ITEM 1 BUSINESS
National Housing Trust Limited Partnership (NHTLP), a Delaware limited partnership (the "Investment Partnership"), was formed on July 9, 1987 to invest in low-income housing developments (the "Properties") throughout the United States through acquisition of a 98.9% limited partnership interest in project specific operating Partnerships ("Operating Partnerships"). NHT, Inc. (The "General Partner" or "NHT, Inc.") serves as a General Partner of the Investment Partnership and holds a .1% - 1.1% General Partner interest in each of the Operating Partnerships. The Investment Partnership and the Operating Partnerships are referred to collectively as the "Partnerships".
NHT, Inc., the sole General Partner of the Investment Partnership, is a Delaware nonprofit corporation which holds a 1% General Partner's interest in the Investment Partnership. Shearson Lehman Hutton Low-Income Housing, Inc., a Delaware corporation, was a Special Limited Partner in the Investment Partnership with a .01% limited partnership interest. Effective December 1, 1997, Shearson Lehman Hutton Low-Income Housing, Inc. sold its .01% limited partnership interest to NHT, Inc.
National Affordable Housing Trust, Inc. (the "Trust"), a Maryland nonprofit corporation, is the sole member of the General Partner. The Trust in turn has three members: National Church Residences, an Ohio nonprofit corporation formed in 1961, Retirement Housing Foundation, a California nonprofit corporation also formed in 1961, and as of March 15, 1996 Volunteers of America, Inc., a New York nonprofit corporation formed in 1896 (the "Trust Members").
The purpose of the Investment Partnership is to acquire, hold, dispose of and otherwise deal with limited partnership interests in Operating Partnerships, which will acquire, maintain, operate and dispose of low-income housing developments. Additionally, the purpose is to engage in any other activities related and incidental to providing current tax benefits to Unit holders, particularly the low income housing tax credit, to preserve and protect Investment Partnership capital, and to cause the Properties to be sold to the highest bidder who intends to preserve the Properties as affordable housing for persons of low income.
On October 7, 1988, the Investment Partnership completed a public offering of 1,014,668 units of limited partnership interest ("Units") at $20.00 per unit, from which the Investment Partnership received gross proceeds of approximately $20,293,000. After paying Shearson Lehman Hutton, Inc. $2,079,000 for fees and costs related to the offering and paying the Trust $965,000 for organizational and offering expenses, the net proceeds of the offering available to invest in Operating Partnerships amounted to $17,249,000.
After completion of the public offering, the Investment Partnership acquired a 98.9% limited partnership interest in 31 Operating Partnerships. The Operating Partnerships acquire, maintain and operate the Properties, each of which qualifies for an allocation of the low-income housing tax credit ("LIHTC") established by the Tax Reform Act of 1986. Each Property is financed and/or operated with one or more forms of rental or financial assistance from the U.S. Department of Housing and Urban Development (HUD), the Rural Development Authority of the U.S. Department of Agriculture (RD), or various state and local housing finance agencies.
The Investment Partnership does not have any employees. The General Partner and/or its affiliates perform services for the Investment Partnership.
The principal executive offices of the Investment Partnership and NHT, Inc. are located at 2335 North Bank Drive, Columbus, Ohio 43220, and their telephone number is (614) 451-9929.
ITEM 2
ITEM 2 PROPERTIES
The Investment Partnership acquired a 98.9% interest in 31 Operating Partnerships since the completion of the public offering in 1988. These Operating Partnerships, and the states in which their respective properties are located, the number of units and occupied units as of December 31, 2000, are listed below:
*These two Operating Partnerships lost their Properties in a December 1997 foreclosure sale; therefore, the year-end occupancy is listed as -0-. These Operating Partnerships were liquidated in 1998, having paid remaining Operating Partnership liabilities out of available Operating Partnership cash. Any cash in excess of liabilities was distributed to the Partnership. No distributions were made to Unit holders. The Springchase Apartments Limited Partnership was dissolved in 1999. The Trinidad Apartments Limited Partnership is expected to be dissolved once all litigation has been resolved.
Note the above Properties are encumbered by substantial debt (See MD&A, Notes 3 and 4, and Schedule III for more details).
ITEM 3
ITEM 3 LEGAL PROCEEDINGS
None.
ITEM 4
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II -------
ITEM 5
ITEM 5 MARKET FOR THE REGISTRANT'S PARTNERSHIP INTERESTS AND RELATED PARTNERSHIP MATTERS
At December 31, 2000, there were approximately 1,100 registered holders of units of limited partnership interest in NHTLP ("Units"). The Units were sold through a public offering underwritten by Shearson Lehman Hutton, Inc. The Units may be transferred only if certain requirements are satisfied; a public market for the purchase and sale of the Units has not developed to date, and no such market is expected to develop. The General Partner does not anticipate that the Investment Partnership will distribute cash to holders of Units in circumstances other than refinancing or disposition of the Investment Partnership's investments in the Operating Partnerships. In addition, in Management's judgment, upon sale of many of the Properties, it is likely that sale proceeds will not be in excess of the debt financing, liabilities of the Operating Partnership, the expenses of sale and liabilities of the Investment Partnership; therefore, it is likely that the sale proceeds will not be sufficient to make any distribution to the Unit holders and, depending on the Unit holders tax situation, the Unit holder may incur tax liability without cash distributions to pay the taxes resulting from those sales.
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF OPERATIONS
General - -------
ITEM 6
ITEM 6 SELECTED FINANCIAL DATA
The following information has been derived from the combined financial statements of the Investment Partnership and its substantially wholly-owned Operating Partnerships.
(1) Includes current maturities of term debt.
(2) Partners' capital at the beginning of 1996 has been restated by three of the Operating Partnerships by a total increase of $296,000 to reflect adjustments relating to an increase in prepaid real estate taxes of $76,000, a decrease in real estate tax payable of $163,000, and a decrease in fee distribution payable of $57,000. There was no impact to the Combined Statement of Operations.
(3) Expenses in 1999, 1998, and 1996 include impairment losses of $3,111,000, $4,100,000 and 2,300,000, respectively, which also reduced Total Assets.
ITEM 7
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General - -------
In 1988, the Investment Partnership raised $20,293,000 in gross proceeds through a public offering. After paying the selling, offering and organization expenses of the offering, the Investment Partnership had $17,249,000 in net proceeds. Of the net proceeds, $260,000 was deposited in the Investment Partnership reserve and $16,989,000 was invested in 31 Operating Partnerships. The 31 Operating Partnerships that were acquired own low-income housing developments eligible for the low-income housing tax credit. One of the Properties was also eligible for the historic rehabilitation tax credit. The 31 acquisitions occurred from October 1988 through March 1990. Two Operating Partnerships were liquidated in 1998, having paid remaining Operating Partnership liabilities out of available Operating Partnership cash. Any cash in excess of liabilities was distributed to the Partnership. No distributions were made to Unit holders. The Springchase Apartments Limited Partnership was dissolved in 1999. The Trinidad Apartments Limited Partnership is expected to be dissolved once all litigation has been resolved.
Each Operating Partnership's Property qualifies for the LIHTC. The LIHTC was created by the 1986 Tax Reform Act and is governed by Section 42 of the Internal Revenue Code. In order for a Property to qualify for the LIHTC, the Property must be utilized as a low-income property for 15 years before it can be sold. The General Partner anticipates the Properties will be sold in the years 2003 through 2008. The Investment Partnership serves as a conduit of the Operating Partnerships' tax credits, passive losses, portfolio income and other tax information to the holders of Units of limited partnership interest in the Investment Partnership (the "Unit holders"). The LIHTCs are allocated to the Unit holders for 10 years after a property has been placed in service and rented up. The tax credits were first allocated to Unit holders in 1988 and are anticipated to continue until 2001. The Investment Partnership elected a special option available in 1990 to accelerate the LIHTC for individuals who had an interest in the Investment Partnership before October 26, 1990. Qualifying Unit holders received a tax credit of 150% of the LIHTC otherwise allowable for the first tax year ending December 31, 1990. The remaining tax credit available for 1991 and subsequent tax years is being reduced on a pro rata basis by the amount of the 1990 increased credit. Non-qualifying Unit holders will receive the original unaccelerated tax credit for the remaining qualifying tax years of their investment.
