Item 1. Business
National Housing Partnership Realty Fund I (A Maryland Limited Partnership) (the Partnership) was formed under the Maryland Revised Uniform Limited Partnership Act as of October 21, 1983. On May 25, 1984, the Partnership commenced offering 20,000 limited partnership interests, at a price of $1,000 per interest, through a public offering registered with the Securities and Exchange Commission (the Offering). The Offering was managed by Dean Witter Reynolds, Inc. and was terminated on November 29, 1984, with subscriptions for 11,519 limited partnership interests.
On June 3, 1997, Apartment Investment and Management Company, a Maryland corporation ("AIMCO" and, together with its subsidiaries and other controlled entities, the "AIMCO Group"), acquired all of the issued and outstanding capital stock of NHP Partners, Inc., a Delaware corporation ("NHP Partners"), and the AIMCO Group acquired all of the outstanding interests in NHP Partners Two Limited Partnership, a Delaware limited partnership ("NHP Partners Two"). The acquisitions were made pursuant to a Real Estate Acquisition Agreement, dated as of May 22, 1997 (the "Agreement"), by and among AIMCO, AIMCO Properties, L.P., a Delaware limited partnership (the "Operating Partnership"), Demeter Holdings Corporation, a Massachusetts corporation ("Demeter"), Phemus Corporation, a Massachusetts corporation ("Phemus"), Capricorn Investors, L.P., a Delaware limited partnership ("Capricorn"), J. Roderick Heller, III and NHP Partners Two LLC, a Delaware limited liability company ("NHP Partners Two LLC"). NHP Partners owns all of the outstanding capital stock of the National Corporation for Housing Partnerships, a District of Columbia corporation ("NCHP"), which is the general partner of The National Housing Partnership, a District of Columbia limited partnership ("NHP"). Together, NCHP and NHP Partners Two own all of the outstanding partnership interests in NHP. NHP is the general partner of National Housing Partnership Realty Fund I (a Maryland Limited Partnership) (the "Registrant" or "Partnership"). As a result of these transactions, the AIMCO Group has acquired control of the general partner of the Registrant and, therefore, may be deemed to have acquired control of the Registrant.
The Original Limited Partner of the Partnership is 1133 Fifteenth Street Associates, a District of Columbia limited partnership, whose general partner is NHP and whose limited partners were key employees of NCHP at the time the Partnership was formed. The Original Limited Partner holds a 1% interest in the Partnership.
The remaining 98% limited partnership interests in the Partnership are held by the investors who subscribed to the Offering.
In October 1997, NHP received a subpoena from the Inspector General of the United States Department of Housing and Urban Development ("HUD") requesting documents relating to any arrangement whereby NHP or any of its affiliates provides or has provided compensation to owners of HUD multifamily projects in exchange for or in connection with property management of a HUD project. AIMCO believes that other owners and managers of HUD projects have received similar subpoenas. Documents relating to certain of NHP's acquisitions of property management rights for HUD projects may be responsive to subpoenas. AIMCO and NHP are in the process of complying with the subpoena and have provided certain documents to the Inspector General, without conceding that they are responsive to the subpoena. AMICO believes that NHP's operations are in compliance, in all material
respects, with all laws, rules and regulations relating to HUD-assisted or HUD-insured properties. Effective February 13, 1998, counsel for NHP and the U.S. Attorney for the Northern District of California entered into a Tolling agreement related to certain civil claims the government may have against NHP. Although no action has been initiated against NHP or AIMCO or, to AIMCO's knowledge, any owner of a HUD property managed by NHP or AIMCO, if any such action is taken in the future, it could ultimately affect existing arrangements with respect to HUD projects or otherwise have a material adverse affect on the results of operations of AIMCO.
The Partnership's business is to hold limited partnership interests in ten limited partnerships (Local Limited Partnerships), each of which owns and operates multi-family rental housing properties (Properties) which receive one or more forms of assistance from the Federal Government.
The Partnership acquired interests in the Local Limited Partnerships from sellers who originally developed the Properties. In each instance, NHP is the general partner of the Local Limited Partnership and the Partnership is the principal limited partner. As a limited partner, the Partnership's liability for obligations of the Local Limited Partnerships is limited to its investment, and the Partnership does not exercise control over the activities of the Local Limited Partnerships in accordance with the partnership agreements.
The Partnership's investment objectives are to:
(1) preserve and protect Partnership capital;
(2) provide current tax benefits to Limited Partners to the extent permitted by law, including, but not limited to, deductions that Limited Partners may use to offset otherwise taxable income from other sources;
(3) provide capital appreciation through increase in value of the Partnership's investments, subject to considerations of capital preservation and tax planning; and
(4) provide potential cash distributions from sales or refinancings of the Partnership's investments and, on a limited basis, from operations.
The Partnership does not have any employees. Services are performed for the Partnership by the General Partner and agents retained by it.
The following is a schedule of the Properties owned by the Local Limited Partnerships in which the Partnership is a limited partner:
SCHEDULE OF PROPERTIES OWNED BY LOCAL LIMITED PARTNERSHIPS IN WHICH NATIONAL HOUSING PARTNERSHIP REALTY FUND I HAS AN INVESTMENT
(A) The mortgage is insured by the Federal Housing Administration under the provisions of Section 236 of the National Housing Act.
(B) Section 8 of Title II of the Housing and Community Development Act of 1974.
Although each Local Limited Partnership in which the Partnership has invested owns an apartment complex which must compete with other apartment complexes for tenants, government mortgage interest and rent subsidies make it possible to rent units to eligible tenants at below market rates. In general, this insulates the Properties from market competition.
The following table indicates the year within the Section 8 rent subsidy contracts expire:
Of the contracts above expiring during 1998, contracts for 837 units expire on or prior to September 30, 1998. Congress has passed legislation which will provide a one-year renewal contract to replace those contracts. The contract covering the remaining 124 units expires in October, 1998. It is uncertain whether this agreement, as well as the agreements expiring subsequent to 1998, will be renewed, and if so, on what terms.
