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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 September 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)
============ ============
September 25, March 25,
2002 2002*
------------ ------------
ASSETS
Property and equipment - less
accumulated depreciation of
$4,086,086 and $7,639,553,
respectively $ 4,372,003 $ 5,470,303
Property and equipment -
held for sale - less accumulated
depreciation of $8,234,808 and
$16,326,084, respectively 3,840,275 11,548,976
Cash and cash equivalents 7,641,475 4,967,577
Cash - restricted for tenants'
security deposits 262,398 304,539
Mortgage escrow deposits 3,235,677 4,376,911
Prepaid expenses and other assets 1,047,305 758,693
------------ ------------
Total assets $ 20,399,133 $ 27,426,999
============ ============
2
CAMBRIDGE ADVANTAGED PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(continued)
============ ============
September 25, March 25,
2002 2002*
------------ ------------
LIABILITIES AND PARTNERS' DEFICIT
Liabilities
Mortgage notes payable $ 6,868,123 $ 13,137,483
Purchase Money Notes payable
(Note 2) 5,513,598 9,861,837
Due to selling partners (Note 2) 14,698,908 22,957,424
Deferred revenue on sale of
properties 0 5,905,828
Accounts payable, accrued
expenses and other liabilities 743,348 587,491
Tenants' security deposits payable 219,514 283,920
Due to general partners of
subsidiaries and their affiliates 111,728 114,744
Due to general partners and
affiliates 3,214,194 3,329,471
------------ ------------
Total liabilities 31,369,413 56,178,198
------------ ------------
Minority interest 131,340 222,153
------------ ------------
Commitments and contingencies
(Note 5)
Partners' deficit:
Limited partners (10,453,079) (28,146,094)
General partners (648,541) (827,258)
------------ ------------
Total partners' deficit (11,101,620) (28,973,352)
------------ ------------
Total liabilities and partners' deficit $ 20,399,133 $ 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 Six Months Ended
September 25, September 25,
--------------------------- --------------------------
2002 2001 2002 2001
--------------------------- --------------------------
Rentals, net $ 1,187,916 $ 2,972,306 $ 2,744,759 $ 6,330,360
Other 76,325 227,487 239,816 413,602
Gain on sale
of properties
(Note 4) 1,960,003 2,664,619 2,222,376 1,657,081
----------- ----------- ----------- -----------
Total revenues 3,224,244 5,864,412 5,206,951 8,401,043
----------- ----------- ----------- -----------
Expenses
Administrative
and management 306,180 683,697 645,802 1,364,535
Administrative
and management-
related parties
(Note 3) 354,014 475,193 730,465 959,430
Operating 193,797 558,473 548,000 1,361,591
Repairs and
maintenance 224,929 758,529 549,284 1,539,926
Taxes and insur-
ance 332,381 388,125 572,183 797,783
Interest 331,554 1,225,944 747,215 2,767,487
Depreciation 121,295 320,066 249,841 764,854
----------- ----------- ----------- -----------
Total expenses 1,864,150 4,410,027 4,042,790 9,555,606
----------- ----------- ----------- -----------
Net income (loss)
before minority
interest 1,360,094 1,454,385 1,164,161 (1,154,563)
Minority interest
in (income) loss
of subsidiaries (145,658) 109,450 (80,930) 350,578
----------- ----------- ----------- -----------
Income (loss) before
extra-ordinary item 1,214,436 1,563,835 1,083,231 (803,985)
Extraordinary
item-forgiveness
of indebtedness
income (Note 4) 11,104,825 10,473,627 16,788,501 14,312,983
----------- ----------- ----------- -----------
Net income $12,319,261 $12,037,462 $17,871,732 $13,508,998
=========== =========== =========== ===========
4
CAMBRIDGE ADVANTAGED PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
=========================== ==========================
Three Months Ended Six Months Ended
September 25, September 25,
--------------------------- --------------------------
2002 2001 2002 2001
--------------------------- --------------------------
Limited Partners
Share:
Income (loss) before
extraordinary item $ 1,202,292 $ 1,548,196 $ 1,072,399 $ (795,945)
Extraordinary item 10,993,777 10,368,891 16,620,616 14,169,853
----------- ----------- ----------- -----------
Net income $12,196,069 $11,917,087 $17,693,015 $13,373,908
=========== =========== =========== ===========
Number of units
outstanding 12,074 12,074 12,074 12,074
=========== =========== =========== ===========
Income (loss) before
extraordinary item
per limited part-
ner unit $ 100 $ 128 $ 89 $ (66)
Extraordinary item
per limited part-
ner unit 910 859 1,376 1,174
----------- ----------- ----------- -----------
Net income per limit-
ed partner unit $ 1,010 $ 987 $ 1,465 $ 1,108