An analysis of future tax credits anticipated based upon current information and assuming no changes in the Operating Partnerships indicates an estimate of future tax credits for the qualifying Unit holders who received the 1990 acceleration to be as follows: approximately $ .19 of credit per unit in 2001.
In certain respects government-assisted housing complexes differ from conventional housing complexes. These include (a) greater financing leverage than is usual in conventional complexes, (b) review of compliance with construction and other standards and (c) various contingency reserves required in connection with such government assistance programs. Government-assisted housing is also subject to special conditions and risks including, but not limited to, (a) general surveillance by the appropriate governmental assistance agency, which may include the application of rental and other guidelines affecting tenant eligibility, operating costs and rental levels, (b) maintenance of a reserve fund for replacements in an amount paid concurrently with amortization of the mortgage and in addition to payments of principal and interest, restricted such that withdrawals from the fund are subject to the prior approval of the appropriate governmental assistance agency, (c) compliance with the HUD regulations regarding management of the premises, (d) limitations on salability, as contained in regulatory agreements with the appropriate governmental assistance agency, (e) limitations on rent increases, and (f) the uncertain effects of changes in complex rules and regulations governing such government-assisted programs, or changes in the manner in which those regulations are interpreted.
Government assistance payments may be reduced in the event that a project rents less than 100% of its units eligible for rental subsidies to qualified low income tenants. HUD generally elects to reduce subsidies only in the event that occupancy levels for qualified tenants drop below 95% for a period of two years. Finally, HUD commitments are subject to HUD's appropriation of federal funds sufficient to meet its obligations in any given year. At the present time, certain legislative initiatives and governmental budget negotiations could result in a reduction of funds
available for the various HUD-administered housing programs and could also result in new limitations on subsidized rent levels. This in turn could adversely impact the net operating income generated by the Properties.
Real property investments are subject to varying degrees of risk. Revenues and property values may be adversely affected by the general economic climate, the local economic climate and local real estate conditions, including (i) the perceptions of prospective tenants of the attractiveness of the property; (ii) the ability to retain qualified individuals to provide adequate management and maintenance of the property; (iii) the inability to collect rent due to bankruptcy or insolvency of tenants or otherwise; and (iv) increased operating costs. Real estate values may also be adversely affected by such factors as applicable laws, including tax laws, interest rate levels and the availability of financing.
The availability of a pool of qualified and interested buyers for the Investment Partnership's remaining assets is critical to the Investment Partnership's ability to realize the fair market values of such properties at the time of their final dispositions. Demand by buyers of multi-family apartment properties is affected by many factors, including the size, quality, age, condition and location of the subject property, potential environmental liability concerns, the existing debt structure, the liquidity in the debt and equity markets for asset acquisitions, the general level of market interest rates and the general and local economic climates. In addition, because of the government restrictions on rental revenues and the related capital expenditure reserve requirements and cash flow distribution limitations, there are a limited number of potential buyers in the market for government subsidized, low-income housing properties such as the Investment Partnership has invested in. Furthermore, the current uncertainty regarding potential future reductions in the level of federal government assistance for these programs may further restrict the Properties' marketability.
The Properties are subject to substantial debt, in many cases including seller financing on which interest has accrued since the Investment Partnership invested in the Properties. Most of the Properties are dependent upon continuing government subsidies. In addition, many of the Properties are located in market areas that would not support current rents. Finally, most of the Properties are subject to use restrictions that limit their use to low-income housing beyond the end of the tax credit compliance period.
The ownership structure of the Investment Partnership's investments through Operating Partnerships could adversely impact the timing of the Investment Partnership's planned dispositions of its remaining assets and the amount of proceeds received from such dispositions. It is possible that the general partners of the Operating Partnerships could have economic or business interests which are inconsistent with those of the Investment Partnership. Given the limited rights which the Investment Partnership has under the terms of the Operating Partnership agreements, any conflict between the partners could result in delays in completing a sale of the related operating property and could lead to an impairment in the marketability of the property to third parties for purposes of achieving the highest possible sale price.
For these and other reasons, in Management's judgment, upon sale of many of the Properties, it is likely that sale proceeds will not be in excess of the debt financing, liabilities of the Operating Partnership, the expenses of sale and liabilities of the Investment Partnership; therefore, it is likely that the sale proceeds will not be sufficient to make any distribution to the Unit holders and, depending on the Unit holders tax situation, the Unit holder may incur tax liability without cash distributions to pay the taxes resulting from those sales.
Properties - ----------
As of December 31, 2000, average occupancy of the Properties was 95.4%.
The financial performance of the Operating Partnerships will be impacted by the competition from comparable properties in their local market areas. The occupancy levels achievable at the Properties and the rental rates at the non- subsidized Properties are largely a function of supply and demand in the markets. In many markets across the country, development of new multi-family properties has increased significantly over the past two years. Existing apartment properties in such markets could be expected to experience increased vacancy levels, declines in effective rental rates and, in some cases, declines in estimated market values as a result of the increased competition. There are no assurances that these competitive pressures will not adversely affect the operations and/or market values of the
Operating Partnerships in the future and, in particular, subsequent to the expiration of any existing subsidy agreements.
A Detroit, Michigan Property - ----------------------------
During 1998, an impairment loss in the amount of $4,100,000 was recorded with respect to the Research Park project in Detroit, Michigan, which is owned by one of the Operating Partnerships. The loss was recorded under the requirements of Financial Accounting Standards Board Statement No. 121 ("SFAS No. 121"), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". SFAS No. 121 requires impairment losses to be recognized for long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows are not sufficient to recover the assets' carrying amount. Indicators present during 1998 for this Operating Partnership include cash flow from operations that was less than the debt service on the property; however, debt service was paid by allowing trade payables to become larger and more delinquent. Therefore, an assessment was done to evaluate the undiscounted cash flows, which were not sufficient to recover the assets' carrying amount. Based on this assessment, an impairment loss of $4,100,000 was recognized to reduce the carrying amount of the property to its estimated fair value of $4,300,000. During 1999, the property continued to have cash flow problems relating to higher than desired vacancy and high maintenance costs. Effective June 1, 1999, a new management company was hired for the property. In addition, the Managing General Partner continues to negotiate with the Michigan State Housing Development Authority to work out a solution to enable the property to generate positive cash flow. During 2000, the property continued to have cash flow difficulties. At this time, there is no assurance as to how these matters will be resolved.
A Greenville, Michigan Property - -------------------------------
A Greenville, Michigan Property has experienced continuing cash flow deficits. The property has not adequately funded reserves for taxes, insurance and replacement reserves and is deficient in the payment of real estate taxes. The Managing General Partner has been working with the Rural Development Authority to resolve the cash flow problems; however, there can be no assurance as to how these matters will be resolved. In addition, as part of a work-out strategy, the Managing General Partner has entered into a purchase and sale contract to sell the property subject to the approval of the Partnership as Limited Partner of the Operating Partnership. The General Partner intends to seek approval of the Unit holders for the sale. It is anticipated that a part of the transaction will include the posting of a bond to protect the Unit holders against recapture. There is no assurance that the conditions of the sale will be satisified, and that the sale will be consummated even if the Unit holders give approval.