For the past several years, various proposals have been advanced by the United States Department of Housing and Urban Development ("HUD"), Congress and others proposing the restructuring of HUD's rental assistance programs under Section 8 of the United States Housing Act of 1937 ("Section 8"), under which 1,213 units, 77 percent of the total units owned by the properties in which the Partnership has invested, receive rental subsidies. On October 27, 1997, the President signed into law the Multifamily Assisted Housing Reform and Affordability Act of 1997 (the "1997 Housing Act"). Under the 1997 Housing Act, certain properties assisted under Section 8, with rents above market levels and financed with HUD-insured mortgage loans, will be restructured by adjusting subsidized rents to market levels, thereby potentially reducing rent subsidies, and lowering required debt service costs as needed to ensure financial viability at the reduced rents and rent subsidies. The 1997 Housing Act retains project-based subsidies for most properties (properties in rental markets with limited supply, properties serving the elderly, and certain other properties). The 1997 Housing Act phases out project-based subsidies on selected properties servicing families not located in rental markets with limited supply, converting such subsidies to a tenant-based subsidy. Under a tenant-based system, rent vouchers would be issued to qualified tenants who then could elect to reside at properties of their choice, provided such tenants have the financial ability to pay the difference between the selected properties' monthly rent and the value of the vouchers, which would be established based on HUD's regulated fair market rent for the relevant geographical areas. The 1997 Housing Act provides that properties will begin the restructuring process in federal fiscal year 1999 (beginning October 1, 1998), and that HUD will issue final regulations implementing 1997 Housing Act on or before October 27, 1998. With respect to Housing Assistance Payments Contracts ("HAP Contracts") expiring before October 1, 1998, Congress has elected to renew them for one-year terms, generally at existing rents, so long as the properties remain in compliance with the HAP Contracts. While the Partnership does not expect the provisions of the 1997 Housing Act to result in a significant number of tenants relocating from properties owned by the Local Limited Partnerships, there can be no assurance that the provisions will not significantly affect the operations of the properties of the Local Limited Partnerships. Furthermore, there can be no assurance that other changes in Federal housing subsidy policy will not occur. Any such changes could have an adverse effect on the operation of the Partnership.
Operations at all of the Properties were generally satisfactory during the period.
As discussed in Note 7 to the combined financial statements, eight of the Local Limited Partnerships in which the Partnership has invested have deferred acquisition notes due the original owner of each Property. With the exception of Fairmeadows and Southridge, these notes are due between 1997 and 1999. These notes are secured by both the Partnership's and NHP's interests in the Local Limited Partnerships. In the event of a default on the notes, the noteholders would be able to assume NHP's and the Partnership's interests in the Local Limited Partnerships.
The Fairmeadows and Southridge notes were originally due on September 24, 1994 and October 18, 1994, respectively. On September 10, 1996, the Fairmeadows and Southridge Limited Partnerships and the note holders entered into Modification, Renewal and Extension of Liens Agreements (the "Agreements") effective retroactively to December 31, 1995. The Agreements extended the maturity of the Fairmeadows and Southridge notes to December 1, 2011. Interest on the notes continues to accrue at 10% and is due and payable at maturity; provided, however, that minimum annual installments of interest are paid on or before December 31 of each year, beginning December 31, 1995, and continuing annually thereafter until December 31, 2010. The minimum annual installments of interest have been paid on a timely basis for 1995, 1996 and 1997 under the terms of the Agreement (as discussed in Note 3 to the Partnership's Financial Statements). Such minimum annual installments increase each year beginning in 1997, by not less than 2.5% and not more than 5%, based on the Consumer Price Index for All Urban Consumers (CPI-U).
Prior to December 31, 2010 and provided there then exists no default, the Local Limited Partnerships shall have the right to make a discounted cash payment in full payment and satisfaction of the notes. Such discounted cash payments were specified as $450,000 and $500,000 for 1996 for Fairmeadows and Southridge, respectively, and increase each year calculated as ten times the minimum annual installment of interest due in that year (as discussed in Note 3 to the Partnership's Financial Statements).
Griffith Limited Partnership has defaulted on its deferred acquisition note and related accrued interest which became due on October 31, 1997, with a balance of $2,619,623 at December 31, 1997, which raises substantial doubt about the Local Limited Partnership's ability to continue as a going concern with its present
ownership structure. The Local Limited Partnership's continued existence as a going concern with its present ownership structure is dependent on the ability to repay, refinance, restructure, or renegotiate this note. The general partner is currently negotiating to extend the note and maintain ownership of the property.
Southward Limited Partnership and Northgate Village Limited Partnership have deferred acquisition notes due on October 4, 1998 and July 26, 1999, respectively, with balances of $3,525,458 and $2,270,380, respectively, including accrued interest of $1,916,908 and $1,301,380 at December 31, 1997, which raises substantial doubt about the Local Limited Partnerships' ability to continue as going concerns with their present ownership structure. The Local Limited Partnerships' continued existence as going concerns with their present ownership structure is dependent on the ability to repay, refinance, restructure, or renegotiate these notes. The general partner is currently negotiating to extend the notes and maintain ownership of the properties.
On October 2, 1995, Forest Green and Village Green Limited Partnerships entered into a discount buyout agreement for early settlement of their deferred acquisition notes and related accrued interest payable. The agreements provide for a total buyout amount of $175,000 per Local Limited Partnership, payable in two installments. The first installments of $120,000 each, which were applied against accrued interest on deferred acquisition note payable, were paid upon execution of the agreements. The final installments of $55,000 each were paid on May 1, 1996. The first installments were paid with $104,395 and $40,375, respectively, in available surplus cash and $15,605 and $79,625, respectively in proceeds from a Partnership loan. The final installments were paid with $55,000 and $31,291, respectively, in available surplus cash, and $23,709 in proceeds from partner loans. The balance of the deferred acquisition notes payable and related accrued interest of $1,367,660 and $1,378,734, respectively, were relieved and recognized as an extraordinary gain in 1996 (see Note 3 to the Partnership's Financial Statements).
