Back to GetFilings.com
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 December 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)
=========== ===========
December 25, March 25,
2002 2002*
----------- -----------
ASSETS
Property and equipment - less
accumulated depreciation of
$3,214,590 and $7,639,553,
respectively $ 3,526,547 $ 5,470,303
Property and equipment -
held for sale - less accumulated
depreciation of $9,155,587 and
$16,326,084, respectively 4,397,105 11,548,976
Cash and cash equivalents 7,125,043 4,967,577
Cash - restricted for tenants'
security deposits 254,436 304,539
Mortgage escrow deposits 3,275,193 4,376,911
Prepaid expenses and other assets 949,127 758,693
----------- -----------
Total assets $19,527,451 $27,426,999
=========== ===========
2
CAMBRIDGE ADVANTAGED PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(continued)
============ ============
December 25, March 25,
2002 2002*
------------ ------------
LIABILITIES AND PARTNERS' DEFICIT
Liabilities
Mortgage notes payable $ 6,203,531 $ 13,137,483
Purchase Money Notes payable
(Note 2) 4,549,492 9,861,837
Due to selling partners (Note 2) 12,102,612 22,957,424
Deferred revenue on sale of
properties 1,610,858 5,905,828
Accounts payable, accrued
expenses and other liabilities 654,212 587,491
Tenants' security deposits payable 218,293 283,920
Due to general partners of
subsidiaries and their affiliates 95,811 114,744
Due to general partners and
affiliates 3,278,545 3,329,471
------------ ------------
Total liabilities 28,713,354 56,178,198
------------ ------------
Minority interest 109,826 222,153
------------ ------------
Commitments and contingencies
(Note 6)
Partners' deficit:
Limited partners (8,665,247) (28,146,094)
General partners (630,482) (827,258)
------------ ------------
Total partners' deficit (9,295,729) (28,973,352)
------------ ------------
Total liabilities and partners' deficit $ 19,527,451 $ 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 Nine Months Ended
December 25, December 25,
---------------------------- ----------------------------
2002 2001 2002 2001
---------------------------- ----------------------------
Revenues:
Rentals, net $ 870,791 $ 2,591,487 $ 3,615,550 $ 8,921,847
Other 53,784 152,337 293,600 565,939
Gain on sale
of properties
(Note 4) 2,605,134 7,436,742 4,827,510 9,093,823
------------ ------------ ------------ ------------
Total revenues 3,529,709 10,180,566 8,736,660 18,581,609
------------ ------------ ------------ ------------
Expenses
Administrative
and management 159,764 502,271 805,566 1,866,806
Administrative
and management-
related parties
(Note 3) 319,544 448,858 1,050,009 1,408,288
Operating 149,684 485,216 697,684 1,846,807
Repairs and
maintenance 257,828 602,519 807,112 2,142,445
Taxes and insur-
ance 112,448 311,758 684,631 1,109,541
Interest 184,890 781,508 932,105 3,548,995
Depreciation 49,872 259,492 299,713 1,024,346
Loss on impairment
of assets (Note 5) 268,523 0 268,523 0
------------ ------------ ------------ ------------
Total expenses 1,502,553 3,391,622 5,545,343 12,947,228
------------ ------------ ------------ ------------
Net income before
minority interest 2,027,156 6,788,944 3,191,317 5,634,381
Minority interest
in loss (income) of
subsidiaries 21,514 (123,311) (59,416) 227,267
------------ ------------ ------------ ------------
Income before
extra-ordinary item 2,048,670 6,665,633 3,131,901 5,861,648
Extraordinary
item-forgiveness
of indebtedness
income (Note 4) (242,779) 1,667,561 16,545,722 15,980,544
------------ ------------ ------------ ------------
Net income $ 1,805,891 $ 8,333,194 $ 19,677,623 $ 21,842,192
============ ============ ============ ============
4
CAMBRIDGE ADVANTAGED PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(continued)
============================ ============================
Three Months Ended Nine Months Ended
December 25, December 25,
---------------------------- ----------------------------
2002 2001 2002 2001
---------------------------- ----------------------------
Limited Partners
Share:
Income before
extraordinary item $ 2,028,183 $ 6,598,977 $ 3,100,582 $ 5,803,032
Extraordinary item (240,351) 1,650,885 16,380,265 15,820,738
------------ ------------ ------------ ------------
Net income $ 1,787,832 $ 8,249,862 $ 19,480,847 $ 21,623,770
============ ============ ============ ============
Number of units
outstanding 12,074 12,074 12,074 12,074
============ ============ ============ ============
Income before
extraordinary item per
limited partner unit $ 168 $ 547 $ 257 $ 481
Extraordinary item
per limited partner
unit (20) 137 1,356 1,310
------------ ------------ ------------ ------------
Net income per limited
partner unit $ 148 $ 684 $ 1,613 $ 1,791