A Gaylord, Michigan Property - ----------------------------
A Gaylord, Michigan Property has experienced a need for maintenance and repairs in excess of the available reserves and operating cash flow. The City of Gaylord has issued a letter requiring the repairs be performed. The Managing General Partner has been working with the Rural Development Authority to attempt to resolve problems; however, there can be no assurance as to how these matters will be resolved. In addition, as part of a work-out strategy, the Managing General Partner has entered into a purchase and sale contract to sell the property subject to the approval of the Partnership as Limited Partner of the Operating Partnership. The General Partner intends to seek approval of the Unit holders for the sale. It is anticipated that a part of the transaction will include the posting of a bond to protect the Unit holders against recapture. There is no assurance that the conditions of the sale will be satisfied, and that the sale will be consummated even if the Unit holders give approval.
A Philadelphia, Pennsylvania Property - -------------------------------------
During 1999, an impairment loss in the amount of $3,111,000 was recorded with respect to the West Allegheny project in Philadelphia, Pennsylvania, which is owned by one of the Operating Partnerships. The loss was recorded under the requirements of SFAS 121.
Four Oklahoma Properties - ------------------------
The four Oklahoma Properties are part of the HUD Restructuring Mark to Market Program (See further detail in Liquidity and Capital Resources). Restructuring could reduce the cash flow of the Properties, potentially causing the Properties to be unable to cover their expenses, as well as potentially creating debt forgiveness taxable income. Currently, the managing General Partner and HUD have tentatively agreed on a restructuring proposal that provides for rehabilitation, a reduction of rents and a corresponding reduction of debt service. It is anticipated that the
proposal will be evaluated and may proceed for approval sometime in 2001. Although a restructuring has been proposed, there can be no assurances as to the actual outcome at this time.
Other Property Issues - ---------------------
At December 31, 2000, six other Properties have cash flow difficulties. Three properties had an increase in operating expenses in 2000, in addition to three having lower occupancy. Many of these properties continue to operate at the edge of break-even, incurring cash flow difficulties whenever there are reductions in occupancy or increased operating expenses.
Liquidity and Capital Resources - -------------------------------
Liquidity is defined as an entity's ability to meet its current and long-term financial obligations. If a Property were to lose its governmental rent, interest subsidy or mortgage insurance, the Operating Partnership holding such Property might be unable to fund expenses on an ongoing basis.
Liquidity shortfalls might be covered by federal governmental subsidy programs, by state and local agencies, or by funds from the Investment Partnership reserves, although there is no assurance that such sources would be available or, if available, sufficient to cover any liquidity shortfall. A liquidity shortfall, for whatever reason, might result in a sale, refinancing, or foreclosure of the Property, any one of which could have material adverse tax consequences to a Unit holder, including a partial recapture of previously allocated LIHTCs.
Material changes have been made and additional changes have been proposed by various Members of Congress and the Clinton Administration in the programs of HUD. The Multifamily Assisted Housing Reform and Affordability Act of 1997, Public Law 105-65, effective October 1, 1997, established a debt restructuring program applicable to all HUD-Insured projects with rents above those of comparable properties in local markets. Under the program, subsided rent levels generally are reduced to market levels and the debt may be restructured into two or three mortgages. The first mortgage loan is set at a level supportable by the lower subsidized rents, and the second and third mortgage loans are payable only out of cash flow after other approved expenses and sale or refinancing proceeds. In many cases, rent subsidies will become tenant-based, meaning that the subsidies may move with the tenants. However, for certain projects, such as those that predominately serve elderly or disabled families or are located in markets with an inadequate supply of affordable housing, the rent subsidies may continue to be project-based.
HUD has entered into contracts to carry out the restructuring with state housing finance agencies and others ("Participating Administrative Entities" or "PAEs"). The PAEs have authority to set rents above the comparable rents for only 20% of their inventory each year. These rents will be based on approved project budgets, and are capped at 120% of FMRs, except for up to 5% of the inventory, which can have budget-based rents above 120% of FMRs based on a showing of special need. Owners who have engaged in adverse financial or managerial actions are barred from participating in the restructuring program.
The Operating Partnerships own twelve Properties whose Section 8 contracts have expired or will expire in fiscal year 2001, and are not subject to optional renewal by the owner. The General Partner expects that Section 8 contracts for all of these Properties will be renewed by HUD at current levels until at least the end of fiscal year 2001, although there can be no assurance that HUD will do so. Four of these properties have rents in excess of 100% of HUD-established fair market rents. Four of these properties are subject to the mark to market program in the process of restructuring with HUD (See Four Oklahoma Properties). Currently, the managing General Partner and HUD have tentatively agreed on a restructuring proposal that provides for rehabilitation, a reduction of rents and a corresponding reduction of debt service. It is anticipated that the proposal will be evaluated and may proceed for approval sometime in 2001. Although a restructuring has been proposed, there can be no assurances as to the actual outcome at this time. Although it is not anticipated, additional projects may become subject to the restructuring program. The General Partner will work with the general partners of the Operating Partnerships to seek to renew all expiring Section 8 contracts, and if required or appropriate, to participate in the program to restructure loans and rent subsidies. Of the Investment Partnership's remaining projected LIHTCs, approximately 4% are attributable to these Operating Partnerships.
Restructuring could affect demand for and cash flow of many of the Properties, as well as potentially create debt forgiveness taxable income. Moreover, a shift to tenant-based subsidies could lead over time to lower occupancies and lower rents, adversely affecting cash flow. The General Partner is monitoring the development of HUD policy guidance and legislation. The General Partner is unable to predict with certainty the impact of HUD program restructuring on the Operating Partnerships, but it is possible that a restructuring could have a material adverse effect on one or more of the Operating Partnerships, which in turn could have a material adverse effect on the Investment Partnership.
At December 31, 2000 restricted cash was $6,077,000. The restricted cash was composed of the Investment Partnership reserve of $415,000 and Operating Partnership reserves of $5,662,000. Deposits and withdrawals from Operating Partnership reserves are generally regulated by a governing federal, state or local agency. Investment Partnership reserves are available to fund repairs and maintenance as well as operational expenses, while the reserves maintained by an Operating Partnership are typically available only for the Property owned by such Operating Partnership. Historically, the Investment Partnership reserve has been available to fund obligations of the Investment Partnership, including the management fee payable by the Investment Partnership to the General Partner. As of December 31, 2000 the General Partner voluntarily deferred payment of $876,000 of its supervisory and program management fee. The General Partner is under no obligation to continue to defer this fee, and there can be no assurance that the Investment Partnership reserve will be sufficient to satisfy the liquidity requirements of any given Operating Partnership in the event that the reserves of such Operating Partnership are insufficient for this purpose.
Low-income housing projects frequently generate limited cash flow and, therefore, the potential for cash flow deficits exists. The General Partner does not anticipate that the Investment Partnership will distribute cash to Unit holders in circumstances other than refinancing or disposition of its investments in the Operating Partnerships. Moreover, especially in light of the reduced availability of subsidies and the consequent reduction in market value of the Properties, there can be no assurance of cash distributions in the event of refinancing or disposition. Unit holders could be faced with an obligation to pay taxes as a result of disposition of the Properties but no cash distributions with which to pay those taxes.
Results of Operations - ---------------------
The 2000 net loss of $3,406,000 decreased 47.74% from the 1999 net loss of $6,517,000, while the 1999 net loss decreased 7.38% from the 1998 net loss of $7,036,000. The reasons for the differences are discussed below.
An extraordinary gain of $200,000 was recorded in 1998, as a result of matters related to the foreclosure and debt extinguishment on the two Texas Properties (see Note 5).
