and are secured only by the interest in the
subsidiary partnership to which the Purchase Money Note relates. A portion of
these Purchase Money Notes, in the original amount of $31,932,568, is an
obligation at the subsidiary partnership level, whereas the remaining
$53,526,257 is recorded at the Partnership level. The Purchase Money Notes
generally provided for compound interest at rates which, in general, ranged from
9% to 10% per annum through August 31, 1989. Thereafter, simple interest has
accrued, without further interest thereon, through maturity as extended (see
below). Purchase Money Notes at June 25, 2002 and March 25, 2002 include
$4,336,417 of interest accrued through August 31, 1989.
11
CAMBRIDGE ADVANTAGED PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 25, 2002
(Unaudited)
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 from
operations, as defined) is applied first to accrued interest and then to current
interest thereon. Any interest not paid currently accrues, without further
interest thereon, through the extended due date of the Purchase Money Note.
Continued accrual of such interest beyond the initial term, without payment,
reduces the 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. The Purchase Money Notes, after the
extended maturity dates, call for the simple accrual of interest on the balance
of principal, interest and Purchase Money Note extension fees payable as of the
date of maturity at one of the following two rates: (i) the lesser of 12% or the
legally allowable rate; or (ii) the lesser of prime plus 2% or the lowest
legally allowable rate. Unpaid interest of approximately $14,423,000 and
$22,909,000 as of June 25, 2002 and March 25, 2002, respectively, has been
accrued and is included in due to selling partners in the consolidated balance
sheets. 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 of the sale or refinancing of the apartment complex.
The Partnership extended the original terms of the Purchase Money Notes (ranging
from August to December 1996) for up to three additional years (four years with
respect to three subsidiary partnerships and seven years with respect to three
subsidiary partnerships). In connection with such extensions, the Partnership
incurred extension fees of 1/2 % per annum of the outstanding principal balance
of the Purchase Money Notes. The Purchase Money Notes with seven year extensions
have all been sold. Additionally, an oral agreement was reached in August 2001
to extend the maturity dates of the remaining Purchase Money Notes to September
2002 through October 2003. The Partnership is working with the Local General
Partners and Purchase Money Note holders to refinance or sell the properties. No
assurance can be given that management's efforts will be successful. Of such
fees incurred, $71,737 was accrued and added to the Purchase Money Notes
balance. The extension fees are being amortized over the term of the extensions.
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
of principal, accrued interest and extension fees. The Purchase Money Notes are
without personal recourse to either the Partnership or any of its partners and
the selling partner's recourse, in the event of nonpayment, would be to
foreclose on the Partnership's interests in the respective subsidiary
partnerships.
12
CAMBRIDGE ADVANTAGED PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 25, 2002
(Unaudited)
Distributions aggregating approximately $3,046,000 and $2,200,000 were made to
the Partnership for the three months ended June 25, 2002 and 2001, respectively,
of which $2,173,000 and $1,777,000, respectively, were used to pay principal and
interest on the Purchase Money Notes.
13
CAMBRIDGE ADVANTAGED PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 25, 2002
(Unaudited)
Note 3 - Related Party Transactions
The costs incurred to related parties for the three months ended June 25, 2002
and 2001 were as follows:
Three Months Ended
June 25,
---------------------------
2002 2001
---------------------------
Partnership management fees (a) $ 267,000 $ 271,000
Expense reimbursement (b) 28,621 34,492
Local administrative fee (c) 10,000 14,000
------------ ------------
Total general and administrative-
General Partners 305,621 319,492
------------ ------------
Property management fees incurred
to affiliates of the subsidiary
partnerships' general partners 70,830 164,745
------------ ------------
Total general and administrative-
related parties $ 376,451 $ 484,237
============ ============
(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 $2,839,000 and $2,847,000 were accrued and
unpaid as of June 25, 2002 and March 25, 2002, respectively. Without the General
Partner's continued allowance of accrual without payment of certain fees and
expense reimbursements, the Partnership will not be in a position to meet its
obligations. The General Partners have continued allowing the accrual without
payment of these amounts but are under no obligation to continue to do so.
Proceeds received from future sales will be used to pay any outstanding amounts
due to the General Partners.