============ ============ ============ ============
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 19,677,623 19,480,847 196,776
------------ ------------ ------------
Balance -
December 25, 2002 $ (9,295,729) $ (8,665,247) $ (630,482)
============ ============ ============
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)
==============================
Nine Months Ended
December 25,
------------------------------
2002 2001
------------------------------
Cash flows from operating activities:
Net income $ 19,677,623 $ 21,842,192
------------ ------------
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Gain on sale of properties (Note 4) (4,827,510) (9,093,823)
Extraordinary item-forgiveness of
indebtedness income (Note 4) (16,545,722) (15,980,544)
Depreciation 299,713 1,024,346
Loss on impairment of assets (Note 5) 268,523 0
Minority interest in income (loss)
of subsidiaries 59,416 (227,267)
(Increase) decrease in cash-restricted
for tenants' security deposits (11,137) 10,481
Increase in mortgage escrow deposits (291,161) (296,468)
Increase in prepaid
expenses and other assets (255,156) (325,882)
Increase in due to selling partners 837,294 3,059,794
Payments of interest to selling partners (1,049,874) (94,019)
Increase (decrease) in accounts payable,
accrued expenses and other liabilities 1,999,022 (1,827,887)
Increase in tenants' security
deposits payable 12,623 3,177
Increase in due to general partners of
subsidiaries and their affiliates 7,867 383
Decrease in due to general partners
of subsidiaries and their affiliates (17,284) (410)
Increase in due to general
partners and affiliates 88,649 514,178
------------ ------------
Total adjustments (19,424,737) (23,233,941)
------------ ------------
Net cash provided by (used in)
operating activities 252,886 (1,391,749)
------------ ------------
7
CAMBRIDGE ADVANTAGED PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
(Unaudited)
(continued)
==============================
Nine Months Ended
December 25,
------------------------------
2002 2001
------------------------------
Cash flows from investing activities:
Proceeds from sale of properties 10,760,000 12,203,542
Acquisitions of property and equipment (134,966) (312,006)
Increase in mortgage escrow deposits (175,527) (823,988)
------------ ------------
Net cash provided by investing activities 10,449,507 11,067,548
------------ ------------
Cash flows from financing activities:
Principal payment of mortgage
notes payable (5,633,717) (8,164,825)
Principal payments of purchase
money notes payable (2,739,467) (3,507,870)
Decrease in capitalization of
minority interest (171,743) (176,923)
------------ ------------
Net cash used in financing activities (8,544,927) (11,849,618)
------------ ------------
Net increase (decrease) in cash
and cash equivalents 2,157,466 (2,173,819)
Cash and cash equivalents -
beginning of period 4,967,577 4,943,694
------------ ------------
Cash and cash equivalents -
end of period $ 7,125,043 $ 2,769,875
============ ============
Supplemental disclosures of noncash
activities:
Increase in property and equipment -
held for sale reclassified from
property and equipment $ 0 $ 5,764,304
Decrease in property and equipment,
net of accumulated depreciation (590) (1,114)
Increase in deferred revenue on sale
of properties reclassified from
purchase money notes payable
and due to selling partners 181,280 5,407,677
8
CAMBRIDGE ADVANTAGED PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
(Unaudited)
(continued)
==============================
Nine Months Ended
December 25,
------------------------------
2002 2001
------------------------------
Forgiveness of indebtedness income
(Note 4):
Decrease in accounts payable, accrued
expenses and other liabilities (5,683,676) (3,839,356)
Decrease in purchase money
note payable (2,037,119) (1,479,557)
Decrease in due to selling partners (8,824,927) (10,661,631)
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 13,005,337
Decrease in cash - restricted for
tenants' security deposits 61,240 141,512
Decrease in mortgage
escrow deposits 1,568,406 1,191,695
(Increase) decrease in prepaid expenses
and other assets (10,278) 486,838
Decrease in purchase money notes
payable (535,759) (2,355,100)
Decrease in due to selling partners (1,636,025) (6,817,633)
Decrease in accounts payable, accrued
expenses and other liabilities (649,285) (224,675)
Decrease in tenant's security deposits
payable (78,250) (127,129)
Decrease in due to
general partners and affiliates (139,575) (166,856)
Decrease in due to general partners
of subsidiaries and their affiliates (9,516) 0
Decrease in mortgage notes payable (1,300,235) 0
See accompanying notes to consolidated financial statements.