The following table details the Partnership's ownership percentages of the Local Limited Partnerships and the cost of acquisition of such ownership. All interests are limited partner interests. Also included is the total mortgage encumbrance on each property for each of the Local Limited Partnerships as of December 31, 1997.
Item 2.
Item 2. Properties
See Item 1 for the real estate owned by the Partnership through the ownership of limited partnership interests in Local Limited Partnerships.
Item 3.
Item 3. Legal Proceedings
The Partnership is not involved in any material legal proceedings.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted.
PART II Item 5.
Item 5. Market for the Registrant's Partnership Interests and Related Partnership Matters
(a) Interests in the Partnership were sold through a public offering managed by Dean Witter Reynolds, Inc. There is no established market for resale of interests in the Partnership. Accordingly, an investor may be unable to sell or otherwise dispose of his or her interest in the Partnership.
(b) As of December 31, 1997, there were 1,111 registered holders of limited partnership interests (in addition to 1133 Fifteenth Street Associates - See Item 1).
(c) No cash dividends or distributions have been declared from the inception of the Partnership to December 31, 1997.
Item 6.
Item 6. Selected Financial Data
(A) The Partnership holds limited partnership interests in the Local Limited Partnerships, and since its liability for obligations is limited to its original investment, its investment account is not reduced below zero (creating a liability) for the investments in Local Limited Partnerships. As a result, during 1997, 1996, 1995, 1994 and 1993, $1,500,538, $2,184,536, $1,751,781, $1,604,334 and $3,186,365, respectively, of losses from eight, eight, eight, ten, and ten Local Limited Partnerships have not been recognized by the Partnership.
(B) Profit of $150 per limited partnership interest attributed solely to extraordinary gain.
C) See Note 8 to the financial statements for discussion of restatement of the 1996 financial statements.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements in certain circumstances. Certain information included in this Report and other Partnership filings (collectively "SEC Filings") under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended (as well as information communicated orally or in writing between the dates of such SEC Filings) contains or may contain information that is forward looking, including statements regarding the effect of government regulations. Actual results may differ materially from those described in the forward looking statements and will be affected by a variety of factors including national and local economic conditions, the general level of interest rates, terms of governmental regulations that affect the Partnership and interpretations of those regulations, the competitive environment in which the properties owned by the Local Limited Partnerships operate, the availability of working capital and dispositions of properties owned by the Partnership.
Liquidity and Capital Resources
The Properties in which the Partnership has invested, through its investments in the Local Limited Partnerships, receive one or more forms of assistance from the Federal Government. As a result, the Local Limited Partnerships' ability to transfer funds either to the Partnership or among themselves in the form of cash distributions, loans or advances is generally restricted by these government assistance programs. These restrictions, however, are not expected to impact the Partnership's ability to meet its cash obligations.
As discussed in Note 7 to the combined financial statements, eight of the Local Limited Partnerships in which the Partnership has invested have deferred acquisition notes due the original owner of each Property. With the exception of Fairmeadows and Southridge, these notes are due between 1997 and 1999. These notes are secured by both the Partnership's and NHP's interests in the Local Limited Partnerships. In the event of a default on the notes, the noteholders would be able to assume NHP's and the Partnership's interests in the Local Limited Partnerships.
The Fairmeadows and Southridge notes were originally due on September 24, 1994 and October 18, 1994, respectively. On September 10, 1996, the Fairmeadows and Southridge Limited Partnerships and the note holders entered into Modification, Renewal and Extension of Liens Agreements (the "Agreements") effective retroactively to December 31, 1995. The Agreements extended the maturity of the Fairmeadows and Southridge notes to December 1, 2011. Interest on the notes continues to accrue at 10% and is due and payable at maturity; provided, however, that minimum annual installments of interest are paid on or before December 31 of each year, beginning December 31, 1995, and continuing annually thereafter until December 31, 2010. The minimum annual installments of interest have been paid on a timely basis for 1995, 1996 and 1997 under the terms of the Agreement (as discussed in Note 3 to the Partnership's Financial Statements). Such minimum annual installments increase each year beginning in 1997, by not less than 2.5% and not more than 5%, based on the Consumer Price Index for All Urban Consumers (CPI-U).
Prior to December 31, 2010 and provided there then exists no default, the Local Limited Partnerships shall have the right to make a discounted cash payment in full payment and satisfaction of the notes. Such discounted cash payments were specified as $450,000 and $500,000 for 1996 for Fairmeadows and Southridge, respectively, and increase each year calculated as ten times the minimum annual installment of interest due in that year (as discussed in Note 3 to the Partnership's Financial Statements).
Griffith Limited Partnership has defaulted on its deferred acquisition note and related accrued interest which became due on October 31, 1997, with a balance of $2,619,623 at December 31, 1997, which raises substantial doubt about the Local Limited Partnership's ability to continue as a going concern with its present
ownership structure. The Local Limited Partnership's continued existence as a going concern with its present ownership structure is dependent on the ability to repay, refinance, restructure, or renegotiate this note. The general partner is currently negotiating to extend the note and maintain ownership of the property.
Southward Limited Partnership and Northgate Village Limited Partnership have deferred acquisition notes due on October 4, 1998 and July 26, 1999, respectively, with balances of $3,525,458 and $2,270,380, respectively, including accrued interest of $1,916,908 and $1,301,380 at December 31, 1997, which raises substantial doubt about the Local Limited Partnerships' ability to continue as going concerns with their present ownership structure. The Local Limited Partnerships' continued existence as going concerns with their present ownership structure is dependent on the ability to repay, refinance, restructure, or renegotiate these notes. The general partner is currently negotiating to extend the notes and maintain ownership of the properties.
