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, 2003
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
----- -----
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes No X
----- -----
PART I - Financial Information
Item 1. Financial Statements
CAMBRIDGE ADVANTAGED PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
============ ============
December 25, March 25,
2003 2003
------------ ------------
ASSETS
Property and equipment - less
accumulated depreciation of
$3,433,856 and $3,271,756,
respectively $ 3,399,193 $ 3,478,246
Property and equipment -
held for sale - less accumulated
depreciation of $1,145,403 and
$6,870,471, respectively 1,281,256 2,465,394
Cash and cash equivalents 886,964 1,224,252
Cash - restricted for tenants'
security deposits 88,317 127,214
Mortgage escrow deposits 2,357,412 2,754,151
Prepaid expenses and other assets 450,964 534,117
------------ ------------
Total assets $ 8,464,106 $ 10,583,374
============ ============
2
CAMBRIDGE ADVANTAGED PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(continued)
============ ============
December 25, March 25,
2003 2003
------------ ------------
LIABILITIES AND PARTNERS' DEFICIT
Liabilities
Mortgage notes payable $ 2,710,036 $ 5,059,854
Purchase Money Notes payable
(Note 2) 2,009,344 3,635,924
Due to selling partners (Note 2) 5,434,266 9,917,404
Accounts payable, accrued
expenses and other liabilities 160,771 153,890
Tenants' security deposits payable 83,018 119,183
Due to general partners of
subsidiaries and their affiliates 22,391 22,391
Due to general partners and
affiliates 4,052,671 3,511,595
------------ ------------
Total liabilities 14,472,497 22,420,241
------------ ------------
Minority interest (90,415) 59,888
------------ ------------
Commitments and contingencies
(Note 6)
Partners' deficit:
Limited partners (5,321,272) (11,240,263)
General partners (596,704) (656,492)
------------ ------------
Total partners' deficit (5,917,976) (11,896,755)
------------ ------------
Total liabilities and partners' deficit $ 8,464,106 $ 10,583,374
============ ============
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,
---------------------------- ---------------------------
2003 2002 2003 2002
---------------------------- ---------------------------
Revenues:
Rentals, net $ 376,993 $ 870,791 $ 1,797,443 $ 3,615,550
Other 46,674 53,784 154,921 293,600
Gain on sale
of properties
(Note 4) 0 2,605,134 6,903,614 4,827,510
------------ ------------ ------------ ------------
Total revenues 423,667 3,529,709 8,855,978 8,736,660
------------ ------------ ------------ ------------
Expenses
Administrative
and management 66,756 159,764 474,329 805,566
Administrative
and management-
related parties
(Note 3) 329,049 319,544 1,005,370 1,050,009
Operating 61,876 149,684 331,447 697,684
Repairs and
maintenance 87,061 257,828 395,921 807,112
Taxes and insur-
ance 57,872 112,448 304,672 684,631
Interest 77,665 184,890 327,504 932,105
Depreciation 54,839 49,872 162,183 299,713
Loss on impairment
of assets (Note 5) 0 268,523 0 268,523
------------ ------------ ------------ ------------
Total expenses 735,118 1,502,553 3,001,426 5,545,343
------------ ------------ ------------ ------------
Net (loss) income before
minority interest (311,451) 2,027,156 5,854,552 3,191,317
Minority interest
in (income) loss of
subsidiaries (896) 21,514 124,227 (59,416)
------------ ------------ ------------ ------------
(Loss) income before
extra-ordinary item (312,347) 2,048,670 5,978,779 3,131,901
Extraordinary
item-forgiveness
of indebtedness
(loss) income
(Note 4) 0 (242,779) 0 16,545,722
------------ ------------ ------------ ------------
Net (loss) income $ (312,347) $ 1,805,891 $ 5,978,779 $ 19,677,623
============ ============ ============ ============
4
CAMBRIDGE ADVANTAGED PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(continued)
============================ ===========================
Three Months Ended Nine Months Ended
December 25, December 25,
---------------------------- ---------------------------
2003 2002 2003 2002
---------------------------- ---------------------------
Limited Partners
Share:
(Loss) income before
extraordinary item $ (309,224) $ 2,028,183 $ 5,918,991 $ 3,100,582
Extraordinary item 0 (240,351) 0 16,380,265
------------ ------------ ------------ ------------
Net (loss) income $ (309,224) $ 1,787,832 $ 5,918,991 $ 19,480,847
============ ============ ============ ============
Number of units
outstanding 12,074 12,074 12,074 12,074
============ ============ ============ ============
(Loss) income before
extraordinary item per
limited partner unit $ (26) $ 168 $ 490 $ 257