An impairment loss of $3,111,000 was recorded in 1999 for a Philadelphia, Pennsylvania property, and an impairment loss of $4,100,000 was recorded in 1998 for a Detroit, Michigan property.
During 2000, 1999 and 1998, total revenue was $12,293,000, $12,172,000, and $12,174,000, respectively. Total revenues increased $121,000 (0.99%) in 2000 as compared to 1999 and decreased $2,000 (0%) in 1999 compared to 1998.
Total expenses exclusive of depreciation, interest and impairment loss for 2000, 1999, and 1998 were $9,592,000, $9,435,000, and $9,076,000, respectively. The $157,000 (1.66%) increase in expenses between 2000 and 1999 was primarily related to an increase in utilities, administration, and taxes and insurance expenses and a decrease in management fees. The $359,000 (3.96%) increase in expenses between 1999 and 1998 was primarily related to an increase in administrative and operating and maintenance expenses. The expenses with the largest fluctuations between 2000 and 1999 are utilities with an increase of $52,000 (3.60%), administrative with an increase of $46,000 (2.48%), taxes and insurance with an increase of $78,000 (4.51%), and management fees with a decrease of $60,000 (5.70%). In addition, the expenses with the largest fluctuations between 1999 and 1998 are administrative with an increase of $82,000 (4.63%) and operating and maintenance expenses with an increase of $205,000 (7.17%).
The increases in 2000 expenses for utilities, general and administrative, and taxes and insurance are primarily attributable to a general increase amongst most properties. The decrease in 2000 management fees relates to lower
incentive management fees on several properties. The administrative expense increase in 1999 is primarily attributable to an increase in salaries and renting expenses. The operating and maintenance increases in 1999 relate to additional repairs to the properties as they age.
In recent years rental income, after the HUD rent adjustments, has not been increasing at a rate equivalent to increases in expenses (excluding depreciation and interest). To date, inflation has not had a significant impact on the Partnerships' combined operations. However, rent levels of the Properties are generally limited by the requirements of the low-income housing tax credit and are subject to strict governmental regulation. In the event of significant inflation, including increases in the price of utilities resulting from general increases in the cost of energy, the Operating Partnerships may be unable to increase rents sufficiently to compensate for increases in expenses. Due to the changes in HUD programs, future increases in subsidy income may be limited.
Other - -----
The Operating Partnerships carry comprehensive liability, fire, flood, extended coverage and rental loss insurance with respect to their properties with insured limits and policy specifications that management believes are customary for similar properties. There are, however, certain types of losses (generally of a catastrophic nature such as wars, floods or earthquakes) which may be either uninsurable, or, in management's judgment, not economically insurable. Should an uninsured loss occur, the Investment Partnership could lose both its invested capital in and anticipated profits from the affected property.
Under various federal, state and local environmental laws, ordinances and regulations, a current or previous owner or operator of real property may become liable for the costs of the investigation, removal and remediation of hazardous or toxic substances on, under, in or migrating from such property. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. The Investment Partnership is not aware of any notification by any private party or governmental authority of any non-compliance, liability or other claim in connection with environmental conditions at any of its Properties that it believes will involve any expenditure which would be material to the Investment Partnership, nor is the Investment Partnership aware of any environmental condition with respect to any of its Properties that it believes will involve any such material expenditure. However, there can be no assurance that any non- compliance, liability, claim or expenditure will not arise in the future.
ITEM 7A
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None
ITEM 8
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The combined financial statements of National Housing Trust Limited Partnership and its substantially wholly-owned Operating Partnerships as of December 31, 2000 and 1999 and for each of the three years in the period ended December 31, 2000 are listed below and included on pages 13 through 26 of this report.
INDEPENDENT AUDITORS' REPORT
To the Partners National Housing Trust Limited Partnership
We have audited the accompanying combined balance sheets of National Housing Trust Limited Partnership and its substantially wholly-owned Operating Partnerships (the "Partnership") as of December 31, 2000 and 1999 and the related combined statements of operations, partners' equity (deficit), and cash flows for each of the three years in the period ended December 31, 2000 and the financial statement schedules as of December 31, 2000 and 1999 and for each of the three years in the period ended December 31, 2000 listed in the accompanying index. These combined financial statements and schedules are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these combined financial statements and schedules based on our audits. We did not audit the financial statements of certain substantially wholly-owned Operating Partnerships, which statements reflect total assets of $24,495,447 and $25,539,735 at December 31, 2000 and 1999, and total losses of $1,267,592, $1,122,898, and $1,047,479 for each of the three years in the periods ended December 31, 2000. Those statements were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to data included for those substantially wholly-owned Operating Partnerships, is based solely on the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and schedules. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the financial statements referred to above present fairly, in all material respects, the combined financial position of National Housing Trust Limited Partnership and its substantially wholly-owned Operating Partnerships at December 31, 2000 and 1999, and the combined results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with generally accepted accounting principles. Further, in our opinion, based on our audits and the reports of other auditors, the financial statement schedules as of December 31, 2000 and 1999 and for each of the three years in the period ended December 31, 2000, referred to above, when considered in relation to the combined financial statements taken as a whole, present fairly in all material respects, the information set for therein.
REZNICK FEDDER & SILVERMAN
Bethesda, Maryland March 14, 2001
NATIONAL HOUSING TRUST LIMITED PARTNERSHIP AND ITS SUBSTANTIALLY WHOLLY-OWNED OPERATING PARTNERSHIPS COMBINED BALANCE SHEETS, DECEMBER 31, 2000 AND 1999 (In Thousands)
The accompanying notes are an integral part of the combined financial statements.
NATIONAL HOUSING TRUST LIMITED PARTNERSHIP AND ITS SUBSTANTIALLY WHOLLY-OWNED OPERATING PARTNERSHIPS COMBINED BALANCE SHEETS, CONTINUED (In Thousands, except Investment Units)
The accompanying notes are an integral part of the combined financial statements.
NATIONAL HOUSING TRUST LIMITED PARTNERSHIP AND ITS SUBSTANTIALLY WHOLLY-OWNED OPERATING PARTNERSHIPS COMBINED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (In Thousands, except per Unit Amounts)
The accompanying notes are an integral part of the combined financial statements
NATIONAL HOUSING TRUST LIMITED PARTNERSHIP AND ITS SUBSTANTIALLY WHOLLY-OWNED OPERATING PARTNERSHIPS COMBINED STATEMENTS OF PARTNERS' DEFICIT FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (In Thousands)
The accompanying notes are an integral part of the combined financial statements.
NATIONAL HOUSING TRUST LIMITED PARTNERSHIP AND ITS SUBSTANTIALLY WHOLLY-OWNED OPERATING PARTNERSHIPS COMBINED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (In Thousands)
The accompanying notes are an integral part of the combined financial statements
NATIONAL HOUSING TRUST LIMITED PARTNERSHIP AND ITS SUBSTANTIALLY WHOLLY-OWNED OPERATING PARTNERSHIPS NOTES TO COMBINED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
1. Summary of the Organization and Its Significant Accounting Policies: --------------------------------------------------------------------
National Housing Trust Limited Partnership, a Delaware limited partnership (the "Investment Partnership" or the "Partnership") was formed on July 9, 1987 to invest in low-income housing developments throughout the United States through the acquisition of a 98.9% limited partnership interest in project specific Operating Partnerships ("Operating Partnerships"). NHT, Inc. (The "General Partner" or "NHT, Inc.") serves as a General Partner of the Investment Partnership and holds a .1% - 1.1% General Partner interest in each of the Operating Partnerships. The Investment Partnership and the Operating Partnerships are referred to collectively as the "Partnerships".