(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. Expense reimbursements and asset monitoring fees owed
to the General Partners amounting to approximately $46,000 and $95,000 were
accrued and unpaid as of June 25, 2002 and March 25, 2002, respectively.
14
CAMBRIDGE ADVANTAGED PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 25, 2002
(Unaudited)
(c) C/R Special Partnership, the special limited partner, owning a .01%
interest, 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 disposing of its investments. It
is anticipated that this process will take a number of years. As of June 25,
2002, the Partnership has disposed of fifty-four of its sixty-one original
investments. Four additional investments are listed for sale and the Partnership
anticipates that the three remaining investments will be listed for sale by
December 31, 2002. There can 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 received by the Partnership from such sales
will be sufficient to return their original investment. Moreover, the Local
General Partners and holders of the Purchase Money Notes generally have
decision-making rights with respect to the sale of each property which therefore
makes it more cumbersome for the General Partners to sell each property.
In order to facilitate an orderly disposition of the Partnership's assets, the
Partnership formed a new entity: Cambridge Advantaged Liquidating L.L.C. (the
"Trust"), a Delaware limited liability company which is wholly-owned by the
Partnership.
15
CAMBRIDGE ADVANTAGED PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 25, 2002
(Unaudited)
On July 21, 1999, the Partnership contributed its limited partnership interest
in Decatur Apartments, Ltd., Florence Apartments, Ltd., Saraland Apartments,
Ltd., Dickens Ferry Apartments, Ltd., Boonie Doone Apartments, Ltd., University
Gardens Apartments, Ltd., and Southside Village Apartments, Ltd., to the Trust.
In each case, the interests were contributed subject to each respective Purchase
Money Note. The contribution did not involve any consideration being paid to the
Partnership, therefore, there should not be any tax effect to the limited
partners of the Partnership. As of June 25, 2002 all of these properties were
sold except for Saraland Apartments, Ltd.
Information Regarding Dispositions.
- -----------------------------------
On February 14, 2002, the property and related assets and liabilities of
Nottingham Woods Apartments were sold to an unaffiliated third party for
$1,900,000, resulting in a gain of approximately $799,000. The Partnership used
approximately $472,000 of the proceeds to settle the associated Purchase Money
Note and accrued interest thereon, which had a total outstanding balance of
approximately $3,251,000, resulting in forgiveness of indebtedness income of
approximately $2,779,000.
On February 15, 2002, the property and related assets and liabilities of
Robindale East Apartments were sold to an unaffiliated third party for $735,519,
resulting in a loss of approximately $536,000. No proceeds were used to settle
the related Purchase Money Note and accrued interest thereon, which had a total
outstanding balance of approximately $2,904,000, resulting in forgiveness of
indebtedness income of such amount.
On April 30, 2002, the property and related assets and liabilities of Shelton
Beach Apartments ("Northpointe I") were sold to an unaffiliated third party for
$2,333,333, resulting in a gain of approximately $417,000. The Partnership used
approximately $1,032,000 of proceeds to settle the associated Purchase Money
Note and accrued interest thereon, which had a total outstanding balance of
approximately $3,239,000, which is included in accounts payable, accrued
expenses and other liabilities at June 25, 2002 and will result in forgiveness
of indebtedness income of approximately $2,188,000 during the quarter ended
September 25, 2002.
16
CAMBRIDGE ADVANTAGED PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 25, 2002
(Unaudited)
On April 30, 2002, the property and related assets and liabilities of
Northpointe II were sold to an unaffiliated third party for $1,666,667 resulting
in a gain of approximately $286,000. The Partnership used approximately $517,000
of the proceeds to settle the associated Purchase Money Note and accrued
interest thereon, which had a total outstanding balance of approximately
$2,119,000, which is included in accounts payable, accrued expenses and other
liabilities at June 25, 2002 and will result in forgiveness of indebtedness
income of approximately $1,591,000 during the quarter ended September 25, 2002.
On May 9, 2002, the property and related assets and liabilities of Huntley #1
were sold to the Local General Partner for approximately $1,750,000, resulting
in a loss of approximately $391,000. The Partnership will receive and use
approximately $865,000 of the proceeds to settle the associated Purchase Money
Note and accrued interest thereon, which had a total outstanding balance of
approximately $2,645,000, which is included in accounts payable, accrued
expenses and other liabilities at June 25, 2002 and will result in forgiveness
of indebtedness income of approximately $1,780,000 during the quarter ended
September 25, 2002.
