10-Q 1 a2060056z10-q.txt 10-Q 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 August 31, 2001 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ------ Commission File Number 0-12634 CAMBRIDGE + RELATED HOUSING PROPERTIES LIMITED PARTNERSHIP ------------------------------ (Exact name of registrant as specified in its charter) Massachusetts 13-3161322 ---------------------------------------- ------------------- (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 + RELATED HOUSING PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES Consolidated Balance Sheets (Unaudited)

~~============~~AUGUST ~~============ May~~ 31, ~~February~~FEBRUARY 28, 2001 2001 ------------- ------------- ASSETS Property and equipment, net of accumulated depreciation of $21,~~567~~848,~~022~~265 and $25,049,936, respectively $ 15,~~929~~740,~~910~~114 $ 19,378,524 Property and equipment-held for sale, net of accumulated depreciation of $14,~~544~~600,~~286~~764 and $11,301,311, respectively 11,~~825~~786,~~300~~672 9,186,060 Cash and cash equivalents 1825,~~379,123~~029 2,477,459 Cash - restricted for tenants' security deposits ~~282~~281,~~552~~717 283,593 Mortgage escrow deposits 5,~~725~~814,~~792~~503 5,611,034 Rents receivable 96192,~~549~~502 251,411 Prepaid expenses and other assets ~~451~~973,~~989~~230 547,053 ------------- ------------- Total assets $ 35,~~691~~613,~~215~~767 $ 37,735,134 ============= =============

2 CAMBRIDGE + RELATED HOUSING PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES Consolidated Balance Sheets (Unaudited) (continued)

~~============~~AUGUST ~~============ May~~ 31, ~~February~~FEBRUARY 28, 2001 2001 ------------- ------------- LIABILITIES AND PARTNERS' DEFICIT Liabilities: Mortgage notes payable $ 20,~~530~~401,~~993~~289 $ 21,211,953 Purchase money notes payable (Note 2) 2018,~~394~~893,~~684~~634 20,801,534 Due to selling partners (Note 2) 3028,~~276~~491,~~329~~888 30,460,518 Deferred revenue on sale of properties 3,729,275 0 Accounts payable, accrued expenses and other liabilities 1,~~606~~594,~~743~~264 1,842,834 Tenants' security deposits payable ~~282~~281,~~552~~717 283,593 Due to general partners of subsidiaries and their affiliates 109,282 222,280 Due to general partners and affiliates 12,~~915~~050,~~421~~774 1,894,730 Distribution payable 0 516,300 ------------- ------------- Total liabilities 75,~~116~~552,~~004~~123 77,233,742 ------------- ------------- Minority interest 33,~~610~~763 33,648 ------------- ------------- Commitments and contingencies (Note 5) Partners' deficit: Limited partners (3839,~~615~~123,~~288~~870) (38,688,406) General partners (~~843~~848,~~111~~249) (843,850) ------------- ------------- Total partners' deficit (39,~~458~~972,~~399~~119) (39,532,256) ------------- ------------- Total liabilities and partners' deficit $ 35,~~691~~613,~~215~~767 $ 37,735,134 ============= =============

See Accompanying Notes to Consolidated Financial Statements. 3 CAMBRIDGE + RELATED HOUSING PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES Consolidated Statements of Operations (Unaudited)

~~==============================~~THREE ~~Three~~MONTHS ~~Months~~ENDED ~~Ended~~SIX ~~May~~MONTHS ENDED AUGUST 31, AUGUST 31, ----------------------------------- ---------------------------- 2001 2000 2001 2000 ----------------------------------- ---------------------------- Revenues: Rentals, net $ 23,~~952~~055,~~348~~959 $ 3,~~506~~468,~~286~~883 $ 6,008,307 $ 6,975,169 Other ~~104~~102,~~373~~380 91153,~~557~~229 206,753 244,786 (Loss) gain on sale of properties (Note 4) (6819,~~323~~299) 02,549,047 (87,622) 2,549,047 ------------- ----------- ------------ ----------- Total revenues 23,~~988~~139,~~398~~040 36,~~597~~171,~~843~~159 6,127,438 9,769,002 ------------- ----------- ------------ ----------- Expenses Administrative and management ~~880~~672,~~374~~626 ~~952~~786,~~967~~265 1,553,000 1,739,232 Administrative and management- related parties (Note 3) ~~387~~392,~~293~~980 ~~406~~405,~~189~~899 780,273 812,088 Operating ~~694~~551,~~797~~499 ~~589~~560,~~607~~221 1,246,296 1,149,828 Repairs and maintenance ~~641~~782,~~136~~255 ~~889~~845,~~427~~575 1,423,391 1,735,002 Taxes and insurance ~~351~~339,~~726~~091 ~~445~~371,~~008~~881 690,817 816,889 Interest ~~571~~575,~~949~~756 ~~809~~764,~~081~~567 1,147,705 1,573,648 Depreciation ~~288~~337,~~023~~721 ~~402~~399,~~444~~586 625,744 802,030 ------------- ----------- ------------ ----------- Total expenses 3,~~815~~651,~~298~~928 4,~~494~~133,~~723~~994 7,467,226 8,628,717 ------------- ----------- ------------ ----------- (Loss) income before minority interest ~~and extraordinary item~~ (~~826~~512,~~900~~888) 2,037,165 (~~896~~1,~~880~~339,788) 1,140,285 Minority interest in income of ~~subsidiaries~~subsidi- aries (~~462~~832) (~~662~~27,946) (1,294) (28,608) ------------- ----------- ------------ ----------- (Loss) income before extraordinary item (~~827~~513,~~362~~720) 2,009,219 (~~897~~1,~~542~~341,082) 1,111,677 Extraordinary item- forgiveness of indebtedness income (Note 4) 0 3,545,978 901,219 03,545,978 ------------- ----------- ------------ ----------- Net (loss) income $ (~~loss~~513,720) $ 735,~~857~~555,197 $ (~~897~~439,~~542~~863) $ 4,657,655 ============= =========== ============ ===========