9
CAMBRIDGE ADVANTAGED PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 25, 2002
(Unaudited)
Note 1 - General
The consolidated financial statements for the nine months ended December 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 December
25. All subsidiaries have fiscal quarters ending September 30. Accounts of the
subsidiary partnerships have been adjusted for intercompany transactions from
October 1 through December 25. The Partnership's fiscal quarter ends on December
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 $7,000 and $5,000 and $24,000 for the three and
nine months ended December 25, 2002 and 2001, respectively. The Partnership's
investment in each subsidiary is equal to the respective subsidiary's partners'
10
CAMBRIDGE ADVANTAGED PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 25, 2002
(Unaudited)
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.
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 December 25, 2002, the results of operations
for the three and nine months ended December 25, 2002 and 2001 and cash flows
for the nine months ended December 25, 2002 and 2001, respectively. However, the
operating results for the nine months ended December 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 was recorded at the Partnership level. As of December 25, 2002, and
March 25, 2002, Purchase Money Notes aggregated approximately $4,489,000 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
11
CAMBRIDGE ADVANTAGED PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 25, 2002
(Unaudited)
further interest thereon, through maturity as extended (see below). Purchase
Money Notes at December 25, 2002 and March 25, 2002 include $4,336,417 of
interest accrued through August 31, 1989.
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 $12,103,000 and
$22,909,000 as of December 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, $60,934 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 November 2002 that extended the maturity dates of the remaining
12
CAMBRIDGE ADVANTAGED PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 25, 2002
(Unaudited)
Purchase Money Notes through June 2003. 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.
Distributions aggregating approximately $5,083,000 and $4,180,000 were made to
the Partnership for the nine months ended December 25, 2002 and 2001,
respectively, of which $4,013,000 and $3,593,000, 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
December 25, 2002
(Unaudited)
Note 3 - Related Party Transactions
The costs incurred to related parties for the three and nine months ended
December 25, 2002 and 2001 were as follows:
Three Months Ended Nine Months Ended
December 25, December 25,
----------------------- -----------------------
2002 2001 2002 2001
----------------------- -----------------------
Partnership
management fees
(a) $ 267,000 $ 271,000 $ 801,000 $ 813,000
Expense
reimbursement (b) 13,611 28,001 61,336 112,143
Local administrative
fee (c) 10,000 14,000 30,000 42,000
---------- ---------- ---------- ----------
Total general and
administrative-
General Partners 290,611 313,001 892,336 967,143
---------- ---------- ---------- ----------
Property
management fees
incurred to affiliates
of the subsidiary
partnerships' general
partners 28,933 135,857 157,673 441,145
---------- ---------- ---------- ----------
Total general and
administrative-related
parties $ 319,544 $ 448,858 $1,050,009 $1,408,288
========== ========== ========== ==========
(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 $2,998,000 and $2,847,000 were accrued and
unpaid as of December 25, 2002 and March 25, 2002, respectively. Without the
General Partner's continued allowance of accrual with partial payment of the
partnership management fees, the Partnership will not be in a position to meet
its obligations. The General Partners have continued allowing the accrual with
14
CAMBRIDGE ADVANTAGED PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 25, 2002
(Unaudited)
partial payment of the partnership management fees but are under no obligation
to do so. Net proceeds and distributions 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 $17,000 and $95,000 were
accrued and unpaid as of December 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. As
of December 25, 2002, the Partnership has disposed of fifty-six of its sixty-one
original investments. One investment was sold subsequently. It is anticipated
that the remaining four investments will be liquidated sometime during the first
half of 2003 but there can be no assurance as to whether or not the Partnership
will achieve this goal. Furthermore, there can be no assurance that any excess
proceeds will be realized based on the historical operating results of the Local
Partnerships and the current economic conditions. 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
15
CAMBRIDGE ADVANTAGED PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 25, 2002
(Unaudited)
"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 December 25, 2002 all of these properties
were sold or disposed.
Information Regarding Dispositions.
- -----------------------------------
On December 20, 2002, the property and related assets and liabilities of
Pinewood Village ("Pinewood") were sold to an unaffiliated third party for
$2,000,000, resulting in a gain of approximately $764,000. The Partnership will
receive and use approximately $1,453,000 of the proceeds to settle the
associated Purchase Money Note and accrued interest thereon, which had a total
outstanding balance of approximately $1,634,000, which is included in deferred
revenue on sale of properties at December 25, 2002, and will result in
forgiveness of indebtedness income of approximately $181,000 during the quarter
ended March 25, 2003.