Extraordinary item
per limited partner
unit 0 (20) 0 1,356
------------ ------------ ------------ ------------
Net (loss) income per
limited partner unit $ (26) $ 148 $ 490 $ 1,613
============ ============ ============ ============
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, 2003 $(11,896,755) $(11,240,263) $ (656,492)
Net income 5,978,779 5,918,991 59,788
------------ ------------ ------------
Balance -
December 25, 2003 $ (5,917,976) $ (5,321,272) $ (596,704)
============ ============ ============
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,
------------------------------
2003 2002
------------------------------
Cash flows from operating activities:
Net income $ 5,978,779 $ 19,677,623
------------ ------------
Adjustments to reconcile net income
to net cash (used in) provided by
operating activities:
Gain on sale of properties (Note 4) (6,903,614) (4,827,510)
Extraordinary item-forgiveness of
indebtedness income (Note 4) 0 (16,545,722)
Depreciation 162,183 299,713
Loss on impairment of assets 0 268,523
Minority interest in (loss) income of
subsidiaries (124,227) 59,416
Decrease (increase) in cash-restricted
for tenants' security deposits 119 (11,137)
Increase in mortgage escrow deposits (201,166) (291,161)
Decrease (increase) in prepaid
expenses and other assets 20,859 (255,156)
Increase in due to selling partners 340,295 837,294
Payments of interest to selling
partners 0 (1,049,874)
Increase in accounts payable, accrued
expenses and other liabilities 110,715 1,999,022
Increase in tenants' security deposits
payable 324 12,623
Increase in due to general partners of
subsidiaries and their affiliates 0 7,867
Decrease in due to general partners of
subsidiaries and their affiliates 0 (17,284)
Increase in due to general partners
and their affiliates 605,690 88,649
------------ ------------
Total adjustments (5,988,822) (19,424,737)
------------ ------------
Net cash (used in) provided by
operating activities (10,043) 252,886
------------ ------------
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,
------------------------------
2003 2002
------------------------------
Cash flows from investing activities:
Proceeds from sale of properties 89,212 10,760,000
Acquisitions of property and
equipment (86,024) (134,966)
Increase in mortgage escrow deposits (109,868) (175,527)
------------ ------------
Net cash (used in) provided by
investing activities (106,680) 10,449,507
------------ ------------
Cash flows from financing activities:
Principal payments of mortgage
notes payable (194,489) (5,633,717)
Principal payments of purchase
money notes payable 0 (2,739,467)
Decrease in capitalization of
minority interest (26,076) (171,743)
------------ ------------
Net cash used in financing activities (220,565) (8,544,927)
------------ ------------
Net (decrease) increase in cash
and cash equivalents (337,288) 2,157,466
Cash and cash equivalents -
beginning of period 1,224,252 4,967,577
------------ ------------
Cash and cash equivalents -
end of period $ 886,964 $ 7,125,043
============ ============
Supplemental disclosures of noncash
activities:
Forgiveness of indebtedness income
(Note 4):
Decrease in property and equipment,
net of accumulated depreciation $ 0 $ (590)
Increase in deferred revenue on sale
of properties reclassified from
purchase money notes payable and
due to selling partners 0 181,280
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,
------------------------------
2003 2002
------------------------------
Decrease in accounts payable, accrued
expenses and other liabilities 0 (5,683,676)
Decrease in Purchase Money Notes
payable 0 (2,037,119)
Decrease in due to selling partners 0 (8,824,926)
Summarized below are the components
of the gain on sale of properties:
Decrease in property and equipment,
and property and equipment-held
for sale $ 1,187,032 $ 8,661,767
Decrease in cash - restricted for
tenants' security deposits 38,778 61,240
Decrease in mortgage escrow deposits 707,773 1,568,406
Decrease (increase) in prepaid expenses
and other assets 62,294 (10,278)
Decrease in due to selling partners (4,823,433) (1,636,025)
Decrease in accounts payable,
accrued expenses and other liabilities (103,834) (649,285)
Decrease in tenant's security deposits
payable (36,489) (78,250)
Decrease in mortgage notes payable (2,155,329) (1,300,235)
Decrease in due to general partners
and affiliates (64,614) (139,575)
Decrease in due to general partners
of subsidiaries and their affiliates 0 (9,516)
Decrease in Purchase Money Notes
payable (1,626,580) (535,759)
See accompanying notes to consolidated financial statements.