NHT, Inc., the sole General Partner of the Investment Partnership is a Delaware nonprofit corporation which holds a 1% General Partner's interest in the Investment Partnership. Shearson Lehman Hutton Low-Income Housing, Inc., a Delaware corporation, was a Special Limited Partner in the Investment Partnership with a .01% limited partnership interest. Effective December 1, 1997, Shearson Lehman Hutton Low-Income Housing, Inc. sold its .01% limited partnership interest to NHT, Inc.
The Operating Partnerships acquire, maintain and operate low-income housing developments that are eligible for and have been allocated the low-income housing tax credit established by the Tax Reform Act of 1986. Each housing project is financed and/or operated with one or more forms of rental or financial assistance from the U.S. Department of Housing and Urban Development (HUD), the Rural Development Authority (RD), or various state/local housing finance agencies. Under the terms of the regulatory agreements executed in connection with obtaining the mortgage loans, the Operating Partnerships are regulated as to rental charges, operating methods and cash distributions to partners.
National Affordable Housing Trust, Inc. (the "Trust") a nonprofit corporation, is the sole member of the General Partner. The Trust in turn has three members: National Church Residences, an Ohio nonprofit corporation formed in 1961, Retirement Housing Foundation, a California nonprofit corporation also formed in 1961, and as of March 15, 1996 Volunteers of America, Inc., a New York nonprofit corporation formed in 1896 (the "Trust Members").
On October 7, 1988, the Investment Partnership completed a public offering of 1,014,668 units of limited partnership interests at $20.00 per unit, from which the Investment Partnership received gross proceeds of approximately $20,293,000. After paying Shearson Lehman Hutton, Inc. $2,079,000 for fees and costs related to the offering and paying the Trust $965,000 for organizational and offering expenses, the net proceeds of the offering were $17,249,000.
After completion of the public offering, the Partnership acquired a 98.9% limited partnership interest in 31 Operating Partnerships. No acquisitions occurred during 2000, 1999, or 1998. The two Texas Operating Partnerships lost their Properties in a December 1997 foreclosure sale. These Operating Partnerships were liquidated in 1998 paying remaining Operating Partnership liabilities out of available Operating Partnership cash. Any cash in excess of liabilities was distributed to the Investment Partnership. No distributions were made to Unit holders. The Springchase Apartments Limited Partnership was dissolved in 1999. The Trinidad Apartments Limited Partnership is expected to be dissolved once all litigation is resolved (See Note 5).
Annual distributions, if any, from the Operating Partnerships are limited under the terms of various agreements with governmental agencies. Any cash available for distribution from the Operating Partnerships will be distributed 98.9% to the Investment Partnership and 1.1% to the General Partners. Any Investment Partnership net income (loss), or cash available for distribution will be distributed 98.9% to unit holders and 1.1% to NHT, Inc. Cash distributions to Partners, if any, shall be made at such time or times as the General Partner may determine. Net loss per limited partnership unit is based on the average number of limited partnership units outstanding during the period of operating activity.
NATIONAL HOUSING TRUST LIMITED PARTNERSHIP AND ITS SUBSTANTIALLY WHOLLY-OWNED OPERATING PARTNERSHIPS NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
Principles of Combination: --------------------------
The combined financial statements include the accounts of the Investment Partnership and Operating Partnerships in which it has acquired 98.9% limited partnership interests. The Investment Partnership does not have any significant liability to the Operating Partnerships beyond its original investment, but does have control over certain aspects of the Operating Partnerships either through the operation of the various partnership agreements or through NHT, Inc., which is a general partner in both the Investment Partnership and Operating Partnerships. Combined financial statements have been presented because of the Investment Partnership's more than significant influence over the Operating Partnerships. All related intercompany accounts and transactions have been eliminated. Each of the Operating Partnerships has no significant assets other than an apartment complex encumbered by mortgage debt, and related cash reserves and mortgage escrow deposits. The assets of any Operating Partnership are not available for the benefit of any other Operating Partnership or for the benefit of the Investment Partnership.
The Operating Partnerships that are included in the combined financial statements are the following:
NATIONAL HOUSING TRUST LIMITED PARTNERSHIP AND ITS SUBSTANTIALLY WHOLLY-OWNED OPERATING PARTNERSHIPS NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
Cash Equivalents: -----------------
For purposes of the combined statement of cash flows, the Investment Partnership and its Operating Partnerships define cash equivalents as short- term, highly liquid investments with original maturities of three months or less when purchased.
Restricted Cash: ----------------
Restricted Cash consisted of Operating Partnerships' property reserves of $5,662,000 and $5,597,000 in 2000 and 1999, respectively and Investment Partnership reserves of $415,000 and $445,000 in 2000 and 1999, respectively.
Property reserves represent amounts required by HUD or other governmental agencies to be maintained with respect to each of the individual properties acquired by the Operating Partnerships. Withdrawals are subject to written permission of the governmental agency. Under the applicable governmental regulations, the property reserves maintained with respect to each individual Property are not available as supplementary capital for any other property or for the Investment Partnership. The purpose of these reserves is to ensure funding is available for repairs and other expenditures, which may be needed for the designated property. At December 31, 2000 and 1999, these assets were maintained in demand deposit accounts with various financial institutions.
Investment Partnership reserves represent the amount that is available to supplement the Operating Partnerships' property reserves, or to pay certain operating expenses of the Investment Partnership. At December 31, 2000 and 1999 these assets were invested in certificates of deposits, U.S. government obligations, commercial paper, demand deposit and money market accounts.
The carrying amount of reserves approximated market value at December 31, 2000 and 1999.
Reclassifications: ------------------
Certain 1999 amounts have been reclassified to conform to the 2000 presentation.
Rental Property: ----------------
Rental property is held for investment and is recorded at cost, net of any provisions for value impairment. Upon the sale, retirement or disposition of assets the carrying value and related accumulated depreciation are eliminated from the accounts and any resulting gain or loss is recorded.
Depreciation is computed on the straight-line and accelerated methods using estimated useful lives of 27.5 years in general for buildings, 25 years for improvements, and 5 to 10 years for furniture and equipment.
Rental Property Held for Sale: ------------------------------
Rental property held for sale at December 31, 2000 consists of two properties which have signed purchase agreements subject to a number of conditions including the consent of the seller's limited partners. The Properties are valued at approximately $2,500,000, the lower of the carrying amount or the fair value less estimated costs to sell. For the year ended December 31, 2000, the fair value less estimated costs to sell exceeds the carrying amount for each of these properties and therefore the Operating Partnerships have not recorded a write down on these assets. The Operating Partnerships discontinue the recognition of depreciation on the rental property when the rental property is considered held for sale.
Income Taxes: -------------
The Investment Partnership is not taxed on its income. The partners are taxed in their individual capacities upon their share of the Investment Partnership's taxable loss. During 2000, 1999, and 1998, low-income housing tax credits of $812,000, $2,116,000, and $2,693,000, respectively, were generated by the Investment Partnership.
NATIONAL HOUSING TRUST LIMITED PARTNERSHIP AND ITS SUBSTANTIALLY WHOLLY-OWNED OPERATING PARTNERSHIPS NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
Income Taxes (continued): -------------------------
The Revenue Reconciliation Act of 1990 permitted the Investment Partnership to accelerate low-income housing tax credits to individual taxpayers who held interests on October 26, 1990. Consequently, the Investment Partnership has passed the accelerated credit through to all qualifying partners of record on October 26, 1990. During 1990, the accelerated low-income housing tax credit was $4,104,000. The housing credit for subsequent tax years must be reduced on a pro rata basis by the amount of the increased credit. Non- qualifying Unit holders will receive the original unaccelerated low-income housing tax credit for the remaining qualifying tax years of their investment.