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 sometime
during 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 sometime during
2003. No assurance can be given that the closing will actually occur.
On July 23, 2002, the Partnership's interest in Saraland Apartments ("Saraland")
was forfeited pursuant to the First Amended Bankruptcy Plan by order of the
16
CAMBRIDGE ADVANTAGED PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 25, 2002
(Unaudited)
United States Bankruptcy Court in Dallas, TX, resulting in a gain of
approximately $502,000. No proceeds were used to pay off the Purchase Money Note
and accrued interest, which had a total outstanding balance of approximately
$2,124,000 and a $21,000 advance from the Partnership resulting in additional
gain of approximately $2,103,000 (see Note 6).
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 $617,000 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 $2,828,000.
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.
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.
17
CAMBRIDGE ADVANTAGED PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 25, 2002
(Unaudited)
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 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.
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 $249,000 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. In Fiscal Year 2003, additional proceeds of approximately $298,000 were
received, of which approximately $223,000 was paid on the Purchase Money Note,
resulting in net forgiveness of indebtedness income of approximately $2,779,000.
Note 5 - Impairment of Assets
As of September 30, 2002, Summer Arms Apartments ("Summer Arms") entered into a
verbal agreement to sell the property. In accordance with SFAS No. 144, an
impairment loss of approximately $269,000 was recognized during the quarter
ended December 25, 2002. This amount represents the excess of the carrying
amount of the assets over the fair value of the assets as determined by the
sales price. Summer Arms was sold on December 31, 2002. See Note 7 regarding
discussion of the sale.
18
CAMBRIDGE ADVANTAGED PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 25, 2002
(Unaudited)
Note 6 - 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.
Saraland Apartments, Ltd.
- -------------------------
On March 21, 2002, 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 "Bankruptcy Court"). The schedules listed total
assets valued at $924 and liabilities of $12,962,501. The value of the land was
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 had filed an Amended Plan of Reorganization which was confirmed by
the Bankruptcy Court as of July 26, 2002. The plan provided for resolution of
HUD, EPA and general unsecured claims. The plan required the holders of
partnership interests, including the Partnership, to make new capital
19
CAMBRIDGE ADVANTAGED PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 25, 2002
(Unaudited)
contributions in order for them to preserve their interests in the reorganized
company. The Partnership did not make the contribution and thus transferred its
interest in the reorganized entity to the Local General Partner.
Due to the resolution of the bankruptcy proceeding and restructuring of the
Local Partnership, 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 (See Note 4).
Note 7 - Subsequent Event
On December 31, 2002, the Partnership's limited partnership interest in Summer
Arms was sold to an unaffiliated third party for $25,000, resulting in a loss of
approximately $185,000. No proceeds were used to settle the associated Purchase
Money Note and accrued interest thereon, which had a total outstanding balance
of approximately $3,253,000 and will result in a gain on disposition during the
quarter ended March 25, 2003.
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 $3,290,000 and $3,217,000, were
accrued and unpaid as of December 25, 2002 and March 25, 2002, respectively.
Without the General Partners' continued allowance of accrual with partial
payment of the partnership management fees, the Partnership will not be in a
position to meet its obligations. The General Partners have continued allowing
the accrual with partial payment of the partnership management fees, 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 $5,083,000 and $4,180,000 were made to
the Partnership for the nine months ended December 25, 2002 and 2001,
respectively, of which $4,013,000 and $3,593,000, respectively, were used to pay
principal and interest on the Purchase Money Notes.
During the nine months ended December 25, 2002, cash and cash equivalents of the
Partnership and its consolidated Local Partnerships increased approximately
$2,157,000. This increase was due to proceeds from the sale of properties
($10,760,000) and cash provided by operating activities ($253,000) which
exceeded principal payment of mortgage notes payable ($5,634,000), principal
payments of Purchase Money Notes payable ($2,739,000), acquisitions of property
and equipment ($135,000), an increase in mortgage escrow deposits ($175,000) and
a decrease in capitalization of minority interest ($172,000). Included in the
adjustments to reconcile the net income to cash provided by operating activities
are gain on sale of properties ($4,828,000), forgiveness of indebtedness income
($16,546,000), depreciation ($300,000) and loss on impairment of assets
($269,000).
21
For a discussion of Purchase Money Notes Payable, see Note 2 to the financial
statements.