9
CAMBRIDGE ADVANTAGED PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 25, 2003
(Unaudited)
Note 1 - General
The consolidated financial statements for the nine months ended December 25,
2003 and 2002 include the accounts of Cambridge Advantaged Properties Limited
Partnership (the "Partnership") and four and fourteen 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. As of December 25, 2003, the Partnership has sold
fifty-nine of its sixty-one original investments.
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 U.S. 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 $0 and $5,000 for the three and nine
months ended December 25, 2003 and 2002, respectively. The Partnership's
10
CAMBRIDGE ADVANTAGED PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 25, 2003
(Unaudited)
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.
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, 2003. 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, 2003, the results of operations
for the three and nine months ended December 25, 2003 and 2002 and cash flows
for the nine months ended December 25, 2003 and 2002, respectively. However, the
operating results for the nine months ended December 25, 2003 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, 2003 Annual Report on Form 10-K.
Note 2 - Purchase Money Notes Payable
Nonrecourse Purchase Money Notes (the "Purchase Money Notes") were issued to the
selling partners of the subsidiary partnerships as part of the purchase price,
and are secured only by the Partnership's interest in the subsidiary
partnerships to which the Purchase Money Note relates. As of December 25, 2003
only two Subsidiary partnerships' Purchase Money Notes totaling approximately
$7,444,000, which includes approximately $5,434,000 of interest, remains
outstanding.
Distributions aggregating approximately $0 and $5,083,000 were made to the
Partnership for the nine months ended December 25, 2003 and 2002, respectively,
11
CAMBRIDGE ADVANTAGED PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 25, 2003
(Unaudited)
of which approximately $0 and $4,013,000, respectively, were used to pay
principal and interest on the Purchase Money Notes.
Note 3 - Related Party Transactions
The costs incurred to related parties for the three and nine months ended
December 25, 2003 and 2002 were as follows:
Three Months Ended Nine Months Ended
December 25, December 25,
----------------------- -----------------------
2003 2002 2003 2002
----------------------- -----------------------
Partnership
management fees (a) $ 285,500 $ 267,000 $ 856,500 $ 801,000
Expense
reimbursement (b) 17,095 13,611 69,509 61,336
Local administrative
fee (c) 2,500 10,000 7,500 30,000
---------- ---------- ---------- ----------
Total general and
administrative-
General Partners 305,095 290,611 933,509 892,336
---------- ---------- ---------- ----------
Property
management fees
incurred to affiliates
of the subsidiary
partnerships' general
partners 23,954 28,933 71,861 157,673
---------- ---------- ---------- ----------
Total general and
administrative-related
parties $ 329,049 $ 319,544 $1,005,370 $1,050,009
========== ========== ========== ==========
(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 $3,856,000 and $3,249,000 were accrued and
unpaid as of December 25, 2003 and March 25, 2003, 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
12
CAMBRIDGE ADVANTAGED PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 25, 2003
(Unaudited)
its obligations. The General Partners have continued allowing the accrual
without payment of these amounts but are under no obligation to continue to do
so. Proceeds received from future sales will be used to pay any outstanding
amounts due to the General Partners.
(b) The Partnership reimburses the General Partners and their affiliates for
actual Partnership operating expenses incurred by the General Partners and their
affiliates on the Partnership's behalf. The amount of reimbursement from the
Partnership is limited by the provisions of the partnership agreement. Expense
reimbursements owed to the General Partners amounting to approximately $37,000
and $38,000 were accrued and unpaid as of December 25, 2003 and March 25, 2003,
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, 2003, the Partnership has disposed of fifty-nine of its
sixty-one original investments. One additional investment is listed for sale and
the Partnership anticipates that the two remaining investments will both be
liquidated sometime during 2004. There can be no assurance as to whether or not
the Partnership will achieve this goal. Furthermore, there can be no assurance
that any 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 makes it
more cumbersome for the General Partners to cause a sale of each property.
13
CAMBRIDGE ADVANTAGED PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 25, 2003
(Unaudited)
Information Regarding Dispositions
- ----------------------------------
On June 30, 2003 the Partnership's Limited Partnership Interest in Cabarras Arms
Associates ("Cabarras") was sold to the Purchase Money Note Holder for $30,000,
resulting in a loss in the amount of approximately $92,000. The Partnership was
released from the associated Purchase Money Note and accrued interest thereon,
which had a total outstanding balance of approximately $2,415,000, resulting in
gain on sale of property of such amount.
