SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 2004
Commission File Number 33-19316
Qualified Housing Partners Limited Partnership
(Exact name of registrant as specified in its charter)
North Carolina 56-1589469
(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification Number)
Suite 220
4700 Homewood Court
Raleigh, North Carolina 27609
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code:
(919)787-4243
Indicate by a 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 such shorter period the registrant has
been required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined by Rule 12b-2 of the Act.). Yes No X
As of June 30, 2004, there were 8,673 units of limited partnership
interests in registrant outstanding, $1,000 per unit, and the aggregate
value of such units was $8,673,000. Of such units, 4,371 having an
aggregate value of $4,371,000, were held by limited partners deemed
by the registrant to be non-affiliates.
PART I
FINANCIAL INFORMATION
QUALIFIED HOUSING PARTNERS LIMITED PARTNERSHIP
Item 1: Financial Statements
- Unaudited Consolidated Balance Sheets
- Unaudited Consolidated Statements of Income and
Expenses (Three Months)
- Unaudited Consolidated Statements of Income and
Expenses (Six Months)
- Unaudited Consolidated Statements of Cash Flows
- Unaudited Notes to Financial Statements
Item 2: Management's Discussion
- Liquidity and Capital Resources
- Results of Operations
- Divestiture
Item 4: Controls and Procedures
The Partnership carried out an evaluation under the supervision
and with the participation of the Partnership's management,
including the Partnership's Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and
operation of the Partnership's disclosure controls and procedures
as of June 30, 2004, pursuant to Securities Exchange Act Rule
13a-15(e). Based upon that evaluation, the Chief Executive
Officer and Chief Financial Officer concluded that the
Partnership's disclosure controls and procedures are effective
in timely alerting them to material information relating to the
Partnership required to be included in the Partnership's
periodic SEC Filings. There were no significant changes in
the Partnership's internal controls or in other factors that
could significantly affect these controls during the most recent
fiscal quarter.
QUALIFIED HOUSING PARTNERS LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
June 30, 2004 and December 31, 2003
(Unaudited)
06/30/04 12/31/03
ASSETS
Rental Properties
Land $1,326,402 $1,326,402
Buildings 34,773,704 34,757,798
Furniture & Fixtures 2,350,550 2,352,006
38,450,656 38,436,206
Accumulated Depreciation (13,934,413) (13,484,052)
24,516,243 24,952,154
Cash 348,305 305,114
Other Assets 1,918,919 1,887,743
TOTAL ASSETS $26,783,467 $27,145,011
LIABILITIES AND PARTNERS' CAPITAL (DEFICET)
Liabilities Applicable to Rental
Properties $24,019,585 $24,070,613
Other Liabilities 1,350,498 1,325,332
Total Liabilities 25,370,083 25,395,945
Minority Interests in Subsidiary
Operating Partnerships 1,694,898 1,698,076
Partners' Capital (Deficet) (281,514) 50,990
TOTAL LIABILITIES AND PARTNERS'
CAPITAL (DEFICET) $26,783,467 $27,145,011
See accompanying notes.
CONSOLIDATED STATEMENTS OF INCOME AND EXPENSES
Three Months Ended June 30, 2004 and 2003
(Unaudited)
04/01/04- 04/01/03-
06/30/04 06/30/03
Revenue
Rent $1,001,220 $1,028,357
Other 17,234 28,136
1,018,454 1,056,493
Rental Expense
Interest 136,738 152,985
Depreciation 228,185 223,090
Repairs and Maintenance 357,572 304,706
Utilities 83,305 92,251
Real Estate Taxes 90,728 86,426
Management Fees 134,052 120,532
Advertising 2,348 1,621
Other 156,692 172,049
1,189,620 1,153,660
Loss from Rental Activities (171,166) (97,167)
Other Income (Expenses)
Interest Income 24 29
Management Fees (13,000) (21,140)
Administrative Costs (11,475) (6,451)
Loss Before Deducting Minority
Interests in Subsidiary Operating
Partnerships (195,617) (124,729)
Minority Interests in Losses of
Subsidiary Operating Partnerships 1,730 977
Net Loss ($193,887) ($123,752)
Net Loss Allocated to General Partners ($1,939) ($1,238)
Net Loss Allocated to Limited Partners (191,948) (122,514)
Net Loss ($193,887) ($123,752)
Net Loss per Limited Partnership Unit ($22.13) ($14.13)
Average Number of Limited Partnership
Units Outstanding 8,673 8,673
See accompanying notes.