Use of Estimates: -----------------
The preparation of the financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Specifically, management reviews the carrying value of rental property using estimated future cash flows, including estimates from disposition, whenever an event or change in circumstances might indicate that the asset value may not be recoverable. Because of the inherent uncertainties in estimating future cash flows, it is at least reasonably possible that the estimates used will change within the near term. Actual results could differ from those estimates.
Fair Value of Financial Instruments: ------------------------------------
The following disclosure of the estimated fair value of financial instruments is made in accordance with the requirements of Financial Accounting Standards Board Statement No. 107, Disclosure About Fair Value of Financial Instruments.
Deposits and Restricted Cash are invested in short-term liquid investments, generally less than one year; accordingly, the fair values of these assets approximate their carrying values.
The other financial instruments in which the Partnerships have an interest are the various term debt related to the properties owned by the Operating Partnerships. The debt consists of (1) mortgage debt provided by and or insured by agencies such as Rural Development Authority (RD), The Department of Housing and Urban Development (HUD), and various state housing authorities, and (2) promissory notes. The promissory notes, a substantial portion of which are collateralized by second mortgages, generally provide for repayment only from cash flow or refinancing of the related properties. In addition, the debt agreements contain various restrictions including limiting annual distributions to partners and requiring the rental of units to low-income individuals and/or families. Accordingly, management has determined that there is not a meaningful market for debt with the provisions as described above, and given the unique aspects of the debt, believes that determining a reasonable estimate of fair value would not be practicable without incurring excessive costs.
Impairment of Long-lived Assets: --------------------------------
During 1999, an impairment loss in the amount of $3,111,000 was recorded for an apartment project in Philadelphia, Pennsylvania. The loss was recorded under the requirements of Financial Accounting Standards Board Statement No. 121 ("SFAS No. 121"), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". SFAS No. 121 requires impairment losses to be recognized for long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows are not sufficient to recover the assets' carrying amount. An assessment was done to evaluate the undiscounted cash flows, which were not sufficient to recover the assets' carrying amount. Based on this assessment, an impairment loss of $3,111,000 was recognized to reduce the carrying amount of the property to its estimated fair value of $746,000, at December 31, 1999.
During 1998, an impairment loss in the amount of $4,100,000 was recorded for an apartment project in Detroit, Michigan. Indicators present during 1998 for this Operating Partnership include cash flow from operations that
NATIONAL HOUSING TRUST LIMITED PARTNERSHIP AND ITS SUBSTANTIALLY WHOLLY-OWNED OPERATING PARTNERSHIPS NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
Impairment of Long-lived Assets (continued): --------------------------------------------
was less than the debt service on the property, however, debt service was paid by allowing trade payables to become larger and more delinquent. Therefore, an assessment was done to evaluate the undiscounted cash flows, which were not sufficient to recover the assets' carrying amount. Based on this assessment, an impairment loss of $4,100,000 was recognized to reduce the carrying amount of the property to its estimated fair value of $4,315,000, at December 31, 1998.
2. Related Party Transactions: ---------------------------
Administrative Services: ------------------------
The Trust provides certain administrative services for the Investment Partnership, for which, if charged, the Partnerships are required to reimburse the Trust. No such charges by the Trust were made in any year presented.
Management Fees, including Affiliates: --------------------------------------
General partners or affiliates of general partners of the Investment and the Operating Partnerships provide certain management, investing, and accounting services to various Operating Partnerships for which a management fee is charged; the amount of such fees, including incentive management fees, was $654,000, $730,000 and $843,000 in 2000, 1999 and 1998, respectively, including $60,000, $65,000 and $185,000 in 2000, 1999 and 1998, respectively to an affiliate of NHT, Inc.
Partnership Management Fees, Affiliates: ----------------------------------------
The Investment Partnership is also obligated to pay NHT, Inc. a supervisory management fee equal to .5% of the annual gross revenues of the Operating Partnerships in which an affiliate of a Trust member is not the property manager. This fee amounted to $48,000, $47,000 and $46,000 in 2000, 1999 and 1998, respectively. Additionally, the Investment Partnership has an obligation to pay an annual program management fee to NHT, Inc. equal to the lesser of approximately $289,000, $280,000 and $272,000 in 2000, 1999 and 1998, respectively or .5% of the aggregate cost of all properties acquired by the Operating Partnerships as of December 31, 2000, 1999 and 1998. The supervisory management fees and program management fees totaled $337,000, $327,000 and $318,000 in 2000, 1999 and 1998, respectively. The fees paid in 2000, 1999 and 1998 were $96,000, $135,000 and $253,000, respectively. The balance accrued for these fees was $876,000, $635,000 and $443,000 as of December 31, 2000, 1999 and 1998, respectively.
Land Leases: ------------
Two Operating Partnerships have entered into operating land leases of 51 years and 99 years with affiliates of the general partners. The Operating Partnerships prepaid the first ten to fifteen years of the leases at a cost of approximately $330,000 and account for the prepaid leases using the interest method.
3. Term Debt: ----------
Concurrent with the Investment Partnership's investment in the Operating Partnerships, the Operating Partnerships assumed the outstanding mortgage loans payable from the sellers and also issued promissory notes payable to the sellers. The mortgage loans were originally issued under various provisions of the National Housing Act from HUD, RD, or various state/local housing agencies. The mortgage loan agreements generally require the Operating Partnerships to comply with the terms of regulatory agreements with governmental agencies. These agreements govern, among other things, the funding of replacement reserves and escrows for taxes and insurance, annual distribution to partners and rental of units to low-income individuals and or/families. These loans are collateralized by the Operating Partnerships' land, buildings, and rental income. They have maturity dates ranging from 2011 to 2034 and bear interest at rates varying from 7% to 11.25%.
NATIONAL HOUSING TRUST LIMITED PARTNERSHIP AND ITS SUBSTANTIALLY WHOLLY-OWNED OPERATING PARTNERSHIPS NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
Term Debt (continued): ----------------------
Substantially all of the promissory notes are collateralized by second mortgages on the rental properties owned by the Operating Partnerships, and are primarily nonamortizing until the properties are refinanced or sold. The notes bear interest at rates ranging from non-interest bearing to 11.25% with principal and interest due at various dates, some of which are not determinable as they are contingent upon certain events, such as sale or refinancing of a Property. Included in promissory notes is a note and related accrued interest in the amount of $2,943,519 and $2,715,000 at December 31, 2000 and 1999, which is due to an affiliate of the General Partner.
Estimated principal requirements on these loans during the next five years and thereafter (in thousands):
2001 1,174 2002 1,253 2003 2,449 2004 12,894 2005 12,878 Thereafter 41,504 ------- $72,152 =======
4. Uncertainties: --------------
HUD Housing Assistance Payments (HAP) Contracts: ------------------------------------------------
Many of the Operating Partnerships receive their revenues from HUD under the terms of Housing Assistance Payments Contracts ("HAP Contracts"), which provide for rental assistance payments to the Operating Partnerships on behalf of low-income tenants who meet certain qualifications.
In January 2001, HUD issued its "Guidebook for Section 8 Renewal Policy" (the "Guidebook"), which contains comprehensive guidance for renewing expiring Section 8 project-based contracts. It incorporates the procedures contained in previous Housing Notices relating to expiring contracts, along with a number of revisions.
Under this Guidebook, project owners have several options for Section 8 contract renewals, depending on the type of project and rent level. Options include increasing, or marking rents to market, renewing other contracts with rents at or below market, referring projects to the Office of Multifamily Housing Assistance Restructuring (OMHAR) for mark-to-market or "OMHAR lite" renewals, renewing contracts that are exempted from referral to OMHAR, renewing contracts for portfolio re-engineering demonstration and preservation projects, and opting out of the Section 8 program. Owners must submit their option to HUD at least 120 days before expiration of their contract. Each option contains specific rules and procedures that must be followed to comply with the Guidebook.