On June 30, 2003, the Partnership's Limited Partnership Interest in Hathaway
Court Associates ("Hathaway") was sold to the Purchase Money Note Holder for
$60,000, resulting in a gain in the amount of approximately $545,000. The
Partnership was released from the associated Purchase Money Note and accrued
interest thereon, which had a total outstanding balance of approximately
$4,035,000, resulting in gain on sale of property of such amount.
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 $1,030,000, which was
recognized during the quarter ended March 25, 2003. The Partnership used
approximately $1,453,000 of the proceeds to pay off the Purchase Money Note and
accrued interest thereon, which had a total outstanding balance of approximately
$1,634,000, resulting in forgiveness of indebtedness income of approximately
$180,000, which was recognized during the quarter ended March 25, 2003.
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
United States Bankruptcy Court (the "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
an additional gain of approximately $2,103,000. On March 28, 2003, the
Partnership's interest in Saraland was transferred to the United States
Environmental Protection Agency by order of the Court.
14
CAMBRIDGE ADVANTAGED PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 25, 2003
(Unaudited)
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
$412,000. 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 $158,000. The Partnership used
approximately $1,277,000 of the proceeds to pay off the Purchase Money Note and
accrued interest thereon, which had an outstanding balance of approximately
$2,645,000, resulting in forgiveness of indebtedness income of approximately
$1,368,000.
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 $379,000. The Partnership used
approximately $1,194,000 of the proceeds to pay off the Purchase Money Note and
accrued interest thereon, which had an outstanding balance of approximately
$1,725,000, resulting in forgiveness of indebtedness income of approximately
$531,000.
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.
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
15
CAMBRIDGE ADVANTAGED PROPERTIES
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 25, 2003
(Unaudited)
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 $735,000, resulting in a loss of approximately $527,000. 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 $806,000. 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 of approximately $3,002,000. During the year ended March 25, 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") had 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 represented 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 4 regarding
discussion of the sale.
16
Note 6 - Commitments and Contingencies
Except as described in Note 3, there were no material 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 period ending March 25, 2003.
17
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 $4,045,000 and $3,439,000, were
accrued and unpaid as of December 25, 2003 and March 25, 2003, 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 $0 and $5,083,000 were made to the
Partnership for the nine months ended December 25, 2003 and 2002, respectively,
of which approximately $0 and $4,013,000, respectively, were used to pay
principal and interest on the Purchase Money Notes.
During the nine months ended December 25, 2003, cash and cash equivalents of the
Partnership and its consolidated Local Partnerships decreased approximately
$337,000. This decrease was due to cash used in operating activities ($10,000),
principal payment of mortgage notes payable ($194,000), an increase in mortgage
escrow deposits relating to investing activities ($110,000), acquisition of
property and equipment ($86,000) and a decrease in capitalization of minority
interest ($26,000) which exceeded proceeds from sale of properties ($89,000).
Included in the adjustments to reconcile the net income to cash used in
operating activities are gain of sale of properties ($6,904,000) and
depreciation ($162,000).
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 5 to the financial statements.
18
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.
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 two properties remaining and therefore the
Partnership may not be protected against a general downturn in the national
economy.
Critical Accounting Policies
- ----------------------------
In preparing the consolidated financial statements, management has made
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting periods. Actual results could differ
from those estimates. Set forth below is a summary of the accounting policies
that management believes are critical to the preparation of the consolidated
financial statements. The summary should be read in conjunction with the more
complete discussion of the Company's accounting policies included in Note 2 to
the consolidated financial statements which are include in the Partnership's
annual report on Form 10-K for the year ended March 25, 2003.
a) Property and Equipment
Property and equipment to be held and used are carried at cost which includes
the purchase price, acquisition fees and expenses, and any other costs incurred
in acquiring the properties. The cost of property and equipment is depreciated
over their estimated useful lives using accelerated and straight-line methods.
Expenditures for repairs and maintenance are charged to expense as incurred;
major renewals and betterments are capitalized. At the time property and
equipment are retired or otherwise disposed of, the cost and accumulated
depreciation are eliminated from the assets and accumulated depreciation
accounts and the profit or loss on such disposition is reflected in earnings.