4 CAMBRIDGE + RELATED HOUSING PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES Consolidated Statements of Operations (Unaudited)

~~=============================~~THREE ~~Three~~MONTHS ~~Months~~ENDED ~~Ended~~SIX ~~May~~MONTHS ENDED AUGUST 31, AUGUST 31, ----------------------------------- --------------------------------- 2001 2000 2001 2000 ----------------------------------- --------------------------------- (Loss) income before extraordinary item - limited partners $ (~~819~~508,~~088~~583) $ 1,989,127 $ (~~888~~1,~~567~~327,671) $ 1,100,560 Extraordinary item - limited partners 0 3,510,518 892,~~206~~207 03,510,518 --------------- --------------- ~~Net~~--------------- ~~income~~--------------- Net (loss) income - limited partners $ 73(508,~~118~~583) $ 5,499,645 $ (~~888~~435,~~567~~464) $ 4,611,078 =============== =============== =============== =============== Number of limited ~~Partnership~~partnership units outstanding 10,038 10,038 10,038 10,038 =============== =============== =============== =============== (Loss) income before extraordinary item per limited partnership unit $ (8150.6066) $ 198.16 $ (88132.5226) $ 109.64 Extraordinary item per limited partnership unit 0 349.72 88.88 0349.72 --------------- --------------- ~~Net~~--------------- ~~income~~--------------- Net (loss) income per limited partnership unit $ 7(50.2866) $ (547.88 $ (43.5238) $ 459.36 =============== =============== =============== ===============

See Accompanying Notes to Consolidated Financial Statements. 5 CAMBRIDGE + RELATED HOUSING PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES Consolidated Statement of Partners' Deficit (Unaudited)

~~==========================================~~LIMITED ~~Limited~~GENERAL ~~General~~TOTAL ~~Total~~PARTNERS ~~Partners~~PARTNERS ~~Partners~~ ------------- ------------- ----------~~------~~ Balance- March 1, 2001 $(39,532,256) $(38,688,406) $(843,850) Net ~~income~~loss - ~~three~~six months ended ~~May~~August 31, 2001 73$ (439,~~857~~863) 73$ (435,~~118~~464) ~~739~~$ (4,399) ------------- ------------- ---------- Balance- ~~May~~August 31, 2001 $(39,~~458~~972,~~399~~119) $(3839,~~615~~123,~~288~~870) $(~~843~~848,~~111~~249) ============= ============= ==========

See Accompanying Notes to Consolidated Financial Statements. 6 CAMBRIDGE + RELATED HOUSING PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES Consolidated Statements of Cash Flows Increase (decrease) in Cash and Cash Equivalents (Unaudited)