On October 2, 1995, Forest Green and Village Green Limited Partnerships entered into a discount buyout agreement for early settlement of their deferred acquisition notes and related accrued interest payable. The agreements provide for a total buyout amount of $175,000 per Local Limited Partnership, payable in two installments. The first installments of $120,000 each, which were applied against accrued interest on deferred acquisition note payable, were paid upon execution of the agreements. The final installments of $55,000 each were paid on May 1, 1996. The first installments were paid with $104,395 and $40,375, respectively, in available surplus cash and $15,605 and $79,625, respectively in proceeds from a Partnership loan. The final installments were paid with $55,000 and $31,291, respectively, in available surplus cash, and $23,709 in proceeds from partner loans. The balance of the deferred acquisition notes payable and related accrued interest of $1,367,660 and $1,378,734, respectively, were relieved and recognized as an extraordinary gain in 1996 (see Note 3 to the Partnership's Financial Statements).
During 1996 and 1995, the Partnership advanced $23,472 and $95,230 to one and two Local Limited Partnerships to fund the early settlement of their deferred acquisition notes. During 1997, no advances were made by the Partnership to Local Limited Partnerships. Repayments of advances of $2,639, $36,612 and zero and accrued interest of $3,004 , $24,277 and $37,561 were received from one, two and one Local Limited Partnerships during 1997, 1996 and 1995, respectively.
During 1997, 1996 and 1995, the General Partner advanced $124,368, $178,562 and $39,049 to ten, five and six Local Limited Partnerships to fund partnership entity expenses, including expenses incurred relating to potential sales or refinancing under the Low Income Housing Preservation and Resident Homeownership Act of 1990 (LIHPRHA). During 1997, 1996 and 1995, three, two and one Local Limited Partnerships made payments of principal of $13,961, $25,415 and $6,927 and interest of $5,622, $2,587 and $1,749, respectively. At December 31, 1997 and 1996, the balance owed to NHP by ten and eight Local Limited Partnerships was $326,072 and $215,665, respectively. Interest on these advances is charged at a rate equal to the Chase Manhattan Bank prime interest rate plus 2%. Chase Manhattan Bank prime was 8.5% at December 31, 1997.
Net cash used in operations for the year ended December 31, 1997 was $35,111 compared to cash provided by operations for the year ended December 31, 1996 of $38,786 and to $47,950 in 1995. The decrease in cash from operations from 1996 to 1997 was a result of a decrease in distributions in excess of investment in and interest received on advances to Local Limited Partnerships during 1997. The decrease in cash from operations from 1995 to 1996 was a result of an increase in operating expenses paid during 1996.
Distributions received in excess of investment in Local Limited Partnerships represent the Partnership's proportionate share of the excess cash available for distribution from the Local Limited Partnerships. As a result of the use of the equity method of accounting for the Partnership's investment in Local Limited Partnerships, investment carrying values for each of the Local Limited Partnerships has decreased to zero. Cash distributions received are recorded in revenues as distributions received in excess of investment in Local Limited Partnerships. Cash distributions of $11,146, $70,918 and $53,142 were received from one, three and two Local Limited Partnerships during the years ended December 31, 1997, 1996 and 1995, respectively. The receipt of these distributions in future years is dependent on the operations of the underlying properties of the Local Limited Partnerships.
Cash and cash equivalents amounted to $26,125 at December 31, 1997. The ability of the Partnership to meet its on-going cash requirements, in excess of cash on hand at December 31, 1997, is dependent on
distributions from recurring operations received from the Local Limited Partnerships, and proceeds from the sales or refinancings of the underlying properties. Total distributions received from Local Limited Partnerships decreased to $11,146 in 1997 from $70,918 which was an increase from $53,142 in 1995. Cash on hand at December 31, 1997, coupled with projected distributions from Local Limited Partnerships should provide sufficient capital to fund the Partnership's operations during 1998.
During 1996, the General Partner advanced $9,911 to the Partnership to pay operating expenses. During 1997, repayments of principal and interest of $3,596 and $2,047, respectively were made by the Partnership to the General Partner. No repayments were made by the Partnership during 1996. Interest is charged on borrowing at the Chase Manhattan Bank prime interest rate plus 2%. Chase Manhattan Bank prime was 8.5% at December 31, 1997. Interest expensed for the years ended December 31, 1997 and 1996 was $1,203 and $844, respectively, which is included in other operating expenses on the Partnership's Statement of Operations.
As of December 31, 1997, the Partnership owes the General Partner $829,964 for administrative and reporting services performed. During the years ended December 31, 1997, 1996 and 1995, no payments were made by the Partnership to the General Partner for administrative and reporting services. This payment was made with distributions received from the Local Limited Partnerships. There is no guarantee that the Local Limited Partnerships will generate future surplus cash sufficient to distribute to the Partnership in amounts adequate to repay administrative and reporting fees owed; rather, the payment of the unpaid administrative and reporting fees and other advances to the General Partner will most likely result from the sale or refinancing of the underlying properties of the Local Limited Partnerships, rather than through recurring operations.
Results of Operations
As further discussed in Note 8 to the financial statements, the Partnership's 1996 financial statements have been restated. In summary, Net Profit and Investment in and Advances to Local Limited Partnerships increased by $979,652 as a result of the restatement. References to 1996 amounts in the following discussion are the restated amounts.
The Partnership has invested as a limited partner in Local Limited Partnerships which operate ten rental housing properties. Due to the use of the equity method of accounting as discussed in Note 1 to the Partnership's financial statements, to the extent the Partnership still has a carrying basis in a respective Local Limited Partnership, results of operations would be impacted by the Partnership's share of the profits or losses of the Local Limited Partnerships. As of December 31, 1995, the Partnership had no carrying basis in any of the Local Limited Partnerships and reflected no share of losses for Local Limited Partnerships in 1995. However, during the year ended December 31, 1996, Forest Green and Village Green Limited Partnerships completed discounted buyout agreements for early settlement of their deferred acquisition notes and related accrued interest payable, resulting in gains of $1,367,660 and $1,378,734, respectively, for the two Local Limited Partnerships. As a result, the Partnership has recorded its share of profit and gain on extinguishment of debt of $20,779 and $1,763,685, respectively, net of previously unrecorded losses of $918,193, in the two Local Limited Partnerships for the year ended December 31, 1996. The Partnership has recorded its share of losses of $27,003 in the two Local Limited Partnerships for the year ended December 31, 1997.