The Partnership complies with Statement of Financial Accounting Standards (SFAS)
No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets". A loss
on impairment of assets is recorded when management estimates amounts
19
recoverable through future operations and sale of the property on an
undiscounted basis are below depreciated cost. At that time property investments
themselves are reduced to estimated fair value (generally using discounted cash
flows) when the property is considered to be impaired and the depreciated cost
exceeds estimated fair value.
b) Income Taxes
No provision has been made for income taxes in the accompanying consolidated
financial statements since such taxes, if any, are the responsibility of the
individual partners. For income tax purposes, the Partnership has a fiscal year
ending December 31.
New Accounting Pronouncements
- -----------------------------
In January 2003, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46").
FIN 46 is applicable immediately for variable interest entities created after
January 31, 2003. For variable interest entities created before February 1,
2003, the provisions of FIN 46 are applicable no later than December 15, 2003.
The Partnership has not created any variable interest entities after January 31,
2003. In December 2003, the FASB redeliberated certain proposed modifications
and revised FIN 46 ("FIN 46 (R)"). The revised provisions are applicable no
later than the first reporting period ending after March 15, 2004. The adoption
of FIN 46 and FIN 46 (R) is not anticipated to have a material impact on the
Partnership's financial reporting and disclosure.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity". SFAS No. 150
changes the accounting for certain financial instruments that, under previous
guidance, could be classified as equity or "mezzanine" equity, by now requiring
those instruments to be classified as liabilities (or assets in some
circumstances) in the Consolidated Balance Sheets. Further, SFAS No. 150
requires disclosure regarding the terms of those instruments and settlement
alternatives. The guidance in SFAS No. 150 generally is effective for all
financial instruments entered into or modified after May 31, 2003, and is
otherwise effective at the beginning of the first interim period beginning after
June 15, 2003. The Partnership has evaluated SFAS No. 150 and determined that it
does not have an impact on the Partnership's financial reporting and
disclosures.
20
Results of Operations
- ---------------------
During the nine months ended December 25, 2003 and the year ended March 25,
2003, Nottingham Woods, Robindale East, Northpointe I, Northpointe II, Huntley
#1, Huntley #2 Lexington and Conifer 317 (Pinewood) sold their properties and
the related assets and liabilities and the Partnership sold or transferred its
Local Partnership Interest in Cabarrus Arms, Hathaway Court, Saraland Apartments
and Summer Arms (collectively the "Sold Assets").
Rental income decreased approximately 57% and 50% for the three and nine months
ended December 25, 2003 as compared to 2002. Excluding the Sold Assets, rental
income increased approximately 12% and 5% for the three and nine months ended
December 25, 2003 as compared to 2002, primarily due to an underaccrual of
subsidized rents receivable in second quarter of 2002 at one local Partnership
and rental rate increases, respectively.
Other income decreased approximately $7,000 and $139,000, respectively, for the
three and nine months ended December 25, 2003 as compared to 2002. Excluding the
Sold Assets, other income increased $8,000 and $11,000 primarily due to
increased cash and cash equivalents and mortgage escrow balances earning
interest at one Local Partnership.
Administrative and management decreased approximately $93,000 and $331,000 for
the three and nine months ended December 25, 2003 as compared to 2002. Excluding
the Sold Assets, administrative and management increased approximately $30,000
and $120,000 primarily due to the write-off of uncollectable receivables at the
Partnership level.
Repairs and maintenance decreased approximately $171,000 and $411,000 for the
three and nine months ended December 25, 2003 as compared to 2002. Excluding the
Sold Assets, repairs and maintenance decreased approximately $29,000 and $1,000
primarily due to carpet replacement at one Local Partnership in 2002.
Taxes and insurance decreased approximately $55,000 and $380,000 for the three
and nine months ended December 25, 2003, as compared to 2002. Excluding the Sold
Assets, taxes and insurance increased approximately $8,000 and $36,000 primarily
due to an increase in liability insurance premiums at the remaining Local
Partnerships.
Interest decreased approximately $107,000 and $605,000 for the three and nine
months ended December 25, 2003 as compared to 2002. Excluding the Sold Assets,
21
interest decreased approximately $18,000 and $44,000 primarily due to decreases
in interest due on smaller mortgage balances at the remaining Local Partnerships
as well as decreases in interest rates relating to the Purchase Money Notes at
the Partnership level.
Operating and depreciation (decreased) increased approximately $(88,000) and
$5,000 and $(366,000) and $(138,000) for the three and nine months ended
December 25, 2003 as compared to 2002, primarily due to decreases relating to
the Sold Assets. Nu-Elm is not being depreciated during the period ended
December 25, 2003, because it is being classified as an asset held for sale.