~~============================~~SIX ~~Three~~MONTHS ~~Months~~ENDED ~~Ended~~AUGUST ~~May~~ 31, ~~----------------------------~~ 2001 2000 ---------------------------- Cash flows from operating activities: Net ~~income~~(loss) income $ 73(439,~~857~~863) $ ~~(897~~4,~~542)~~657,655 ----------- ----------- Adjustments to reconcile net (loss) income to net cash ~~provided~~used byin operating activities: Loss (gain) on sale of properties (Note 4) 6887,~~323~~622 0(2,549,047) Extraordinary item - forgiveness of indebtedness income (Note 4) (901,219) 0(3,545,978) Depreciation ~~288~~625,~~023~~744 ~~402~~802,~~444~~030 Minority interest in income of subsidiaries ~~462~~1,294 ~~662~~28,608 (Increase) decrease in cash-restricted for tenants' security deposits (3,~~929~~094) ~~(161)~~36,158 Decrease (increase) in mortgage escrow deposits 854,~~655~~647 (~~204~~178,~~233~~476) Decrease (increase) in rents receivable ~~154~~58,~~862~~909 ~~9,533 Decrease~~ (~~increase~~67,514) Increase in prepaid expenses and other assets 89(432,~~088~~153) (43103,~~485~~630) Increase in due to selling partners ~~551~~967,~~435~~017 ~~569~~1,~~928~~109,306 (Decrease) ~~increase~~ in accounts payable, accrued expenses and other liabilities (~~326~~360,~~553~~206) 3(331,~~038,424~~877) (Decrease) ~~increase~~ in tenants' security deposits payable (23,~~250~~085) ~~161~~(36,158) Increase in due to general partners of subsidiaries and their affiliates 92,947 27,830 Decrease in due to general partners of subsidiaries and their affiliates (112,998) (~~336~~2,836) Increase (decrease) in due to general partners and affiliates 60196,~~899~~252 (~~238~~339,~~594~~538) ----------- ----------- Total adjustments ~~(32~~271,~~255)~~677 3(5,~~562~~151,~~173~~122) ----------- ----------- Net cash ~~provided~~used byin operating activities 41(168,~~602~~186) 2(493,~~664,631~~467) ----------- -----------

7 CAMBRIDGE + RELATED HOUSING PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES Consolidated Statements of Cash Flows Increase (decrease) in Cash and Cash Equivalents (Unaudited) (continued)

~~====================================~~SIX ~~Three~~MONTHS ~~Months~~ENDED ~~Ended~~AUGUST ~~May~~ 31, ~~--------------------------------------~~ 2001 2000 --------------------------~~------------~~ Cash flows from investing activities: Proceeds from sale of properties 475,000 04,593,628 Acquisitions of property and equipment (~~127~~237,~~741~~038) (78193,~~269~~040) Increase in mortgage escrow deposits (~~148~~282,~~020~~723) (9160,~~618~~838) ------------ ------------ Net cash ~~provided by~~ (used in) provided by investing activities ~~199,239~~ (~~169~~44,~~887~~761) 4,339,750 ------------ ------------ Cash flows from financing activities: Principal payments of mortgage notes payable (~~680~~810,~~960~~664) (~~238~~1,952,474) ~~Increase~~(Decrease) increase in minority interest (~~500~~1,179) ~~(134)~~67,628 Distributions paid to partners (516,300) (1,004,200) Increase in Purchase Money Note extension fees payable 21,450 47,850 Principal payments of Purchase Money Notes payable (110,707) 0 Payments to selling partners (~~141~~22,~~417~~083) (1,693,978) ------------ ------------ Net cash used in financing activities (1,~~339~~439,~~177~~483) (24,~~937~~535,~~264~~174) ------------ ------------ Net decrease in cash and cash equivalents (1,~~098~~652,~~336~~430) (~~442~~688,~~520~~891) ~~------------ ------------~~ Cash and cash equivalents at beginning of period 2,477,459 3,431,673 ------------ ------------ Cash and cash equivalents at end of period $ 1825,~~379,123~~029 $ 2,~~989~~742,~~153~~782 ============ ============

8 CAMBRIDGE + RELATED HOUSING PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES Consolidated Statements of Cash Flows Increase (decrease) in Cash and Cash Equivalents (Unaudited) (continued)

~~===================================~~SIX ~~Three~~MONTHS ~~Months~~ENDED ~~Ended~~AUGUST ~~May~~ 31, ~~-----------------------------------~~ 2001 2000 --------------------------~~---------~~ Supplemental disclosures of noncash activities: Decrease in Purchase Money Notes payable $ (1,496,670) 0 Decrease in due to selling partners (2,234,480) 0 Summarized below are the components of forgiveness of indebtedness on sale of properties Forgiveness of indebtedness Decrease in purchase money notes payable $(~~406~~321,~~850~~973) $(2,131,500) Decrease in due to selling partners (~~494~~579,~~368~~246) (1,414,478) ~~Increase in accounts payable, accrued expenses and other liabilities 0 3,545,978~~ Summarized below are the components of the gain on sale of properties: Decrease in property and equipment, net of accumulated depreciation 649,092 01,986,231 Decrease in cash-restricted for tenants' security deposits 4,970 0 Decrease in mortgage escrow deposits 24,607 0 Decrease in prepaid expenses and other assets 5,976 23,132 Decrease in due to general partners of subsidiaries and their affiliates (92,947) 0 Increase in accounts payable, accrued expenses and other liabilities 90109,~~462~~761 035,218 Increase in tenants' security deposits payable 1,209 0 Decrease in due to ~~general partners of subsidiaries and their affiliates (92,947) 0 Decrease in due to~~ selling partners (99,838) 0 Decrease in due to general partner and their affiliates (40,208) 0