The Partnership realized a net loss of $146,313 for the year ended December 31, 1997, compared to a net profit before extraordinary item of $825 for the year ended December 31, 1996. Net loss per unit of limited partnership interest was $12 compared to a net profit per unit of $150 for the 11,519 units outstanding for both periods. The increase in net loss before extraordinary item was primarily due to the change in share of profits and losses from Local Limited Partnerships and a decrease in distributions received in excess of investment in and advances to Local Limited Partnerships and interest received on advances to Local Limited Partnerships. Additionally, the Partnership recognized a gain from extinguishment of debt of $1,763,685 due to the early settlement of the deferred acquisition notes for Village Green and Forest Green during the year ended December 31, 1996. There was no such gain recognized during the year ended December 31, 1997.
The Partnership did not recognize $1,500,538 of its allocated share of losses from eight Local Limited Partnerships for the year ended December 31, 1997, as the Partnership's net carrying basis in them was reduced to zero in a prior year (see Note 3 to the Partnership's financial statements). The Partnership's share of profits and losses from the Local Limited Partnerships, if not limited to its investment account balance, would have changed
by $2,046,964 between years. The decrease was due primarily to the gain on extinguishment of debt recognized by two Local Limited Partnerships during 1996, partially offset by an impairment loss on rental property recognized by one Local Limited Partnership during 1996 (as discussed in Note 3 to the Partnership's financial statements). No such extraordinary gain or impairment loss was recognized during 1997.
The Partnership realized a net profit before extraordinary item of $825 for the year ended December 31, 1996, compared to a net loss of $127,226 for the year ended December 31, 1995. Net profit per unit of limited partnership interest was $150 compared to a net loss per unit of $11 for the 11,519 units outstanding for both periods. The increase in net profit before extraordinary item was primarily due to the increases in share of profits from Local Limited Partnerships, distributions received in excess of investment in and advances to Local Limited Partnerships and interest income. Additionally, the Partnership recognized a gain from extinguishment of debt of $1,763,685 due to the early settlement of the deferred acquisition notes for Village Green and Forest Green during the year ended December 31, 1996. There was no such gain recognized during the year ended December 31, 1995.
The Partnership did not recognize $2,184,536 of its allocated share of losses from eight Local Limited Partnerships for the year ended December 31, 1996, as the Partnership's net carrying basis in them was reduced to zero in a prior year (see Note 3 to the Partnership's financial statements). The Partnership's share of profits from the Local Limited Partnerships, if not limited to its investment account balance, would have increased $2,366,434 between years. The increase was due primarily to the gain on extinguishment of debt recognized by two Local Limited Partnerships during 1996, partially offset by an impairment loss on rental property recognized by one Local Limited Partnership during 1996 (as discussed in Note 3 to the Partnership's financial statements). No such extraordinary gain or impairment loss was recognized during 1995.
Item 8.
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary schedule of the Partnership are included on pages 12 through 30 of this report.
Independent Auditors' Report
To The Partners of National Housing Partnership Realty Fund I Indianapolis, IN
We have audited the accompanying statements of financial position of National Housing Partnership Realty Fund I (the Partnership) as of December 31, 1997 and 1996, and the related statements of operations, partners' equity (deficit), and cash flows for each of the three years in the period ended December 31, 1997, and the schedule listed in the Index at Item 14. These financial statements and schedule are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We did not audit the financial statements of Hurbell IV Limited Partnership and Gates Mills I Limited Partnership (investees of the Partnership) for the years ended December 31, 1997, 1996 and 1995. The Partnership's equity in the net assets of these investees has been reduced to zero in accordance with the equity method of accounting. The accompanying statement of operations includes $11,146, $21,342 and $29,506 of revenue from distributions in excess of investment from these two investees for the years ended December 31, 1997, 1996 and 1995, respectively. The financial statements do not include any equity, or other earnings or losses from these investees for the years ended December 31, 1997, 1996 and 1995. The financial statements of these investees were audited by other auditors whose reports thereon have been furnished to us, and our opinion, insofar as it relates to amounts included for these investees, is based solely upon 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 audit 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. 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, such financial statements present fairly, in all material respects, the financial position of the Partnership as of December 31, 1997 and 1996, and the results of its operations and cash flows for each of the three years in the period ended December 31, 1997 in conformity with generally accepted accounting principles. Also, in our opinion, based on our audits and the reports of other auditors, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.
As discussed in Note 8, the accompanying 1996 financial statements have been restated.
Deloitte & Touche LLP McLean, VA March 3, 1998
NATIONAL HOUSING PARTNERSHIP REALTY FUND I
A LIMITED PARTNERSHIP
STATEMENTS OF FINANCIAL POSITION
See notes to financial statements.
NATIONAL HOUSING PARTNERSHIP REALTY FUND I
A LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
See notes to financial statements.
NATIONAL HOUSING PARTNERSHIP REALTY FUND I
A LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
(A) General Partner
(B) Original Limited Partner
(C) Consists of 11,519 investment units held by 1,113 investors, each unit represents a .0085% ownership interest.
See notes to financial statements.
NATIONAL HOUSING PARTNERSHIP REALTY FUND I
A LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
See notes to financial statements.
NATIONAL HOUSING PARTNERSHIP REALTY FUND I
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF PARTNERSHIP ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
National Housing Partnership Realty Fund I (the Partnership) is a limited partnership organized under the laws of the State of Maryland under the Maryland Revised Uniform Limited Partnership Act on October 21, 1983. The Partnership was formed for the purpose of raising capital by offering and selling limited partnership interests and then investing in limited partnerships (Local Limited Partnerships), each of which owns and operates an existing rental housing project which is financed and/or operated with one or more forms of rental assistance or financial assistance from the U.S. Department of Housing and Urban Development (HUD). On May 25, 1984, inception of operations, the Partnership began raising capital and acquiring interests in Local Limited Partnerships.