=========== =========== =========== ===========
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 17,871,732 17,693,015 178,717
------------ ------------ ------------
Balance -
September 25, 2002 $(11,101,620) $(10,453,079) $ (648,541)
============ ============ ============
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)
==============================
Six Months Ended
September 25,
------------------------------
2002 2001
------------------------------
Cash flows from operating activities:
Net income $ 17,871,732 $ 13,508,998
------------ ------------
Adjustments to reconcile net income
to net cash used in operating activities:
Gain on sale of properties (Note 4) (2,222,376) (1,657,081)
Extraordinary item-forgiveness of
indebtedness income (Note 4) (16,788,501) (14,312,983)
Depreciation 249,841 764,854
Minority interest in income (loss)
of subsidiaries 80,930 (350,578)
(Increase) decrease in cash-restricted
for tenants' security deposits (19,099) 13,016
Increase in mortgage escrow deposits (64,397) (101,299)
Increase in prepaid
expenses and other assets (256,776) (360,301)
Increase in due to selling partners 640,127 2,327,661
Payments of interest to selling partners (25,472) (94,019)
Increase (decrease) in accounts payable,
accrued expenses and other liabilities 508,608 (1,887,603)
Increase in tenants' security
deposits payable 13,844 6,576
Increase in due to general partners of
subsidiaries and their affiliates 0 383
Decrease in due to general partners
of subsidiaries and their affiliates 0 (410)
Increase in due to general
partners and affiliates 9,298 316,687
------------ ------------
Total adjustments (17,873,973) (15,335,097)
------------ ------------
Net cash used in operating
activities (2,241) (1,826,099)
------------ ------------
7
CAMBRIDGE ADVANTAGED PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
(Unaudited)
(continued)
==============================
Six Months Ended
September 25,
------------------------------
2002 2001
------------------------------
Cash flows from investing activities:
Proceeds from sale of properties 10,760,000 11,393,542
Acquisitions of property and equipment (104,607) (208,766)
Increase in mortgage escrow deposits (195,330) (599,971)
------------ ------------
Net cash provided by investing activities 10,460,063 10,584,805
------------ ------------
Cash flows from financing activities:
Principal payment of mortgage
notes payable (5,543,841) (7,446,822)
Principal payments of purchase
money notes payable (2,068,340) (3,270,301)
Decrease in capitalization of
minority interest (171,743) (155,637)
------------ ------------
Net cash used in financing activities (7,783,924) (10,872,760)
------------ ------------
Net increase (decrease) in cash
and cash equivalents 2,673,898 (2,114,054)
Cash and cash equivalents -
beginning of period 4,967,577 4,943,694
------------ ------------
Cash and cash equivalents -
end of period $ 7,641,475 $ 2,829,640
============ ============
Supplemental disclosures of noncash
activities:
Increase in property and equipment -
held for sale reclassified from
property and equipment $ 0 $ 2,163,925
Decrease in property and equipment,
net of accumulated depreciation 0 (2,165)
Increase in deferred revenue on sale
of properties reclassified from
purchase money notes payable
and due to selling partners 0 10,892,510
8
CAMBRIDGE ADVANTAGED PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
(Unaudited)
(continued)
==============================
Six Months Ended
September 25,
------------------------------
2002 2001
------------------------------
Forgiveness of indebtedness income
(Note 4):
Decrease in deferred revenue
from sale of properties (5,683,676) (3,839,356)
Decrease in purchase money
note payable (2,279,899) (1,148,096)
Decrease in due to selling partners (8,824,926) (9,325,531)
Summarized below are the
components of the gain on
sale of property:
Decrease in property and equipment,
and property and equipment-held for
sale 8,661,767 9,008,040
Decrease in cash - restricted for
tenants' security deposits 61,240 79,179
Decrease in mortgage
escrow deposits 1,400,961 801,751
(Increase) decrease in prepaid expenses
and other assets (31,836) 436,814
Decrease in accounts payable, accrued
expenses and other liabilities (574,903) (161,609)
Decrease in tenant's security deposits
payable (78,250) (75,480)
Decrease in due to
general partners and affiliates (124,575) (166,856)
Decrease in due to general partners
of subsidiaries and their affiliates (3,016) 0
Decrease in due to selling partners (48,245) (185,354)
Decrease in mortgage notes payable (725,519) 0
See accompanying notes to consolidated financial statements.