CONSOLIDATED STATEMENTS OF INCOME AND EXPENSES
Six Months Ended June 30, 2004 and 2003
(Unaudited)
01/01/04- 01/01/03-
06/30/04 06/30/03
Revenue
Rent $1,939,473 $2,036,664
Other 36,073 48,343
1,975,546 2,085,007
Rental Expense
Interest 275,867 302,413
Depreciation 450,361 444,315
Repairs and Maintenance 582,456 562,569
Utilities 172,693 184,652
Real Estate Taxes 181,883 180,893
Management Fees 247,949 235,704
Advertising 4,533 3,579
Other 350,726 332,106
2,266,468 2,246,231
Loss from Rental Activities (290,922) (161,224)
Other Income (Expenses)
Interest Income 26 43
Management Fees (13,000) (42,281)
Administrative Costs (31,546) (27,718)
Loss Before Deducting Minority
Interests in Subsidiary Operating
Partnerships (335,442) (231,180)
Minority Interests in Losses of
Subsidiary Operating Partnerships 2,938 1,624
Net Loss ($332,504) ($229,556)
Net Loss Allocated to General Partners ($3,325) ($2,296)
Net Loss Allocated to Limited Partners (329,179) (227,260)
Net Loss ($332,504) ($229,556)
Net Loss per Limited Partnership Unit ($37.95) ($26.21)
Average Number of Limited Partnership
Units Outstanding 8,673 8,673
See accompanying notes.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 2004 and 2003
(Unaudited)
01/01/04- 01/01/03-
06/30/04 06/30/03
Cash Flows from Operating Activities
Net Loss ($332,504) ($229,556)
Adjustments to Reconcile Net Loss
To Net Cash Provided by Operating
Activities:
Depreciation 450,361 444,315
Minority Interest in Losses of
Subsidiary Operating Partnerships (2,938) (1,624)
Change in Other Assets and Other
Liabilities 6,010 119,111
Net Cash Provided by Operating Activities 108,909 332,246
Cash Flows from Investing Activities
Purchases of Buildings and Equipment (14,450) (104,367)
Net Cash Used by Investing Activities (14,450) (104,367)
Cash Flows from Financing Activities
Principal Payments on Borrowings (51,028) (249,013)
Return of Equity to Minority Investors (240) (143)
Net Cash Used by Financing Activities (51,268) (249,156)
Net Increase/(Decrease) in Cash 43,191 (21,277)
Cash Beginning 305,114 211,526
Cash Ending $348,305 $190,249
See accompanying notes.
NOTES TO FINANCIAL STATEMENTS (Unaudited)
Note A - Basis of Presentation
The unaudited consolidated financial statements included
herein have been prepared in accordance with the rules and
regulations of the Securities and Exchange Commission. In
the opinion of the Partnership, all adjustments which are
considered necessary for a fair statement of the results for
the interim periods have been made; all such adjustments are
of a normal recurring nature.
These consolidated financial statements, which do not
include all disclosures included in the annual consolidated
financial statements, should be read in conjunction with
the consolidated financial statements and notes thereto
included in the Partnership's latest annual report on
Form 10-K.
The results of operations for the six months ended
June 30, 2004 are not necessarily indicative of the
results to be achieved for the year.
Note B - Net Loss Per Limited Partnership Unit
Net loss per limited partnership Unit is based upon the net
loss allocated to the limited partners and is computed using
the number of Units outstanding of 8,673.
Note C - Liabilities Applicable to Rental Properties
Liabilities applicable to rental properties at June 30,
2004 consist of $24,019,585 of permanent mortgage loans to
Subsidiary Operating Partnerships.
Note D - Related Party Transactions
The accompanying consolidated financial statements reflect
transactions between Qualified Housing Partners Limited
Partnership ("QHP") and its general partners or affiliates
and between the various Subsidiary Operating Partnerships
and their general partners or affiliates.