The General Partner was authorized to raise capital for the Partnership by offering and selling not more than 20,000 limited partnership interests at a price of $1,000 per interest. During 1984, the sale of interests was closed after the sale of 11,519 interests to limited partners.
During 1984, the Partnership acquired limited partnership interests of 99% in nine Local Limited Partnerships and 98% in one Local Limited Partnership. Each Local Limited Partnership was organized to acquire and operate an existing rental housing project.
On June 3, 1997, Apartment Investment and Management Company, a Maryland corporation ("AIMCO" and, together with its subsidiaries and other controlled entities, the "AIMCO Group"), acquired all of the issued and outstanding capital stock of NHP Partners, Inc., a Delaware corporation ("NHP Partners"), and the AIMCO Group acquired all of the outstanding interests in NHP Partners Two Limited Partnership, a Delaware limited partnership ("NHP Partners Two"). The acquisitions were made pursuant to a Real Estate Acquisition Agreement, dated as of May 22, 1997 (the "Agreement"), by and among AIMCO, AIMCO Properties, L.P., a Delaware limited partnership (the "Operating Partnership"), Demeter Holdings Corporation, a Massachusetts corporation ("Demeter"), Phemus Corporation, a Massachusetts corporation ("Phemus"), Capricorn Investors, L.P., a Delaware limited partnership ("Capricorn"), J. Roderick Heller, III and NHP Partners Two LLC, a Delaware limited liability company ("NHP Partners Two LLC"). NHP Partners owns all of the outstanding capital stock of the National Corporation for Housing Partnerships, a District of Columbia corporation ("NCHP"), which is the general partner of The National Housing Partnership, a District of Columbia limited partnership ("NHP"). Together, NCHP and NHP Partners Two own all of the outstanding partnership interests in NHP. NHP is the general partner of National Housing Partnership Realty Fund I (a Maryland Limited Partnership) (the "Registrant" or "Partnership"). As a result of these transactions, the AIMCO Group has acquired control of the general partner of the Registrant and, therefore, may be deemed to have acquired control of the Registrant.
The Original Limited Partner of the Partnership is 1133 Fifteenth Street Associates, whose limited partners were key employees of NCHP at the time the Partnership was formed and whose general partner is NHP.
Significant Accounting Policies
The financial statements of the Partnership are prepared on the accrual basis of accounting. Direct costs of acquisition, including acquisition fees and reimbursable acquisition expenses paid to the General Partner, have been capitalized as investments in the Local Limited Partnerships. Other fees and expenditures of the Partnership are recognized as expenses in the period the related services are performed.
Investments in Local Limited Partnerships are accounted for using the equity method and thus are carried at cost plus the Partnership's share of the
NATIONAL HOUSING PARTNERSHIP REALTY FUND I
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Local Limited Partnerships' profits less the Partnership's share of the Local Limited Partnerships' losses and distributions (see Note 3). An investment account is maintained for each of the limited partnership investments and losses are not recognized once an investment account has decreased to zero. Cash distributions are limited by the Regulatory Agreements between the Local Limited Partnerships and HUD to the extent of surplus cash as defined by HUD. Undistributed amounts are cumulative and may be distributed in subsequent years if future operations provide surplus cash in excess of current requirements. Distributions received from Local Limited Partnerships in which the Partnership's investment account has decreased to zero are recorded as revenue in the year they are received. Advances to Local Limited Partnerships are included with Investments in Local Limited Partnerships to the extent that the advances are not temporary advances of working capital.
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that effect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
For purposes of the Statements of Cash Flows, the Partnership considers all highly liquid debt instruments purchased with original maturities of three months or less to be cash equivalents.
2. CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of the following:
3. INVESTMENTS IN AND ADVANCES TO LOCAL LIMITED PARTNERSHIPS
The Partnership owns a 98% limited partnership interest in Gates Mills I Limited Partnership and 99% limited partnership interests in nine other Local Limited Partnerships: Fairmeadows Limited Partnership, Forest Green Limited Partnership, Griffith Limited Partnership, Northgate Village Limited Partnership, Southward Limited Partnership, San Jose Limited Partnership, Southridge Apartments Limited Partnership, Hurbell IV Limited Partnership and Village Green Limited Partnership. Since the Partnership, as a limited partner, does not exercise control over the activities of the Local Limited Partnerships in accordance with the partnership agreements, these investments are accounted for using the equity method. Thus, the investments are carried at cost plus the Partnership's share of the Local Limited Partnerships' profits less the Partnership's share of the Local Limited Partnerships' losses and distributions. However, since the Partnership is not legally liable for the obligations of the Local Limited Partnerships, or is not otherwise committed to provide additional support to them, it does not recognize losses once its investment in each of the individual Local Limited Partnerships, increased for its share of profits, reduced for its share of losses and cash distributions, reaches zero. As of December 31, 1995, investments in all ten of the Local Limited Partnerships had been reduced to zero. However, during 1996, Forest Green and Village Green Limited Partnerships completed discounted buyout agreements for early settlement of their deferred acquisition notes and related accrued interest payable, resulting in gains of $1,367,660 and
NATIONAL HOUSING PARTNERSHIP REALTY FUND I
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
$1,378,734, respectively, for the two Local Limited Partnerships. As a result, the Partnership has recorded its share of profits and gain on extinguishment of debt, net of previously unrecorded losses of $918,193, in the two Local Limited Partnerships which amounted to $20,779 and $1,763,685, respectively, for the year ended December 31, 1996. Its share of net losses from both Local Limited Partnerships was $27,003 for the year ended December 31, 1997. The Partnership did not recognize $1,500,538, $2,184,536 and $1,751,784 of losses from eight, eight and ten Local Limited Partnerships during 1997, 1996 and 1995, respectively. As of December 31, 1997 and 1996, the Partnership has not recognized $15,810,513 and $14,309,975, respectively, of its allocated share of cumulative losses from the Local Limited Partnerships in which its investment is zero.