The Operating Partnerships received approximately $6,305,000, $5,951,000 and $6,483,000 of rental assistance payments from HUD for the years ended December 31, 2000 and 1999 and 1998, respectively, which represents, 51.3%, 48.9% and 53.3% of their total revenues for the years ended December 31, 2000, 1999 and 1998, respectively.
There are 20 Properties with HAP contracts, of which twelve have HAP contracts which expire during 2001, the majority of which are on annual or 6 month renewals. Management continues to seek to renew all HAP contracts as they expire.
NATIONAL HOUSING TRUST LIMITED PARTNERSHIP AND ITS SUBSTANTIALLY WHOLLY-OWNED PARTNERSHIPS NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
Liquidity: ----------
Low-income housing projects, such as those owned by the Operating Partnerships, frequently generate limited cash flow, and, therefore, the potential for cash flow deficits exist. Because of limitations imposed by HUD and other lenders, the various reserves maintained by an Operating Partnership are typically available only for the Property owned by such Operating Partnership. Further, the general partners of the Operating Partnerships and of the Investment Partnership have limited resources to fund deficits which may be generated by one or more Operating Partnerships.
Promissory Notes: -----------------
As indicated in Note 3, substantially all of the promissory notes are primarily nonamortizing until the related properties are refinanced or sold. Most of the notes are payable to the first mortgage lender or a non-profit community development agency. In addition, the notes generally provide that the payment of interest is deferred until maturity or, in certain cases, payable from excess revenues. Fifteen of the loans are due in the years 2004-2006 (principal and accrued interest of $31,261,000 at December 31, 2000); the remaining loan is due during the year 2028 (principal and accrued interest of $1,442,000 at December 31, 2000). All of the loans which are due during the years 2004 - 2006 are due prior to the maturity of the first mortgages on the properties, which generally mature during the years 2011 - 2019. The General Partner anticipates that the Properties will be sold generally as the promissory notes come due. If the sales do not occur as anticipated, it is not possible to determine at the present time whether there will be sufficient financing available to refinance these loans.
5. Bankruptcy - Operating Partnerships: ------------------------------------
During March 1996, two Operating Partnerships which had purchased apartment projects in Fort Worth, Texas filed for bankruptcy. The bankruptcy filing followed unsuccessful negotiations with the lender (HUD) and the foreclosure actions by a Texas bank, which purchased the loans from HUD. During 1997, attempts to reorganize the Operating Partnerships were unsuccessful and the Texas bank was permitted to complete its foreclosure actions and purchase the apartment projects at the foreclosure sales. In connection with the foreclosure action, the Operating Partnerships were relieved of any obligation related to the nonrecourse mortgage debt. At December 31, 1997, the Operating Partnerships had accumulated cash of $216,000, which was in contention amongst the parties, and, accordingly, a reserve was established pending the resolution of the bankruptcy hearing scheduled for March 26, 1998 to determine the ownership of the cash.
A hearing to dismiss the bankruptcy and determine the ownership of the cash was held on March 26, 1998. The Court entered an order denying the bank's motion for payment of cash collateral and granted the motion to dismiss the bankruptcy. The bank filed an appeal. The Court has dismissed the bank's appeal with respect to Springchase Operating Partnership. The bank also filed suit against Springchase Operating Partnership in the State District Court in Dallas County Texas and sought an injunction against Springchase Operating Partnership. The injunction was denied and the suit dismissed by the State District Court. The appeal with respect to the Trinidad Operating Partnership is still in process. There can be no assurance as to how these matters will be resolved, however, in the opinion of management the Operating Partnerships should prevail and, accordingly, the resultant reserve has been reversed and recorded as an extraordinary gain of $200,000 in the 1998 financial statements. These partnerships were liquidated in 1998 paying remaining Operating Partnership liabilities out of available Operating Partnership cash. Any cash in excess of liabilities was distributed to the Investment Partnership. No distributions were made to the Unit holders.
Condensed Financial Information: --------------------------------
The Operating Partnerships ceased operations after the foreclosure sales and were liquidated in 1998 with any remaining assets transferred to their partners. During 1998, the operating partnerships generated $55,000 of net income.
NATIONAL HOUSING TRUST LIMITED PARTNERSHIP AND ITS SUBSTANTIALLY WHOLLY-OWNED PARTNERSHIPS NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
6. Taxable Loss: -------------
The difference between the 2000 financial statement loss and the tax return loss consists of tax depreciation in excess of book depreciation of $412,000. This amount comprised the difference in the building basis for financial statement and tax return reporting purposes.
The difference between the 1999 financial statement loss and the tax return loss consists of an impairment loss of $3,111,000 and tax depreciation in excess of book depreciation of $1,240,000. These amounts comprise the difference in the building basis for financial statement and tax return reporting purposes.
PART III --------
ITEM 9
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 10
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Partnership has no officers and directors. Officers and trustees of the General Partner are as follows:
James A. Bowman is president and chief executive officer of the National Affordable Housing Trust and NHT, Inc.. Previously he served as senior vice president with National City Investments and as Director of Finance for Franklin County (Ohio). Mr. Bowman is a graduate of The Ohio State University with a Bachelor's Degree in Economics and a Master's Degree in Public Administration.
Robert M. Snow is vice president of National Affordable Housing Trust, Inc. and NHT, Inc. Mr. Snow is in charge of asset management for NHTLP and has been an officer since 1992. Mr. Snow received a Bachelor's Degree from Lafayette University.
Joseph R. Kasberg is vice president and chief financial officer of National Church Residences. Mr. Kasberg, a certified public accountant, has been a financial officer of National Affordable Housing Trust, Inc. since July 1988. Mr. Kasberg received a Bachelor's Degree in Accounting from The Ohio State University in 1974 and an MBA from Xavier University in 1985.
Susan E. Basting is Treasurer, Chief Financial Officer and Chief Operating Officer of the National Affordable Housing Trust, Inc. and NHT, Inc. Ms. Basting, a certified public accountant and certified management accountant, worked in public accounting and accounting management prior to joining the staff in 1996. Ms. Basting is a graduate of Wright State University with a Bachelor's Degree in Accounting.
ITEM 11
ITEM 11 EXECUTIVE COMPENSATION
National Housing Trust Limited Partnership has no officers or directors. However, as outlined in the offering, various fees and reimbursements are paid to the General Partners and affiliates. The following is a summary of such fees paid or accrued for the years ended December 31, 2000, 1999 and 1998:
ITEM 12
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
None.
ITEM 13
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Partnership has not had material transactions or business relationships with NHT, Inc. or its affiliates, except as described in Items 8, 9 and 10.
Part IV -------
ITEM 14
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as a part of this report:
1. Financial Statements --------------------
The combined financial statements, related notes, and accountant's report listed below are included herein:
Page Report of Independent Auditors - Reznick Fedder & Silverman 13
Combined balance sheets as of December 31, 2000 and 1999 14
Combined statements of operations for the years ended December 31, 2000, 1999 and 1998 16
Combined statements of partners' deficit for the years ended December 31, 2000, 1999 and 1998 17
Combined statements of cash flows for the years ended December 31, 2000, 1999 and 1998 18
Notes to combined financial statements 19
2. Financial Statement Schedules Schedule I 32 Schedule III 34 All other schedules have been omitted. The required information is not present or is not present in amounts sufficient to require submission of the schedules.
(b) Reports on 8-K: None.