9
CAMBRIDGE ADVANTAGED PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 25, 2002
(Unaudited)
Note 1 - General
The consolidated financial statements for the six months ended September 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
September 25. All subsidiaries have fiscal quarters ending June 30. Accounts of
the subsidiary partnerships have been adjusted for intercompany transactions
from July 1 through September 25. The Partnership's fiscal quarter ends on
September 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 $0 and $0 and $5,000 and $17,000 for the three and six
months ended September 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
September 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 September 25, 2002, the results of operations
for the three and six months ended September 25, 2002 and 2001, and cash flows
for the six months ended September 25, 2002 and 2001, respectively. However, the
operating results for the six months ended September 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 recorded at the Partnership level. As of September 25, 2002, and
March 25, 2002, Purchase Money Notes aggregated approximately $5,442,000 and
$9,757,000, respectively. 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 September 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
September 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 $14,699,000 and
$22,909,000 as of September 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. 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. 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 through November 2002. Further extensions, until such properties are
sold, are currently in the discussion stage. The Partnership is working with the
Local General and Purchase Money Note holders to refinance or sell the
properties. No assurance can be given that management's efforts will be
successful. 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
September 25, 2002
(Unaudited)
Distributions aggregating approximately $3,231,000 and $3,884,000 were made to
the Partnership for the six months ended September 25, 2002 and 2001,
respectively, of which $2,317,000 and $3,355,000, 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
September 25, 2002
(Unaudited)
Note 3 - Related Party Transactions
The costs incurred to related parties for the three and six months ended
September 25, 2002 and 2001 were as follows:
Three Months Ended Six Months Ended
September 25, September 25,
----------------------- -----------------------
2002 2001 2002 2001
----------------------- -----------------------
Partnership
management fees
(a) $267,000 $271,000 $534,000 $542,000
Expense
reimbursement (b) 19,104 49,650 47,725 84,142
Local administrative
fee (c) 10,000 14,000 20,000 28,000
-------- -------- -------- --------
Total general and
administrative-
General Partners 296,104 334,650 601,725 654,142
-------- -------- -------- --------
Property
management fees
incurred to affiliates
of the subsidiary
partnerships' general
partners 57,910 140,543 128,740 305,288
-------- -------- -------- --------
Total general and
administrative-related
parties $354,014 $475,193 $730,465 $959,430
======== ======== ======== ========
(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 $2,918,000 and $2,847,000 were accrued and
unpaid as of September 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.
14
CAMBRIDGE ADVANTAGED PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 25, 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. Expense reimbursements and asset monitoring fees owed
to the General Partners amounting to approximately $40,000 and $95,000 were
accrued and unpaid as of September 25, 2002 and March 25, 2002, respectively.
(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 September
25, 2002, the Partnership has disposed of fifty-four of its sixty-one original
investments. Five additional investments are listed for sale and the Partnership
anticipates that the two 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.
15
CAMBRIDGE ADVANTAGED PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 25, 2002
(Unaudited)
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.
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 September 25, 2002 all of these properties
were sold except for Saraland Apartments, Ltd.
Information Regarding Dispositions.
- -----------------------------------
On February 14, 2002, the property and the related assets and liabilities of
Nottingham Woods Apartments ("Nottingham") 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 the related assets and liabilities of
Robindale East Apartments ("Robindale") were sold to an unaffiliated third party
for $10,000, 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.
16
CAMBRIDGE ADVANTAGED PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 25, 2002
(Unaudited)
On April 30, 2002, the property and the 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 $598,000. The
Partnership used approximately $1,124,000 of proceeds to settle the associated
Purchase Money Note and accrued interest thereon, which had a total outstanding
balance of approximately $3,239,000, resulting in forgiveness of indebtedness
income of approximately $2,115,000.