Advances made by the Partnership to the individual Local Limited Partnerships are considered part of the Partnership's investment in Local Limited Partnerships. When advances are made, they are charged to operations as a loss on investment in the Local Limited Partnership using previously unrecognized cumulative losses. As discussed above, due to the cumulative losses incurred by the Local Limited Partnerships, the aggregate balance of investments in and advances to Local Limited Partnerships has been reduced to zero at December 31, 1997 and 1996, for eight Local Limited Partnerships. To the extent these advances are repaid by the Local Limited Partnerships in the future, the repayments will be credited as distributions and repayments received in excess of investment in Local Limited Partnerships. These advances remain due and payable to the Partnership. Interest is calculated at the Chase Manhattan prime rate plus 2% (10.5% at December 31, 1997). Payment of principal and interest is contingent upon the Local Limited Partnerships having available surplus cash, as defined by HUD regulations, from operations or from refinancing or sale of the Local Limited Partnership properties.
During 1996 and 1995, the Partnership advanced $23,472 and $95,230 to one and two Local Limited Partnerships to fund the early settlement of their deferred acquisition notes. During 1997, the Partnership made no advances for working capital purposes. Repayments of advances of $2,639, $36,612 and zero and accrued interest of $3,004, $24,277 and $37,561 were received from one, two and one Local Limited Partnership during 1997, 1996 and 1995, respectively. At December 31, 1997, the Partnership's working capital advances to Local Limited Partnerships amounted to $376,951.
Summaries of the combined financial position of the aforementioned Local Limited Partnerships as of December 31, 1997 and 1996, and the combined results of operations for each of the three years in the period ended December 31, 1997, are provided on the following page.
NATIONAL HOUSING PARTNERSHIP REALTY FUND I
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
COMBINED FINANCIAL POSITION OF THE LOCAL LIMITED PARTNERSHIPS
NATIONAL HOUSING PARTNERSHIP REALTY FUND I
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
The combined financial statements of the Local Limited Partnerships are prepared on the accrual basis of accounting. Each Local Limited Partnership was formed during 1984 for the purpose of acquiring and operating a rental housing project originally organized under Section 236 of the National Housing Act. During the year ended December 31, 1997, all of the projects received a substantial amount of rental assistance from HUD.
The following table indicates the year within the Section 8 rent subsidy contracts expire:
Of the contracts above expiring during 1998, contracts for 837 units expire on or prior to September 30, 1998. Congress has passed legislation which will provide a one-year renewal contract to replace those contracts.
The contract covering the remaining 124 units expires in October, 1998. It is uncertain whether this agreement, as well as the agreements expiring subsequent to 1998, will be renewed, and if so, on what terms.
For the past several years, various proposals have been advanced by the United States Department of Housing and Urban Development ("HUD"), Congress and others proposing the restructuring of HUD's rental assistance programs under Section 8 of the United States Housing Act of 1937 ("Section 8"), under which 1,213 units, 77 percent of the total units owned by the properties in which the Partnership has invested, receive rental subsidies. On October 27, 1997, the President signed into law the Multifamily Assisted Housing Reform and Affordability Act of 1997 (the "1997 Housing Act"). Under the 1997 Housing Act, certain properties assisted under Section 8, with rents above market levels and financed with HUD-insured mortgage loans, will be restructured by adjusting subsidized rents to market levels, thereby potentially reducing rent subsidies, and lowering required debt service costs as needed to ensure financial viability at the reduced rents and rent subsidies. The 1997 Housing Act retains project-based subsidies for most properties (properties in rental markets with limited supply, properties serving the elderly, and certain other properties). The 1997 Housing Act phases out project-based subsidies on selected properties servicing families not located in rental markets with limited supply, converting such subsidies to a tenant-based subsidy. Under a tenant-based system, rent vouchers would be issued to qualified tenants who then could elect to reside at properties of their choice, provided such tenants have the financial ability to pay the difference between the selected properties' monthly rent and the value of the vouchers, which would be established based on HUD's regulated fair market rent for the relevant geographical areas. The 1997 Housing Act provides that properties will begin the restructuring process in federal fiscal year 1999 (beginning October 1, 1998), and that HUD will issue final regulations implementing 1997 Housing Act on or before October 27, 1998. With respect to Housing Assistance Payments Contracts ("HAP Contracts") expiring before October 1, 1998, Congress has elected to renew them for one-year terms, generally at existing rents, so long as the properties remain in compliance with the HAP Contracts. While the Partnership does not expect the provisions of the 1997 Housing Act to result in a significant number of tenants relocating from properties owned by the Local Limited Partnerships, there can be no assurance that the provisions will not significantly affect the operations of the properties of the Local Limited Partnerships. Furthermore, there can be no assurance that other changes in Federal housing subsidy policy will not occur. Any such changes could have an adverse effect on the operation of the Partnership.
NATIONAL HOUSING PARTNERSHIP REALTY FUND I
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
Depreciation of the buildings and improvements for eight of the Local Limited Partnerships is computed on a straight-line method, assuming a 50-year life from the date of initial occupancy at the time of construction or after substantial rehabilitation of the building, and depreciation of equipment is calculated using accelerated methods over estimated useful lives of 5 to 27 years. Depreciation for one of the Local Limited Partnerships is computed using the straight-line method, assuming a 30-year life and a 30% salvage value, while depreciation for another Local Limited Partnership is computed using the straight-line method assuming a 40-year life.
The mortgage notes payable are insured by the Federal Housing Administration (FHA) and collateralized by first deeds of trust on the rental properties. The notes bear interest at rates ranging from 7% to 8.5% per annum. However, FHA makes subsidy payments directly to the mortgage lender reducing the monthly principal and interest payments of the project owner to an effective interest rate of 1% over the forty-year term of the notes. The liability of the Local Limited Partnerships under the mortgage notes is limited to the underlying value of the real estate collateral plus other amounts deposited with the lenders.