See Accompanying Notes to Consolidated Financial Statements. 9 CAMBRIDGE + RELATED HOUSING PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES Notes to Consolidated Financial Statements August 31, 2001 (Unaudited) NOTE 1 - GENERAL The consolidated financial statements for the six months ended August 31, 2001 and 2000, include the accounts of Cambridge + Related Housing Properties Limited Partnership, a Massachusetts limited partnership (the "Partnership"), and nineteen and twenty-four Subsidiary Partnerships ("Subsidiaries", "Subsidiary Partnerships" or "Local Partnerships"), respectively. 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 one of its general partners (a "General Partner"), which General Partner has a contractual obligation to act on behalf of the Partnership, the right to remove the local general partner of the Subsidiary Partnerships 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 on August 31. All Subsidiaries have fiscal quarters ending June 30. Accounts of Subsidiaries have been adjusted for intercompany transactions from July 1 through August 31. The Partnership's fiscal quarter ends on August 31 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 from 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 for both the three and six months ended August 31, 2001 and 2000, respectively. The Partnership's investment in each Subsidiary is equal to the respective Subsidiary's partners' equity less minority interest capital, if any. 10 CAMBRIDGE + RELATED HOUSING PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES Notes to Consolidated Financial Statements August 31, 2001 (Unaudited) These 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 February 28, 2001. 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 August 31, 2001, the results of operations for the three and six months ended August 31, 2001 and 2000 and cash flows for the six months ended August 31, 2001 and 2000. However, the operating results for the six months ended August 31, 2001 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 February 28, 2001 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 Partnership to which the Purchase Money Note relates. 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 by the operations, as defined) is applied first to accrued interest and then to current interest thereon. As of August 31, 2001, the maturity dates of the Purchase Money Notes associated with the remaining properties owned by the Subsidiary Partnerships were extended for three to five years (see below). Any interest not paid currently accrues, without further interest thereon, through the extended due date of each of the Purchase Money Notes, respectively. Continued accrual of such interest without payment would impact the effective rate of the Purchase Money Notes, specifically by reduc- 11 CAMBRIDGE + RELATED HOUSING PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES Notes to Consolidated Financial Statements August 31, 2001 (Unaudited) ing the current effective interest rate of 9%. The exact effect is not determinable inasmuch as it depends on the actual future interest payments and ultimate repayment dates of the Purchase Money Notes. Unpaid interest of $28,401,298 and $30,335,470 at August 31, 2001 and February 28, 2001, respectively, has been accrued and is included in the caption due to selling partners. 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 from the sale or refinancing of the apartment complex, or in some cases the Local Partnerships interest ("Local Partnership Interest") to which the Purchase Money Note relates. The Partnership was permitted to extend the term of the Purchase Money Notes for up to five additional years. In connection with such extensions, the Partnership incurred an extension fee of 1/2% per annum of the outstanding principal balance of the Purchase Money Notes. The Partnership sent an extension notice to each Purchase Money Note holder that pursuant to the Purchase Money Note, it was extending the maturity. However in certain cases, the Partnership did not pay the extension fee at that time, deferring such payment to the future. Extension fees in the amount of $883,670 were incurred by the Partnership through August 31, 2001. All Purchase Money Notes are now extended with maturity dates ranging from October 2001 to December 2004. Extension fees of $391,917 were accrued and added to the Purchase Money Notes balance. The Partnership expects that upon final maturity it will be required to refinance or sell its investments in the Local Partnerships in order to pay the Purchase Money Notes and accrued interest thereon. 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. Management is working with the Purchase Money Note holders to restructure and/or refinance the Purchase Money Notes. No assurance can be given that management's efforts will be successful. The Purchase Money Notes are without personal recourse to either the Partnership or any of its partners and the sellers' recourse, in the event of non-payment, would be to foreclose on the Partnership's interests in the respective Local Partnerships. 12 CAMBRIDGE + RELATED HOUSING PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES Notes to Consolidated Financial Statements August 31, 2001 (Unaudited) During the six months ended August 31, 2001 and 2000, the Partnership received cash flow distributions aggregating $66,320 and $43,500, respectively, of which $22,083 and $26,100 was used to pay interest on the Purchase Money Notes. In addition, the Partnership received a distribution of proceeds from the sales of Local Partnerships aggregating $163,458 and $3,572,961 of which $110,707 and $1,667,877 was used to pay principal and interest on the Purchase Money Notes during the six months ended August 31, 2001 and 2000, respectively. NOTE 3 - RELATED PARTY TRANSACTIONS The costs incurred to related parties for the three and six months ended August 31, 2001 and 2000 were as follows:

~~==================================~~THREE ~~Three~~MONTHS ~~Months~~ENDED ~~Ended~~SIX ~~May~~MONTHS ENDED AUGUST 31, AUGUST 31 -------------------------- ---------------------- 2001 2000 2001 2000 -------------------------- ---------------------- Partnership management fees (a) $241,~~953~~954 $241,~~710~~709 $483,907 $483,419 Expense reimbursement (b) 3047,~~458~~568 2522,~~455~~923 78,026 48,378 Property management fees incurred to affiliates of the General Partners (c) 0 2833,~~298~~458 0 61,756 Local administrative fee (d) 4,000 54,000 8,000 9,000 -------- -------- -------- -------- Total general and administrative- General Partners ~~276~~293,~~411~~522 ~~300~~302,~~463~~090 569,933 602,553 -------- -------- -------- -------- Property management fees incurred to affiliates of the Subsidiary Partnerships' general partners (c) ~~110~~99,~~882~~458 98103,~~121~~809 210,340 201,930 Subsidiary Partnerships' general partners incentive fee (e) 0 0 0 7,605 -------- -------- -------- -------- Total general and administrative-related parties $~~387~~392,~~293~~980 $~~406~~405,~~189~~899 $780,273 $812,088 ======== ======== ======== ========

13 CAMBRIDGE + RELATED HOUSING PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES Notes to Consolidated Financial Statements August 31, 2001 (Unaudited) (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 $1,376,000 and $1,092,000 were accrued and unpaid as of August 31, 2001 and February 28, 2001, respectively. The General Partners' fees are being paid currently, other than the Partnership Management fees that were accrued and continue to be deferred. (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. (c) Property management fees incurred by Local Partnerships to affiliates of the Local Partnerships amounted to $99,458 and $137,262, and $210,340 and $263,686 for the three and six months ended August 31, 2001 and 2000, respectively. Of such fees $0 and $33,458, and $0 and $61,756, respectively, were incurred to a company which is also an affiliate of the General Partners. (d) Cambridge/Related Housing Associates Limited Partnership, the special limited partner of each of the Subsidiary Partnerships, owning .01%, is entitled to receive a local administrative fee of up to $2,500 per year from each Subsidiary Partnership. (e) The Partnership had entered into an agreement with the local general partner of Parktowne Ltd. and Westwood Apartment Company Ltd., which provided for an annual incentive fee based on cash flow distributed from the respective properties. Such fee amounted to $7,605 for the six months ended August 31, 2000. Subsequently, on September 14, 2000 these two Local Partnership were sold. 14 CAMBRIDGE + RELATED HOUSING PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES Notes to Consolidated Financial Statements August 31, 2001 (Unaudited) NOTE 4 - SALE OF PROPERTIES GENERAL The Partnership is currently in the process of winding up its operations and disposing of its investments. It is anticipated that this process will take a number of years. As of August 31, 2001, the Partnership has disposed of twenty-seven of its forty-four original investments. Five additional investments are listed for sale and the Partnership anticipates that the twelve remaining investments will be listed for sale by December 31, 2002. There may be no assurance as to when the Partnership will dispose of its last remaining investments or the amount of proceeds which may be received. However, based on the historical operating results of the Local Partnerships and the current economic conditions including changes in tax laws, it is unlikely that the proceeds from such sales received by the Partnership will be sufficient to return to the limited partners their original investment. On March 16, 2001, the property and the related assets and liabilities of Char-Mur Apartments ("Char-Mur") were sold to an unaffiliated third party purchaser for $475,000, resulting in a loss in the amount of approximately $68,000. The Partnership used approximately $85,000 to settle the associated Purchase Money Note and accrued interest thereon, which had a total outstanding balance of approximately $986,000, resulting in forgiveness of indebtedness income of approximately $901,000. On April 19, 2001, San Diego - Logan Square Gardens Company ("Logan Square") entered into a purchase and sale agreement to sell the property and the related assets and liabilities to an unaffiliated third party purchaser for a purchase price of $9,500,000. The closing is expected to occur in November 2001. No assurances can be given that the sale will actually occur. On August 31, 2001, the property and the related assets and liabilities of Rolling Meadows Apartments, Ltd. ("Rolling Meadows") were sold to an unaffiliated third party purchaser for $1,925,000 resulting in a loss in the amount of approximately $792,000. The Partnership used approximately $26,000 to settle the associated Purchase Money Note and accrued interest thereon, which had a total outstanding balance of approximately $3,757,000 resulting in forgiveness of indebtedness 15 CAMBRIDGE + RELATED HOUSING PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES Notes to Consolidated Financial Statements August 31, 2001 (Unaudited) income of approximately $3,731,000 which will be recognized in the November 30, 2001 10Q. NOTE 5 - COMMITMENTS AND CONTINGENCIES The following disclosure includes changes and/or additions