On April 30, 2002, the property and the related assets and liabilities of
Northpointe II were sold to an unaffiliated third party for $1,666,667 resulting
in a gain of approximately $394,000. The Partnership used approximately $570,000
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, resulting in forgiveness of indebtedness income of approximately
$1,549,000.
On May 9, 2002, the property and the related assets and liabilities of Huntley
#1 were sold to the Local General Partner for approximately $1,750,000,
resulting in a gain of approximately $145,000. No proceeds were used to settle
the Purchase Money Note and accrued interest thereon, resulting in forgiveness
of indebtedness income of approximately $2,645,000.
On May 9, 2002, the property and the 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 $351,000. No proceeds were used to settle
the Purchase Money Note and accrued interest thereon, resulting in forgiveness
of indebtedness income of approximately $1,725,000.
17
CAMBRIDGE ADVANTAGED PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 25, 2002
(Unaudited)
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.
On May 30, 2002, the property and the 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
$425,000. The Partnership used approximately $375,000 of the proceeds to pay off
the Purchase Money Note and accrued interest thereon, which had a total
outstanding balance of approximately $3,445,000, resulting in forgiveness of
indebtedness income of approximately $3,070,000.
On July 31, 2002, an unaffiliated third party agreed to purchase the limited
partnership interests in Cabarrus Arms Associates ("Cabarrus Arms") for an
agreed upon price of $25,000. Such purchase is expected to be finalized in early
2003. No assurance can be given that the closing will actually occur.
On July 31, 2002, an unaffiliated third party agreed to purchase the limited
partnership interests in Hathaway Court Associates ("Hathaway") for an agreed
upon price of $50,000. Such purchase is expected to be finalized in early 2003.
No assurance can be given that the closing will actually occur.
On July 31, 2002, an unaffiliated third party agreed to purchase the limited
partnership interests of Summer Arms Associates ("Summer Arms") for an agreed
upon price of $25,000. Such purchase is expected to be finalized in early 2003.
No assurance can be given that the closing will actually occur.
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.
18
CAMBRIDGE ADVANTAGED PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 25, 2002
(Unaudited)
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.
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.
19
CAMBRIDGE ADVANTAGED PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 25, 2002
(Unaudited)
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.
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 fall. 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 $3,233,000 and $2,662,000, were
accrued and unpaid as of September 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 $3,231,000 and $3,884,000 were made to
the Partnership for the six months ended September 25, 2002 and 2001,
respectively, of which $2,317,000 and $3,355,000, respectively, were used to pay
principal and interest on the Purchase Money Notes.
During the six months ended September 25, 2002, cash and cash equivalents of the
Partnership and its consolidated Local Partnerships increased approximately
$2,674,000. This increase was due to proceeds from the sale of properties
($10,760,000) which exceeded principal payment of mortgage notes payable
($5,544,000), principal payments of Purchase Money Notes payable ($2,068,000),
acquisitions of property and equipment ($105,000), an increase in mortgage
escrow deposits ($195,000) decrease in capitalization of minority interest
($172,000) and cash used in operating activities ($2,000). Included in the
adjustments to reconcile the net income to cash used in operating activities are
gain on sale of properties ($2,222,000), forgiveness of indebtedness income
($16,789,000) and depreciation ($250,000).
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 September 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, Robindale East, Northpointe I, Northpointe II,
Huntley #1, Huntley #2 and Lexington 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 and six months ended September 25, 2002 and
2001, excluding the Sold Assets, gain on sale of properties, forgiveness of
indebtedness income, administrative and management, administrative and
management-related parties, repairs and maintenance, and interest 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 60% and 57% for the three and six months
ended September 25, 2002 as compared to 2001. Excluding the Sold Assets, rental
income increased approximately 5% and 3% for the three and six months ended
September 25, 2002 as compared to 2001, primarily due to rental rate increases.
Other income decreased approximately $151,000 and $174,000 for the three and six
months ended September 25, 2002, as compared to 2001. Excluding the Sold Assets,
other income decreased approximately $25,000 and $37,000 primarily due to a
decrease in interest income in 2002 at the Local Partnerships and Partnership
level as a result of lower interest rates.