Frederick Investment Corporation, the Managing General
Partner of QHP, is a general or special limited partner in
each of the Operating Partnerships. Each Operating
Partnership also has one or more other general partners (the
"Local General Partners"). Following is a summary of
related party transactions for the three months ended
June 30, 2004.
QHP General Local General
Items Paid or Payable Partners Partners
Management Fees $13,000 $120,000
Reimbursable Operating Expenses $4,000 $0
Following is a summary of related party transactions for the
six months ended June 30, 2004
QHP General Local General
Items Paid or Payable Partners Partners
Management Fees $13,000 $248,000
Reimbursable Operating Expenses $16,500 $0
Note E - New Accounting Pronouncements
In January 2003, the FASB issued FASB Interpretation No. (FIN) 46,
Consolidation of Variable Interest Entities. This interpretation
addresses the consolidation by business enterprises of variable
interest entities as defined in the interpretation. In December
2003, the FASB issued a revision to FIN 46 (FIN 46R) to clarify
some of the provisions of FIN 46 and to exempt certain entities
from its requirements. Public entities, other than small business
issuers, must apply FIN 46R no later than the end of the first
reporting period ending after March 15, 2004. FIN 46 is effective
for public entities that have interests in structures that are
commonly referred to as special-purpose entities for periods
ending after December 15, 2003. Adoption of FIN 46R did not have
a material impact on the consolidated financial statements.
MANAGEMENT'S DISCUSSION
Liquidity and Capital Resources
Net of the Subsidiary Operating Partnerships, QHP held
approximately $34,000 in cash and liquid investments at
June 30, 2004. These assets will be held as working
capital.
At June 30, 2004, there were 403 holders of limited
partnership Units.
Results of Operations
The Partnership's loss from rental activities, including
depreciation, during the second quarter of 2004 is $171,166 as
compared with a loss of $97,167 for the same period in 2003.
Second quarter revenue decreased as a result of increased vacancy
loss at Litton, the largest property in QHP's portfolio. Repairs
and maintenance continue to increase as the properties age. In
addition, management fees, approved by USDA - Rural Development,
on a number of properties have also increased.
As of the date of this report, occupancy at the 24-unit property
located in Dimmitt, TX increased slightly from 54% in the first
quarter to 58% in the second quarter of 2004. Local management
is still in discussions with the taxing authority to work out a
payment plan for 2003 taxes. No payments have been made to-date.
Divestiture
In November, 2003, the general partners offered an exit strategy
whereby many investors could divest and receive a one-time tax
benefit. Investors electing that strategy assign their interest to
the general partner, and, by doing so, will (a) receive a one-time
Federal tax benefit of up to 34% of their investment plus any state
tax savings, (b) still receiving cash distributions (if any) for
fifteen years, and (c) stop future reportings of QHP results in
their tax returns. As of the date of this report, 313 investors
owning 4,282 units had elected divestiture. Those investors who
divested in 2003, received their additional tax benefit on their 2003
tax return and will receive no further mailings from the Partnership
unless there are cash distributions. Those who are divesting in 2004
will continue to receive QHP mailings through the remainder of the
year and will receive their final K-1 in March 2005.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
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
4 The Partnership Agreement is Exhibit A
to the Prospectus that is part of the
Registration Statement on Form S-11,
Number 33-19316 and effective May 20,
1988, the final form of which was filed
on May 20, 1988 pursuant to Rule 424(b),
and is incorporated herein by reference.
31.1 Rule 13a-14(a)/15d-14(a) Certification
by Chief Executive Officer
31.2 Rule 13a-14(a)/15d-14(a) Certification
by Chief Financial Officer
32.1 Section 1350 Certification by Chief
Executive Officer
32.2 Section 1350 Certification by Chief
Financial Officer
(b) Reports
No reports on Form 8-K were filed during the
quarter ended June 30, 2004.