On May 9, 2002, the property and related assets and liabilities of Huntley #2
were sold to the Local General Partner for approximately $1,750,000, resulting
in a gain of approximately $82,000. The Partnership will receive and use
approximately $865,000 of the proceeds to settle the associated Purchase Money
Note and accrued interest thereon, which had a total outstanding balance of
approximately $1,725,000, which is included in accounts payable, accrued
expenses and other liabilities at June 25, 2002 and will result in forgiveness
of indebtedness income of approximately $859,000 during the quarter ended
September 25, 2002.
On May 21, 2002, Pinewood Village ("Conifer 317") entered into a purchase and
sale agreement with an unaffiliated third party purchaser for a purchase price
of $2,000,000. The closing is expected to occur in late 2002. No assurance can
be given that the closing will actually occur.
17
CAMBRIDGE ADVANTAGED PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 25, 2002
(Unaudited)
On May 30, 2002, the property and related assets and liabilities of Lexington
Village ("Lexington") were sold to an affiliate of the Local General Partner for
approximately $1,350,000, resulting in a gain of approximately $343,000. The
Partnership will use approximately $592,000 of the proceeds to settle the
associated Purchase Money Note and accrued interest thereon, which had a total
outstanding balance of approximately $3,445,000, which is included in accounts
payable, accrued expenses and other liabilities at June 25, 2002 and will result
in forgiveness of indebtedness income of approximately $2,853,000 during the
quarter ended September 25, 2002.
Note 5 - Commitments and Contingencies
The following disclosures include changes and/or additions to disclosures
regarding the subsidiary partnerships which were included in the Partnership's
Annual Report on Form 10-K for the year ended March 25, 2002.
Southwest Apartments Ltd. (the Gossers)
- -------------------------------------------
In or around November 1999, the Partnership received correspondence from an
attorney representing Dr. and Mrs. Bob Gosser, (the "Gossers") who are allegedly
the holders of beneficial interests in Purchase Money Notes issued by the
Partnership in connection with the Partnership's acquisition of limited
partnership interests in Southwest Apartments, Ltd. Local partnership in
December 1984. Those Purchase Money Notes issued by the Partnership have, on
their face, matured and have not been paid in full.
The Partnership thereafter entered into a settlement agreement with the Gossers
which contemplated the sale of the real property owned by Southwest Apartments,
Ltd. and an allocation of the proceeds from the sale between the Gossers, the
Partnership and others. Subsequently, the Partnership sold its partnership
interest in Southwest Apartments, Ltd. to Marshall B. Coffman, subject to the
agreement with the Gossers and pursuant to which Coffman agreed to indemnify the
Partnership in the event of a suit brought by the Gossers. On April 29, 2002,
counsel for the Gossers threatened to bring suit against the Partnership and
Coffman unless Coffman complied with the obligations set forth in the agreement.
The Partnership promptly placed Coffman on notice that in the event the
Partnership is sued by the Gossers, the Partnership will seek to hold Coffman
liable pursuant to the indemnification given by him for all damages sustained by
the Partnership including but not limited to its attorneys' fees.
18
CAMBRIDGE ADVANTAGED PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 25, 2002
(Unaudited)
Saraland Apartments, Ltd.
- -------------------------
Saraland Apartments, Ltd. ("Saraland") has been placed on the Environmental
Protection Agency's (EPA) "Superfund Cleanup List". During the year ended
December 31, 1996, the tenants of Saraland were moved to temporary housing to
facilitate cleanup of the site. However, as of February 1997, the EPA, along
with other agencies, concluded that the apartment residents should not return to
the site, and the tenants were permanently relocated. The EPA has since
concluded that the apartments will have to be demolished in order to accomplish
the removal of contamination that has been found to exist underneath the
buildings.
On March 21, 2001, Saraland filed a petition for relief under Chapter 11 of the
Bankruptcy Code in the United States Bankruptcy Court for the Northern District
of Texas, Dallas Division. The schedules list total assets valued at $924 and
liabilities of $12,962,501. The value of the land is listed as undetermined and
the Department of Housing and Urban Development ("HUD") possesses a secured
claim related to mortgages it holds in the estimated amount of $681,527. The
filing was commenced in response to a nonjudicial foreclosure brought by HUD.