Gain on sale of properties and forgiveness of indebtedness income will continue
to fluctuate as a result of the disposition of investments in properties (see
Note 4 of the financial statements).
Item 3. Quantitative and Qualitative Disclosures about Market Risk
None
Item 4. Controls and Procedures
Evaluation of Disclosure 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 (as such term is
defined in Rules 13a-15(e) under the Securities Exchange Act of 1934 (the
"Exchange Act")) as of December 25, 2003 (the "Evaluation Date"). Based on such
evaluation, such officer has concluded that, as of the Evaluation Date, the
Partnership's disclosure controls and procedures are effective in alerting him,
on a timely basis, to material information relating to the Partnership required
to be included in the Partnership's reports filed or submitted under the
Exchange Act.
Changes in Internal Control Over Financial Reporting
- ----------------------------------------------------
There has been no significant change in the Partnership's internal control over
financial reporting during the Partnership's fiscal quarter ended December 25,
2003 which has materially affected, or is reasonably likely to materially
affect, such internal control over financial reporting.
22
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - None
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
31.1 Certification Pursuant to Rule 13a-14(a) or Rule 15d-14(a).
31.2 Certification Pursuant to Rule 13a-14(b) or Rule 15d-14(b) and
Section 1350 of Title 18 of the United States Code (18 U.S.C. 1350).
(b) Reports on Form 8-K - No reports on Form 8-K were filed during
the quarter.
23
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: February 3, 2004
By: /s/ Alan P. Hirmes
------------------
Alan P. Hirmes,
President
(principal executive and principal
financial officer)
Date: February 3, 2004
By: /s/ Glenn F. Hopps
------------------
Glenn F. Hopps,
Treasurer
(principal accounting officer)
By: ASSISTED HOUSING ASSOCIATES,
INC., a General Partner
Date: February 3, 2004
By: /s/ Alan P. Hirmes
------------------
Alan P. Hirmes,
President
(principal executive and principal
financial officer)
Date: February 3, 2004
By: /s/ Glenn F. Hopps
------------------
Glenn F. Hopps,
Treasurer
(principal accounting officer)
By: CAMBRIDGE AND RELATED ASSOCIATES
LIMITED PARTNERSHIP
By: Related Beta Corporation,
Date: February 3, 2004
By: /s/ Alan P. Hirmes
------------------
Alan P. Hirmes,
President
(principal executive and principal
financial officer)
Date: February 3, 2004
By: /s/ Glenn F. Hopps
------------------
Glenn F. Hopps,
Treasurer
(principal accounting officer)
Exhibit 31.1
CERTIFICATION PURSUANT
TO RULE 13a-14(a) OR RULE 15d-14(a)
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, 2003 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-15(e) and
15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f)) for the Partnership and I have:
a) designed such disclosure controls and procedures or caused such
disclosure controls and procedures to be designed under my
supervision, to ensure that material information relating to the
Partnership including its consolidated subsidiaries, is made
known to me by others within those entities, particularly during
the period in which this quarterly report was being prepared;
b) designed such internal control over financial reporting, or
caused such internal control over financial reporting to be
designed under my supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with U.S. generally accepted accounting principles;
and
c) evaluated the effectiveness of the Partnership'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
quarterly report based on such evaluation; and
d) disclosed in this quarterly report any change in the
Partnership's internal control over financial reporting that
occurred during the period ending December 25, 2003 that has
materially affected, or is reasonably likely to materially
affect, the Partnership's internal control over financial
reporting; and
5. I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the Partnership's auditors and to
the boards of directors of the General Partners:
a) all significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the Partnership's
ability to record, process, summarize and report financial
information; 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 over financial reporting.
Date: February 3, 2004
----------------
By: /s/ Alan P. Hirmes
------------------
Alan P. Hirmes
Chief Executive Officer and
Chief Financial Officer
Exhibit 32.1
CERTIFICATION PURSUANT TO
RULE 13a-14(b) OR RULE 15d-14(b) AND
SECTION 1350 OF TITLE 18 OF
THE UNITED STATES CODE (18 U.S.C. 1350)
In connection with the Quarterly Report of Cambridge Advantaged Properties
Limited Partnership (the "Partnership") on Form 10-Q for the period ending
December 25, 2003 as filed with the Securities and Exchange Commission on the
date hereof (the "Report"), I, Alan P. Hirmes, Principal Executive Officer and
Principal 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
February 3, 2004