SIGNATURES
Under the requirements of the Securities Exchange Act of 1934,
the Bank has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Frederick Investment Corporation
A General Partner
Date: August 13, 2004 By: /s/ George F. Marshall
George F. Marshall, President
(Chief Executive Officer)
Date: August 13, 2004 By: /s/ Jenny C. Petri
Jenny C. Petri, Vice President
(Chief Financial Officer)
Date: August 13, 2004 By: /s/ George F. Marshall
George F. Marshall
A General Partner
EXHIBIT 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
Rule 13a-14(a)/15d-14(a) Certification
I, George F. Marshall, certify that:
I have reviewed this quarterly report on Form 10-Q of Qualified
Housing Partners Limited Partnership, a North Carolina limited
partnership (the "registrant");
Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a
material fact necessary 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
report;
Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present
in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for,
the periods presented in this report;
The registrant's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14(a) and
15d-14(e)) for the registrant and have:
designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material
information relating to the registrant, is made known
to us by others within those entities, particularly
during the period in which this report is being prepared;
evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
disclosed in this report any change in the registrant's
internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter that
has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over
financial reporting;
The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons
performing the equivalent functions):
all significant deficiencies and material weaknesses in
the design or operation of internal controls over financial
reporting which are reasonably likely to adversely affect
the registrant's ability to record, process, summarize and
report financial information; and
any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls over financial
reporting.
Date: August 13, 2004 By: /s/ George F. Marshall
George F. Marshall, General Partner
Chief Executive Officer
EXHIBIT 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
Rule 13a-14(a)/15d-14(a) Certification
I, Jenny C. Petri, certify that:
I have reviewed this quarterly report on Form 10-Q of Qualified
Housing Partners Limited Partnership, a North Carolina limited
partnership (the "registrant");
Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a
material fact necessary 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
report;
Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present
in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for,
the periods presented in this report;
The registrant's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14(a) and
15d-14(a)) for the registrant and have:
designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material
information relating to the registrant, is made known
to us by others within those entities, particularly
during the period in which this report is being prepared;
evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
disclosed in this report any change in the registrant's
internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter that
has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over
financial reporting;
The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons
performing the equivalent functions):
all significant deficiencies and material weaknesses in
the design or operation of internal controls over financial
reporting which are reasonably likely to adversely affect
the registrant's ability to record, process, summarize and
report financial information; and
any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls over financial
reporting.
FREDERICK INVESTMENT CORPORATION
Date: August 13, 2004 By: /s/ Jenny C. Petri
Jenny C. Petri, Vice President
(Chief Financial Officer)
EXHIBIT 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
Pursuant to Section 1350 of the Sarbanes-Oxley Act of 2002
(18 U.S.C.ss.1350)
Pursuant to Section 1350 of the Sarbanes-Oxley Act of 2002
(18 U.S.C.ss.1350), the undersigned, George F. Marshall,
Chief Executive Officer of Qualified Housing Partners
Limited Partnership, a North Carolina limited partnership,
does hereby certify, to his knowledge, that:
The Quarterly Report on Form 10-Q for the period ended
June 30, 2004 of the Partnership (the "Report")
fully complies with the requirements of Section 13(a)
or 15(d) of the Securities Exchange Act of 1934, and
the information contained in the Report fairly presents,
in all material respects, the financial condition and
results of operations of the Partnership.
Date: August 13, 2004 By: /s/ George F. Marshall
George F. Marshall
General Partner
(Chief Executive Officer)
EXHIBIT 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
Pursuant to Section 1350 of the Sarbanes-Oxley Act of 2002
(18 U.S.C.ss.1350)
Pursuant to Section 1350 of the Sarbanes-Oxley Act of 2002
(18 U.S.C.ss.1350), the undersigned, Jenny C. Petri,
Chief Financial Officer of Qualified Housing Partners
Limited Partnership, a North Carolina limited partnership,
does hereby certify, to her knowledge, that:
The Quarterly Report on Form 10-Q for the period ended
June 30, 2004 of the Partnership (the "Report")
fully complies with the requirements of Section 13(a)
or 15(d) of the Securities Exchange Act of 1934, and
the information contained in the Report fairly presents,
in all material respects, the financial condition and
results of operations of the Partnership.
FREDERICK INVESTMENT CORPORATION
Date: August 13, 2004 By: /s/ Jenny C. Petri
Jenny C. Petri, Vice President
(Chief Financial Officer)