The remaining liabilities consist of unsecured nonpriority claims, the bulk of
which relate to a claim held by the U.S. Environmental Protection Agency
("USEPA") and Rentokil Initial Environmental Services, Inc., in the amount of
$12,000,000. This claim relates to a lawsuit under Section 107 of the
Comprehensive Environmental Response, Compensation and Liability Act, which is
currently pending in the District Court for the Southern District of Alabama
(the "District Court") against Saraland and others who it claims are potentially
responsible parties. Redwing Carriers, Inc., a codefendant in the USEPA lawsuit,
has commenced an action, also in the District Court, to recover all or a pro
rata share of its environmental response costs from Saraland and others.
19
CAMBRIDGE ADVANTAGED PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 25, 2002
(Unaudited)
Another lawsuit, pending in Circuit Court, Mobile County, Alabama, was filed by
the former tenants of Saraland against Saraland and Redwing and is also related
to the environmental issues.
The Debtor has filed an Amended Plan of Reorganization which will be considered
by the Bankruptcy Court this summer. The plan provides for resolution of HUD,
EPA and general unsecured claims. The plan also requires the holders of
partnership interests, including the Partnership, to make new capital
contributions to preserve their interests in the reorganized company.
Due to the uncertainty of the outcome of these lawsuits, no loss contingency has
been accrued in the accompanying financial statements. The Local Partnership has
virtually abandoned the property, and is not making payments on its mortgage
loan.
20
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 the cash distributions from
operations of the Local Partnerships in which the Partnership has invested and
net proceeds from sales. These sources are available to meet obligations of the
Partnership. However, the cash distributions received from the Local
Partnerships to date have not been sufficient to meet all such obligations of
the Partnership. Accordingly, certain fees and expense reimbursements owed to
the General Partners amounting to approximately $3,160,000 and $2,662,000, were
accrued and unpaid as of June 25, 2002 and March 25, 2002, respectively. Without
the General Partners' continued allowance of accrual without payment of certain
fees and expense reimbursements, the Partnership will not be in a position to
meet its obligations. The General Partners have continued allowing the accrual
without payment of these amounts but are under no obligation to do so. Net
proceeds and distributions received from future sales of the Partnership's
investments will be used to pay any outstanding amounts due to the General
Partners.
Distributions aggregating approximately $3,046,000 and $2,200,000 were made to
the Partnership for the three months ended June 25, 2002 and 2001, respectively,
of which $2,173,000 and $1,777,000, respectively, were used to pay principal and
interest on the Purchase Money Notes.
During the three months ended June 25, 2002, cash and cash equivalents of the
Partnership and its consolidated Local Partnerships increased approximately
$376,000. This increase was primarily due to cash provided by operating
activities ($2,031,000) and proceeds from sale of properties ($2,946,000) which
exceeded principal payment of mortgage notes payable ($2,246,000), principal
payments of Purchase Money Notes payable ($1,925,000), acquisitions of property
and equipment ($6,000) and an increase in mortgage escrow deposits ($423,000).
Included in the adjustments to reconcile the net income to cash provided by
operating activities are gain on sale of properties ($262,000), forgiveness of
indebtedness income ($5,684,000) and depreciation ($129,000).
For a discussion of Purchase Money Notes Payable, see Note 2 to the financial
statements.
21
For a discussion of the sale of properties in which the Partnership owns direct
and indirect interests, see Note 4 to the financial statements.
Even though sales have resulted in net gains for tax purposes, the net sales
proceeds have not been sufficient to permit any significant distributions to
investors after payment of all or a portion of the Purchase Money Notes.
Therefore, investors should not expect that they will receive distributions
sufficient to pay taxes incurred as a result of such sales.
For a discussion of contingencies affecting certain Local Partnerships, see Note
5 to the financial statements. Since the maximum loss for which the Partnership
would be liable 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 except
that the Partnership would lose its investment in the properties and any
potential proceeds from the sale or refinancing of the properties.
Management is not aware of any trends or events, commitments or uncertainties
which have not been otherwise 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
diversification of the portfolio may not protect against a general downturn in
the national economy.