For a discussion of the sale of properties in which the Partnership owns direct
and indirect interests, see Note 4 and Note 7 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
6 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. Due to the sale of properties, the
portfolio is not diversified by the location of the properties around the United
States. The Partnership has five properties remaining and therefore the
Partnership may not be protected against a general downturn in the national
economy.
Results of Operations
- ---------------------
During the periods ended December 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 or transferred its Local
Partnership Interest in Greenwood Manor, Henslee Heights, Hereford Manor,
Malvern Manor, Southwest, Southside, University, Hackley and Saraland
(collectively the "Sold Assets"). The results of operations of the Partnership,
as well as the Local Partnerships, remained fairly consistent during the three
22
and nine months ended December 25, 2002 and 2001, excluding the Sold Assets,
gain on sale of properties, forgiveness of indebtedness income, other income,
administrative and management, repairs and maintenance, interest expense and
loss on impairment of assets. 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.
Rental income decreased approximately 66% and 59% for the three and nine months
ended December 25, 2002 as compared to 2001. Excluding the Sold Assets, rental
income increased approximately 2% and 3% for the three and nine months ended
December 25, 2002 as compared to 2001, primarily due to rental rate increases.
Other income decreased approximately $99,000 and $272,000 for the three and nine
months ended December 25, 2002, as compared to 2001. Excluding the Sold Assets,
other income decreased approximately $37,000 for the nine months ended December
25, 2002 as compared to 2001 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 $343,000 and $1,061,000
for the three and nine months ended December 25, 2002 as compared to 2001.
Excluding the Sold Assets, administrative and management decreased approximately
$54,000 and $118,000, primarily due to a decrease in legal expense at the
Partnership level.
Repairs and maintenance decreased approximately $345,000 and $1,335,000 for the
three and nine months ended December 25, 2002 as compared to 2001. Excluding the
Sold Assets, repairs and maintenance increased approximately $33,000 and
decreased approximately $6,000. The increase for the three months is primarily
due to carpet repairs at one Local Partnership in 2002.
Interest expense decreased approximately $597,000 and $2,617,000 for the three
and nine months ended December 25, 2002 as compared to 2001. Excluding the Sold
Assets, interest expense decreased approximately $59,000 and $208,000, primarily
due to a decrease in the prime interest rate in 2002.
23
Administrative and management-related parties, operating, taxes and insurance
and depreciation decreased approximately $129,000 and $358,000, $336,000 and
$1,149,000, $199,000 and $425,000, and $210,000 and $725,000, respectively, for
the three and nine months ended December 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 December
25, 2002, because they are classified as assets held for sale.
A loss on impairment of assets of approximately $269,000 was recognized for the
three and nine months ended December 25, 2002. This loss represents the excess
of the carrying amount of the assets over the fair value of the assets as
determined by the sales price for Summer Arms.
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"), has
evaluated the Partnership's disclosure controls and procedures relating to the
Partnership's quarterly report on Form 10-Q for the period ending December 25,
2002, as filed with Securities and Exchange Commission and has judged such
controls and procedures to be effective as of December 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 6 to the
financial statements.
Item 2. Changes in Securities and Use of Proceeds - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other information - None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K - No reports on Form 8-K were filed during
the quarter.
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: January 31, 2003
By: /s/ Alan P. Hirmes
------------------
Alan P. Hirmes,
President
(principal executive and financial officer)
Date: January 31, 2003
By: /s/ Glenn F. Hopps
------------------
Glenn F. Hopps,
Treasurer
(principal accounting officer)
By: ASSISTED HOUSING ASSOCIATES,
INC., a General Partner
Date: January 31, 2003
By: /s/ Alan P. Hirmes
------------------
Alan P. Hirmes,
President
(principal executive and financial officer)
Date: January 31, 2003
By: /s/ Glenn F. Hopps
------------------
Glenn F. Hopps,
Treasurer
(principal accounting officer)
By: CAMBRIDGE AND RELATED ASSOCIATES
LIMITED PARTNERSHIP
By: Related Beta Corporation,
Date: January 31, 2003
By: /s/ Alan P. Hirmes
------------------
Alan P. Hirmes,
President
(principal executive and financial
officer)
Date: January 31, 2003
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 December 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 that
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 December 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
my 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.
By: /s/ Alan P. Hirmes
------------------
Alan P. Hirmes
Chief Executive Officer and
Chief Financial Officer
January 31, 2003
Exhibit 99.1
CERTIFICATION PURSUANT TO
18.U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Cambridge Advantaged Properties
Limited Partnership (the "Partnership") on Form 10-Q for the period ending
December 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
January 31, 2003