to disclosures regarding the Subsidiary Partnership which were included in the Partnership's Annual Report on Form 10-K for the period ended February 28, 2001. a) Purchase Money Notes As part of the purchase price of its investment in the Local Partnerships, the Partnership issued approximately $61,029,000 of Purchase Money Notes. As of August 31, 2001, unpaid accrued interest on the Purchase Money Notes amounted to approximately $28,401,298. The principal of and all accrued interest on the Purchase Money Notes is due at maturity. The Partnership was permitted to extend the term of the Purchase Money Notes for up to five additional years. In connection with such extensions, the Partnership incurred an extension fee of 1/2% per annum of the outstanding principal balance of the assets. The Partnership sent an extension notice to each Purchase Money Note holder that pursuant to the note, it was extending the maturity. However in certain cases, the Partnership did not pay the extension fee at that time, deferring such payment to the future. The holders of the Note could argue that until the fee is paid the Note has not been properly extended. 16 CAMBRIDGE + RELATED HOUSING PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES Notes to Consolidated Financial Statements August 31, 2001 (Unaudited) b) Legal Proceedings On or about July 24, 2000, three partnerships controlled by one of the Purchase Money Note holders commenced litigation in the Circuit Court of Jefferson County, Alabama against the Partnership, captioned as follows: MOBILE EASTWYCK III APARTMENTS, LTD. V. SHEARSON + RELATED HOUSING PROPERTIES LIMITED PARTNERSHIP ET AL., CV-00-4431, MOBILE APARTMENTS, LTD. V. SHEARSON + RELATED HOUSING PROPERTIES LIMITED PARTNERSHIP ET AL., CV-00-4432, and ZEIGLER PARTNERS LTD. V. SHEARSON + RELATED HOUSING PROPERTIES LIMITED PARTNERSHIP ET AL., CV-00-4433 (collectively, the "Litigations"). The Litigation commenced by Mobile Apartments, Ltd. has been voluntarily dismissed by the plaintiff in favor of an interpleader action described below. The plaintiffs in each of the Litigations sold their interest in certain limited partnerships to the Partnership. These limited partnerships own low-income housing properties located in Mobile, Alabama (the "Alabama Limited Partnerships"). The Complaints allege that, as payment for a portion of the purchase price of the Partnership's acquired interest in the Alabama Limited Partnership, the plaintiffs took a Purchase Money Note from the Partnership, and the Partnership pledged its right title and interest in the Alabama Limited Partnerships as security for the Purchase Money Notes. The Complaints allege that the Partnership has defaulted in its obligations under the Purchase Money Notes, and that the plaintiffs are entitled to sell the Partnership's interests in the Alabama Limited Partnerships and the underlying property to pay off the Purchase Money Notes. The Partnership has vigorously contested the Litigations, claiming that, among other things, the Purchase Money Notes are not in default, that the Purchase Money Note holder has breached his fiduciary duty to the Partnership as general partner of the Alabama Limited Partnerships, and that the Purchase Money Note holder assigned a 25% interest of the Purchase Money Notes to third parties who are not joined in the Litigations. While the Partnership intends to continue to contest the Litigations, because the Litigations are in their earliest stages and no discovery has taken place, management is unable at this time to evaluate the likelihood of an unfavorable outcome or whether the resulting liability, if any, would have a material adverse effect on the financial condition of the Partnership. 17 CAMBRIDGE + RELATED HOUSING PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES Notes to Consolidated Financial Statements August 31, 2001 (Unaudited) In or about March 2001, Wallace, Jordan, Ratliff, and Brandt, L.L.C. ("Wallace Jordan"), as Escrow Agents, commenced an interpleader action in the Circuit Court of Jefferson County, Alabama entitled WALLACE, JORDAN, RATLIFF, AND BRANDT, LLC V. SHEARSON + RELATED HOUSING PROPERTIES LIMITED PARTNERSHIP ET AL., CV-01-001155 (the "Interpleader Action"). The Interpleader Action seeks to resolve competing claims to $125,000 which is held in escrow by Wallace Jordan following the sale of the property known as Southbay, which was owned by the Local Partnership known as New Jersey, Ltd. The Partnership does not expect to have any liability as a result of the Interpleader Action because the action seeks only to resolve the claims of $125,000 paid into Court; however, because the Interpleader Action is in its earliest stages and no discovery has taken place, management is unable at this time to evaluate the likelihood of an unfavorable outcome or whether such an outcome would have a material adverse effect on the financial condition of the Partnership. The Partnership and the plaintiffs have recently engaged in meaningful settlement negotiations of the litigations and the interpleader which the Partnership is hopeful will lead to a resolution of these litigations. NOTE 6 - SUBSEQUENT EVENT On September 4, 2001, Albuquerque - Lafayette Square Apartments, Ltd. ("Lafayette Square") entered into a purchase and sale agreement to sell the property and the related assets and liabilities to an unaffiliated third party purchaser for a purchase price of $7,000,000. The closing is expected to occur in May 2002. No assurances can be given that the sale will actually occur. 