Administrative and management decreased approximately $378,000 and $719,000 for
the three and six months ended September 25, 2002 as compared to 2001. Excluding
the Sold Assets, such expense decreased approximately $4,000 and $64,000,
primarily due to a decrease in legal expense at the Partnership level.
Administrative and management-related parties decreased approximately $121,000
and $229,000 for the three and six months ended September 25, 2002 as compared
to 2001. Excluding the Sold Assets, such expense decreased approximately $39,000
and $52,000 primarily due to a decrease in expense allocations at the
Partnership level.
Repairs and maintenance decreased approximately $534,000 and $991,000 for the
three and six months ended September 25, 2002 as compared to 2001. Excluding the
Sold Assets, such expense decreased approximately $63,000 and $39,000 primarily
due to an insurance refund received for prior repairs at one Local Partnership
in 2002.
23
Interest expense decreased approximately $894,000 and $2,020,000 for the three
and six months ended September 25, 2002 as compared to 2001. Excluding the Sold
Assets, such expense decreased approximately $56,000 and $164,000, primarily due
to a decrease in the prime interest rate in 2002.
Operating, taxes and insurance, and depreciation decreased approximately
$365,000 and $814,000, $56,000 and $226,000, and $199,000 and $515,000,
respectively, for the three and six months ended September 25, 2002 as compared
to 2001, primarily due to decreases relating to the Sold Assets. Summer Arms,
Cabarrus, Nu-Elm, Hathaway and Pinewood are not being depreciated during the
period ended September 25, 2002 because they are classified as assets held for
sale.
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
Item 4. Controls and Procedures
The Chief Executive Officer and Chief Financial Officer of Related Beta
Corporation and Assisted Housing, Inc., each of which is a general partner of
Cambridge Advantaged Properties Limited Partnership (the "Partnership"), have
evaluated the Partnership's disclosure controls and procedures relating to the
Partnership's quarterly report on Form 10-Q for the period ending September 25,
2002 as filed with Securities and Exchange Commission and have judged such
controls and procedures to be effective as of September 25, 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.
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
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.
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: October 28, 2002
By: /s/ Alan P. Hirmes
------------------
Alan P. Hirmes,
President
(principal executive and financial officer)
Date: October 28, 2002
By: /s/ Glenn F. Hopps
------------------
Glenn F. Hopps,
Treasurer
(principal accounting officer)
By: ASSISTED HOUSING ASSOCIATES,
INC., a General Partner
Date: October 28, 2002
By: /s/ Alan P. Hirmes
------------------
Alan P. Hirmes,
President
(principal executive and financial officer)
Date: October 28, 2002
By: /s/ Glenn F. Hopps
------------------
Glenn F. Hopps,
Treasurer
(principal accounting officer)
By: CAMBRIDGE AND RELATED ASSOCIATES
LIMITED PARTNERSHIP
By: Related Beta Corporation,
Date: October 28, 2002
By: /s/ Alan P. Hirmes
-------------------
Alan P. Hirmes,
President
(principal executive and financial
officer)
Date: October 28, 2002
By: /s/ Glenn F. Hopps
------------------
Glenn F. Hopps,
Treasurer
(principal accounting officer)
CERTIFICATION
I, Alan P. Hirmes, Chief Executive Officer and Chief Financial Officer of
Related Beta Corporation (general partner of each of the Partnership and
Cambridge and Related Associates, General Partners of the Partnership) and
Assisted Housing Associates, Inc. (general partner of the Partnership), hereby
certify that:
1. I have reviewed this quarterly report on Form 10-Q for the period ending
September 25, 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 we have:
a) designed such disclosure controls and procedures to ensure the
material information relating to the Partnership is made known to us,
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 September 25, 2002 (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. I have disclosed, based on our most recent evaluation, to the Partnership's
auditors and to the board 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 28, 2002
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 Advantaged Properties
Limited Partnership (the "Partnership") on Form 10-Q for the period ending
September 25, 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 Related Beta Corporation (general partner of each of the
Partnership and Cambridge and Related Associates, general partner of the
Partnership) and Assisted Housing Associates, Inc. (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 28, 2002