3. Exhibits --------
(a) Exhibits
Exhibit 3.1 Description ----------- -----------
* 3.1 Form of Amended and Restated Agreement of Limited Partnership of the Registrant (attached to the Prospectus as Exhibit A)
* 3.2 Certificate of Limited Partnership of the Registrant.
* 10.1 Escrow Agreement between FirsTier Bank, N.A. and Registrant.
* 10.2 Form of Purchase and Sale Agreement (including form of Purchase Money Note).
* 10.3 Form of Operating Partnership Agreement.
** 10.4 Guarantee Agreement between the Trust and the Partnership.
** 10.5 Letter Agreement between the Trust and the Selling Agent relating to capitalization of the General Partner.
** 10.6 Letter Agreement between the Trust and the General Partner relating to capitalization of the General Partner.
** 10.7 Letter Agreement between National Church Residences and the Selling Agent relating to withdrawal from the Trust or from Operating Partnerships by Retirement Housing Foundation or its affiliates.
** 10.8 Letter Agreement between Retirement Housing Foundation and the Selling Agent relating to withdrawal from the Trust or from Operating Partnerships by Retirement Housing Foundation or its affiliates.
** 10.9 Letter Agreement between the Trust and the Selling Agent relating to the repayment or refinancing of Purchase Money Notes.
** 10.10 Letter Agreement between National Church Residences that the Selling Agent relating to the repayment or refinancing of Purchase Money Notes.
** 10.11 Letter Agreement between Retirement Housing Foundation and the Selling Agent relating to the repayment or refinancing of Purchase Money Notes
*** 10.12(a) Purchase and Sale Agreement, with amendments, by and among Willow Creek Apartments, Ltd., Willow Park Apartments, Ltd., Willow Garden Apartments, Ltd. and Willow Rock Apartments, Ltd., and the March Company dated May 6, 1988.
*** 10.13(a) Operating Partnership Agreement for W-R Apartments, L.P., dated March 2, 1989.
*** 10.12(b) Purchase and Sale Agreement with amendments, by and among Trinidad Apartments, and Springchase Apartments.
*** 10.13(b) Operating Partnership Agreement for Trinidad Apartments and Springchase Apartments.
*** 10.12(c) Purchase and Sale Agreement with amendments, by and among Melrose Village.
*** 10.13(c) Operating Partnership Agreement for Melrose Village, Limited Partnership, dated December 1, 1989.
*** 10.12(d) Purchase and Sale Agreement with amendments, by and among Aspen Apartments.
*** 0.13(d) Operating Partnership Agreement for Aspen NHT Apartments Limited Partnership, dated December 28, 1989.
*** 10.12(e) Purchase and Sale Agreement with amendments, by and among Bingham Terrace Apartments.
*** 10.13(e) Operating Partnership Agreement for Bingham Terrace Limited Partnership, dated December 29, 1989.
*** 10.12(f) Purchase and Sale Agreement with amendments, by and among Coal Township Elderly, Hazelwood Apartments, and Mahanoy Elderly.
*** 10.13(f) Operating Partnership Agreement for Coal Township Elderly, Hazelwood Apartments, and Mahanoy Elderly dated December 29, 1989.
*** 10.12(g) Purchase and Sale Agreement with amendments, by and among Research Park and Young Manor.
*** 10.13(g) Operating Partnership Agreement for RP Limited Dividend Housing Association Limited Partnership and YM Limited Dividend Housing Association Limited Partnership, dated December 31, 1989.
**** 10.12(h) Purchase and Sale Agreement with amendments, by and among West Allegheny Partnership, L.P.
**** 10.13(h) Operating Partnership Agreement for West Allegheny Partnership, L.P., dated March 27, 1990.
Exhibit 27 Financial Data Schedule
* Filed under the identical Exhibit Number in Amendment No. 2 to the Registrant's Registration Statement on Form S-11 (Commission File No. 33-15285) and incorporated herein by reference.
** Filed under the identical Exhibit Number on Form 10-K for the fiscal year ended December 31, 1987 and incorporated herein by reference.
*** Filed under the identical Exhibit Number on Form 8-Ks filed for the 1989 Operating Partnership acquisitions identified in note #1 to the Combined Financial Statements and incorporated herein by reference.
**** Filed under the identical Exhibit Number on Form 8-K filed for the 1990 Operating Partnership acquisition identified in note #1 to the Combined Financial Statements and incorporated herein by reference.
NATIONAL HOUSING TRUST LIMITED PARTNERSHIP AND ITS SUBSTANTIALLY WHOLLY-OWNED OPERATING PARTNERSHIPS SCHEDULE I CONDENSED FINANCIAL INFORMATION OF REGISTRANT-NATIONAL HOUSING TRUST LIMITED PARTNERSHIP
NATIONAL HOUSING TRUST LIMITED PARTNERSHIP AND ITS SUBSTANTIALLY WHOLLY-OWNED OPERATING PARTNERSHIPS SCHEDULE I CONDENSED FINANCIAL INFORMATION OF REGISTRANT-NATIONAL HOUSING TRUST LIMITED PARTNERSHIP (CONTINUED)
Notes to Condensed Financial Statements
Note A - Basis of Presentation:
In the financial statements of National Housing Trust Limited Partnership (NHTLP), its investment in substantially wholly-owned Operating Partnerships is stated at cost plus equity in undistributed earnings and less losses of the Operating Partnerships since the date of acquisition.
Note B - Notes Receivable, Operating Partnership:
The notes receivable from an Operating Partnership bear interest at varying rates, are repayable out of distributable cash flow and are due through 2006.
NATIONAL HOUSING TRUST LIMITED PARTNERSHIP AND ITS SUBSTANTIALLY WHOLLY-OWNED OPERATING PARTNERSHIPS SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION FOR YEAR ENDED DECEMBER 31, 2000
(1 OF 4) (In Thousands)
CONTINUED
NATIONAL HOUSING TRUST LIMITED PARTNERSHIP AND ITS SUBSTANTIALLY WHOLLY-OWNED OPERATING PARTNERSHIPS SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION FOR YEAR ENDED DECEMBER 31, 2000
(2 OF 4) (In Thousands)
* During 2000 these properties were classified as held for sale.
CONTINUED
NATIONAL HOUSING TRUST LIMITED PARTNERSHIP AND ITS SUBSTANTIALLY WHOLLY-OWNED OPERATING PARTNERSHIPS SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION FOR YEAR ENDED DECEMBER 31, 2000
(3 OF 4) (In Thousands)
NATIONAL HOUSING TRUST LIMITED PARTNERSHIP AND ITS SUBSTANTIALLY WHOLLY-OWNED OPERATING PARTNERSHIPS SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION FOR YEAR ENDED DECEMBER 31, 2000
(4 OF 4) (In Thousands)
* Aggregate costs for federal income tax purposes were $71,711,000, $71,255,000 and $74,725,000 at December 31, 2000, 1999, and 1998 respectively.
** Includes deductions for impairment loss in 1999 & 1998.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) or the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
National Housing Trust Limited Partnership By: NHT, Inc. General Partner
Date: March 22, 2001 /s/ James A. Bowman -------------- ------------------------------------------- James A. Bowman, President and Chief Executive Officer, NHT, Inc.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
* * * * *
Date: March 22, 2001 By /s/ James A. Bowman -------------- ------------------------------------------- James A. Bowman, Trustee President and CEO, NHT, Inc.
* * * * *
Date: March 22, 2001 By /s/ Robert M. Snow -------------- ------------------------------------------- Robert M. Snow, Trustee, Vice President and Secretary, NHT, Inc.
* * * * *
Date: March 22, 2001 By /s/ Susan E. Basting -------------- ------------------------------------------- Susan E. Basting, Trustee Chief Financial Officer and Treasurer, NHT, Inc.