18 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 (i) cash distributions from operations (ii) cash distributions from sales of the Local Partnerships in which the Partnership has invested, (iii) interest earned on funds and (iv) cash in working capital reserves. All of these sources of funds are available to meet the obligations of the Partnership. During the six months ended August 31, 2001 and 2000, the Partnership received cash flow distributions aggregating $66,320 and $43,500, respectively, of which $22,083 and $26,100, respectively, was used to pay interest on the Purchase Money Notes. In addition, the Partnership received a distribution of proceeds from the sales of Local Partnerships aggregating $163,458 and $3,572,961, of which $110,707 and $1,667,877 was used to pay principal and interest on the Purchase Money Notes during the six months ended August 31, 2001 and 2000, respectively. During the six months ended August 31, 2001, cash and cash equivalents of the Partnership and its nineteen consolidated Local Partnerships decreased approximately ($1,652,000). This decrease was primarily due to principal payments of mortgage notes payable ($811,000), an increase in mortgage escrow deposits ($283,000), distributions paid to partners ($516,000), payments to selling partners ($22,000), acquisitions of property and equipment ($237,000), principal payments of Purchase Money Notes payable ($111,000) and cash used in operating activities ($168,000) which exceeded proceeds from the sale of properties ($475,000) and an increase in Purchase Money Note extension fees payable ($21,000). Included in the adjustments to reconcile the net loss to cash used in operating activities is loss on sale of properties ($88,000), forgiveness of indebtedness income ($901,000) and depreciation ($626,000). The Partnership has a working capital reserve of approximately $303,000 at August 31, 2001. The working capital reserve is temporarily invested in money market accounts which can be easily liquidated to meet obligations as they arise. The General Partners believe that the Partnership's reserves, net proceeds from future sales and future cash flow distributions will be adequate for its operating needs, and plan to continue investing available reserves in short term investments. In March 2001 and 2000, a distribution 19 of approximately $511,000 and $994,000 and $5,000 and $10,000 was paid to the limited partners and General Partners, respectively, from net proceeds from the sale of properties. None of the total distributions of approximately $516,000 and $1,004,000 for the six months ended August 31, 2001 and 2000, was deemed to be a return of capital in accordance with GAAP. Partnership management fees owed to the General Partners amounting to approximately $1,376,000 and $1,092,000 were accrued and unpaid as of August 31, 2001 and February 28, 2001, respectively. The General Partners' fees are being paid currently, other than the Partnership management fees that were accrued and continue to be deferred. The Local Partnerships that receive government assistance are subject to low-income use restrictions which limit the owners' ability to sell or refinance the properties. In order to maintain the existing inventory of affordable housing, Congress passed a series of related acts including the Emergency Low Income Preservation Act of 1987, the Low-Income Housing Preservation and Resident Homeownership Act of 1990 (together the "Preservation Acts") and the Housing Opportunity Program Extension Act of 1996 (the "1996 Act"). In exchange for maintaining the aforementioned use restrictions, the Preservation Acts provided financial incentives for owners of government assisted properties. The 1996 Act provided financial assistance by funding the sale of such properties to not-for-profit owners and also restores the owners ability to prepay their U.S. Department of Housing and Urban Development ("HUD") mortgage and convert the property to condominiums or market-rate rental housing. Local general partners had filed for incentives under the Preservation Acts or the 1996 Act for the following local partnerships: San Diego - Logan Square Gardens Company, Albuquerque - Lafayette Square Apts. Ltd., Westgate Associates Limited, Riverside Gardens Limited Partnership, Pacific Palms, Canton Commons Associates, Rosewood Manor Associates, Bethany Glen Associates and South Munjoy Associates, Limited. As of August 31, 2001, all of these Local Partnerships were sold except for Logan Square and Lafayette Square. The Preservation Acts have subsequently been repealed or revoked. The Local General Partner of the Logan Square and Lafayette Square Properties is currently negotiating purchase and sale contracts. For a discussion of Purchase Money Notes payable see Note 2 to the financial statements. 