Results of Operations
- ---------------------
During the periods ended June 25, 2002 and 2001, Bellfort, Fircrest, Cloisters
(Sundown), Conifer 208, West Scenic, Tall Pines, Northwoods III (Windgate),
Oakwood Manor, Ware Manor, Washington Highland, Seymour O'Brien, Autumn Ridge,
Nottingham Woods and Robindale East sold their properties and the related assets
and liabilities and the Partnership sold its Local Partnership Interest in
Greenwood Manor, Henslee Heights, Hereford Manor, Malvern Manor, Southwest,
Southside, University and Hackley (collectively the "Sold Assets"). The results
of operations of the Partnership, as well as the Local Partnerships, remained
fairly consistent during the three months ended June 25, 2002 and 2001,
excluding the Sold Assets, gain on sale of properties, forgiveness of
indebtedness income, administrative and management, interest and depreciation
expense. 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 which were issued when the
Local Partnerships Interests were acquired.
22
Rental income decreased approximately 54% for the three months ended June 25,
2002 as compared to 2001. Excluding the Sold Assets, rental income decreased
approximately 3% for the three months ended June 25, 2002 as compared to 2001,
primarily due to expired leases at two Local Partnerships in anticipation of
rehabilitation projects.
Total expenses, excluding the Sold Assets, administrative and management,
interest and depreciation, remained fairly consistent with a decrease of
approximately 2% for the three months ended June 25, 2002 as compared to 2001.
Administrative and management decreased approximately $341,000 for the three
months ended June 25, 2002 as compared to 2001. Excluding the Sold Assets, such
expense decreased approximately $64,000, primarily due to a decrease in legal
and accounting expenses at the Partnership level.
Interest expense decreased approximately $1,126,000 for the three months ended
June 25, 2002 as compared to 2001. Excluding the Sold Assets, such expense
decreased approximately $240,000, primarily due to a decrease in the prime
interest rate in 2002.
Depreciation decreased approximately $316,000 for the three months ended June
25, 2002 as compared to 2001. Excluding the Sold Assets, such expense increased
approximately $17,000, primarily due to the expiration of a sales contract at
one Local Partnership. The Local Partnership was classified as an asset held for
sale in 2001 and was not depreciated.
Administrative and management-related parties, operating, repairs and
maintenance and taxes and insurance decreased approximately $108,000, $449,000,
$457,000 and $170,000, respectively, for the three months ended June 25, 2002 as
compared to 2001, primarily due to decreases relating to the Sold Assets. Summer
Arms, Cabarrus, Huntley #1, Huntley #2, Nu-Elm, Lexington, Shelton Beach and
Northpointe II are not being depreciated during the period ended June 25, 2002
because they are classified as assets held for sale.
23
Gain on sale of properties and forgiveness of indebtedness income will continue
to fluctuate as a result of the disposition of properties (see Note 4 of the
financial statements).
Item 3. Quantitative and Qualitative Disclosures about Market Risk
None
24
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
This information is incorporated by reference in Note 5 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 - None
(b) Reports on Form 8-K - No reports on Form 8-K were filed during the
quarter.
25
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 ADVANTAGED
PROPERTIES LIMITED PARTNERSHIP
(Registrant)
By: Related Beta Corporation,
a General Partner
Date: July 26, 2002
By:/s/ Alan P. Hirmes
------------------
Alan P. Hirmes,
President
(principal executive and financial officer)
Date: July 26, 2002
By:/s/ Glenn F. Hopps
------------------
Glenn F. Hopps,
Treasurer
(principal accounting officer)
By: ASSISTED HOUSING ASSOCIATES,
INC., a General Partner
Date: July 26, 2002
By:/s/ Alan P. Hirmes
------------------
Alan P. Hirmes,
President
(principal executive and financial officer)
Date: July 26, 2002
By:/s/ Glenn F. Hopps
------------------
Glenn F. Hopps,
Treasurer
(principal accounting officer)
By: CAMBRIDGE AND RELATED ASSOCIATES
LIMITED PARTNERSHIP
By:Related Beta Corporation,
26
Date: July 26, 2002
By:/s/ Alan P. Hirmes
------------------
Alan P. Hirmes,
President
(principal executive and financial officer)
Date: July 26, 2002
By:/s/ Glenn F. Hopps
------------------
Glenn F. Hopps,
Treasurer
(principal accounting officer)