20 For a discussion of the Partnership's sale of properties see Note 4 to the financial statements. For a discussion of contingencies affecting certain Local Partnerships, see Note 5 to the financial statements and Part II, Item 1 of this report. Since the maximum loss the Partnership would be liable for 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 although the Partnership would lose its entire investment in the property and any ability for future appreciation. Management is not aware of any trends or events, commitments or uncertainties which have not otherwise been disclosed that will or are likely to impact liquidity in a material way. Management believes the only impact would be from laws that have not yet been adopted. The portfolio is diversified by the location of the properties around the United States so that if one area of the United States is experiencing downturns in the economy, the remaining properties in the portfolio may be experiencing upswings. However, the geographic diversifications of the portfolio may not protect against a general downturn in the national economy. RESULTS OF OPERATIONS The results of operations of the Partnership, as well as the Local Partnerships, remained fairly consistent during the three and six months ended August 31, 2001 and 2000, excluding Pacific Palms, Westwood Apartments Company, Ltd., Parktowne, Ltd., Westgate Associates, Limited, New Jersey, Ltd., and Char-Mur Apartments which sold their properties (collectively the "Sold Assets"), and operating and taxes and insurance. The Partnership's primary source of income continues to be its portion of the Local Partnerships' operating results. 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 issued when the Local Partnership Interests were acquired. Rental income decreased approximately 12% and 14% for the three and six months ended August 31, 2001, as compared to 2000. Excluding the Sold Assets, rental income increased approximately 21 6% and 5%, primarily due to rental rate increases and decreases in vacancies at several Local Partnerships. Other income decreased approximately $51,000 and $38,000 for the three and six months ended August 31, 2001, as compared to 2000. Excluding the Sold Assets, other income (decreased) increased approximately ($23,000) and $4,000, primarily due to the receipt of insurance refunds on sold properties in 2000 and a decrease in interest earned on smaller cash and cash equivalent balances in 2001 at the Partnership level. Total expenses, excluding the Sold Assets, operating and taxes and insurance, remained fairly consistent with an increase of approximately 5% and 3% for the three and six months ended August 31, 2001, as compared to 2000. Operating (decreased) increased approximately ($9,000) and $96,000 for the three and six months ending August 31, 2001, as compared to 2000. Excluding the Sold Assets, operating increased approximately $93,000 and $268,000, primarily due to an increase in utility costs and usage at eight Local Partnerships. Taxes and insurance decreased approximately $33,000 and $126,000 for the three and six months ended August 31, 2001, as compared to 2000. Excluding the Sold Assets, taxes and insurance increased approximately $42,000 and $37,000, primarily due to an underaccrual in 2000 at one Local Partnership and an increase in property taxes at a second Local Partnership. Administrative and management, repairs and maintenance, interest and depreciation expense decreased approximately $114,000 and $186,000, $63,000 and $312,000, $189,000 and $426,000, and $62,000 and $176,000, respectively, for the three and six months ended August 31, 2001, as compared to 2000, primarily due to decreases relating to the Sold Assets. Excluding the Sold Assets, administrative and management, repairs and maintenance and interest increased (decreased) approximately $42,000 and $133,000, $65,000 and ($24,000) and $15,000 and $16,000, respectively, for the three and six months ended August 31, 2001 as compared to 2000. Excluding the Sold Assets, Buena Vista Manor Apartments, Ltd., Zeigler Boulevard, Ltd., Eastwyck III, Ltd., Rolling Meadows Apartments, Ltd., Wingate Associates, Limited and San Diego-Logan Square Gardens Company for depreciation only, depreciation expense remained fairly consistent with an increase of approximately $14,000 and $6,000 for the three and six months ended August 31, 2001 as compared to 2000. These six 22 properties are not depreciated during the period because they are classified as assets held for sale. Item 3. Quantitative and Qualitative Disclosures about Market Risk None 23 PART II - OTHER INFORMATION Item 1. Legal Proceedings - This information is incorporated by reference in Note 5 to the Financial Statements. Item 2. Changes in Securities and Use of Proceeds - None Item 3. Defaults Upon Senior Securities - None Item 4. Submission of Matters to a Vote of Security Holders - None Item 5. Other information - None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: 27 Financial Data Schedule (filed herewith) (b) Reports on Form 8-K - No reports on Form 8-K were filed during the quarter. 24 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 + RELATED HOUSING PROPERTIES LIMITED PARTNERSHIP (Registrant) By: GOVERNMENT ASSISTED PROPERTIES, INC., a General Partner Date: September 25, 2001 By:/s/ Alan P. Hirmes ------------------ Alan P. Hirmes, President and Principal Executive and Financial Officer Date: September 25, 2001 By:/s/ Glenn F. Hopps ------------------ Glenn F. Hopps, Treasurer and Principal Accounting Officer By: RELATED HOUSING PROGRAMS CORPORATION, a General Partner Date: September 25, 2001 By:/s/ Alan P. Hirmes ------------------ Alan P. Hirmes, President and Principal Executive Financial Officer Date: September 25, 2001 By:/s/ Glenn F. Hopps ------------------ Glenn F. Hopps, Treasurer and Principal Accounting Officer

Filing Compare · CAMBRIDGE RELATED HOUSING PROPERTIES LIMITED PARTNERSHIP