Deferred acquisition notes of $12,806,307 at December 31, 1997 and 1996, bear simple interest at rates of 9% or 10% per annum. These notes are collateralized by security interests in all partnership interests of the Local Limited Partnerships. Neither principal nor interest are payable currently, except for the Griffith, Fairmeadows and Southridge acquisition notes which are discussed below; all principal and accrued interest are payable upon the earlier of the sale, transfer, or refinancing of the project or maturity of the notes. Notes for two Local Limited Partnerships, Fairmeadows and Southridge, matured in 1994, but were renewed and extended in 1996. Other notes mature during 1998 and 1999.
The Fairmeadows and Southridge deferred acquisition notes matured on September 24, 1994 and October 18, 1994, respectively. On September 10, 1996, the Fairmeadows and Southridge Limited Partnerships and the holders of the acquisition notes entered into a Modification, Renewal and Extension of Note and Lien Agreement (the "Agreements") for each of these two properties effective retroactively to December 31, 1995. Simultaneous with the execution of the Agreements, the General Partner made loans in the amount of $33,314 to the Fairmeadows Local Limited Partnerships and $37,338 to the Southridge Local Limited Partnership to cover interest payments to the note holders of $20,000 for Fairmeadows and $24,000 for Southridge, as well as additional fees required to be paid third parties to accomplish these transactions. The Agreements extend the term of the acquisition notes through December 1, 2011, provided that minimum annual interest installments are paid on or before December 31 of each year beginning in 1996. The 1996 annual interest installments, in the amount of $45,000 for Fairmeadows and $50,000 for Southridge paid prior to December 31, 1996, will increase each year by the amount of the Consumer Price Index for All Urban Consumers, but no more than 5% and no less than 2.5%. The 1997 annual interest installments, in the amount of $46,530 for Fairmeadows and $51,700 for Southridge were paid prior to December 31, 1997. Any failure to pay the annual interest payments required under the provisions of the Agreements will result in a default of the acquisition notes, enabling the holders of the notes to proceed to foreclosure. Prior to December 31, 2010, and provided there is no default, the Local Limited Partnerships shall have the right to make a discounted cash payment in full payment and satisfaction of the notes. Such discounted cash payments were specific as $450,000 for Fairmeadows and $500,000 for Southridge for 1996 and increase each year calculated as ten times the minimum annual installment of interest due in that year. The balances of the deferred acquisition notes at December 31, 1997, were $1,848,750 and $2,166,725 with accrued interest of $3,363,192 and $3,002,453 for Fairmeadows and Southridge, respectively. There can be no assurance that the Local Limited Partnerships will have sufficient cash or that the General Partner will loan additional cash to the Local Limited Partnerships, if necessary, to make the annual installment payments required under the Agreements. The failure to make the required payments may result in a loss of interest in these Local Limited Partnerships, which may result in the partners incurring adverse tax consequences.
NATIONAL HOUSING PARTNERSHIP REALTY FUND I
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
On October 2, 1995, Village Green and Forest Green Limited Partnerships entered into Note Purchase and Sale Agreements ("Agreements") for the discounted purchase of the deferred acquisition notes due to the original owners of these Properties. The Agreements require two installment payments totaling $175,000 for the purchase of each of the notes. The initial installment payments of $120,000 each were made upon execution of the Agreements. The final installments of $55,000 each were paid on May 1, 1996.
The Forest Green Local Limited Partnership paid the final installment with surplus cash generated during 1995. The final installment for the Village Green Local Limited Partnership was made with $21,201 of surplus cash generated during 1995 and by obtaining loans from the Partnership and the General Partner of $23,472 and $237, respectively during 1996. As a result of the payment of the final installments, the balances of the total deferred acquisition notes payable and related accrued interest have been reduced to zero, resulting in gains on extinguishment of debt of $1,367,660 and $1,378,734 for Forest Green and Village Green Limited Partnerships, respectively, for the year ended December 31, 1996.
Griffith Limited Partnership has defaulted on its deferred acquisition note and related accrued interest which became due on October 31, 1997, with a balance of $2,619,623 at December 31, 1997, which raises substantial doubt about the Local Limited Partnership's ability to continue as a going concern with its present ownership structure. The Local Limited Partnership's continued existence as a going concern with its present ownership structure is dependent on the ability to repay, refinance, restructure, or renegotiate this note. The General Partner is currently negotiating to extend the note and maintain ownership of the property.
Southward Limited Partnership and Northgate Village Limited Partnership have deferred acquisition notes due on October 4, 1998 and July 26, 1999, respectively, with balances of $3,525,458 and $2,270,380, respectively, including accrued interest of $1,916,908 and $1,301,380 at December 31, 1997, which raises substantial doubt about the Local Limited Partnerships' ability to continue as going concerns with their present ownership structure. The Local Limited Partnerships' continued existence as going concerns with their present ownership structure is dependent on the ability to repay, refinance, restructure, or renegotiate these notes. The general partner is currently negotiating to extend the notes and maintain ownership of the properties.
In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" (the "Statement") effective for financial statements for fiscal years beginning after December 15, 1995. Adoption of this Statement during the year ended December 31, 1996 required an impairment loss to be recognized if the sum of estimated future cash flows (undiscounted and without interest charges) is less than the carrying amount of rental property. The impairment loss would be the amount by which the carrying value exceeds the fair value of the rental property. If the rental property is to be disposed of, fair value is calculated net of costs to sell.
The Hurbell IV Limited Partnership recorded an impairment loss of $455,845, which is the difference between fair value and the cost (net of accumulated depreciation) of its rental property. Fair value has been determined by dividing the estimated annual cash flow by an assumed cap rate of 11 percent. These assets were evaluated for impairment as a result of an analysis of cash flows and future operating plans of the Local Limited Partnership. Because of inherent uncertainties in estimating cash flows and fair values, it is at least reasonably possible that actual results will vary from these estimates. This impairment loss had no impact on the Partnership's results of operations, since its investment in Hurbell IV Limited Partnership had been reduced to zero in a prior year.
NATIONAL HOUSING PARTNERSHIP REALTY FUND I
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
Additionally, regardless of whether an impairment loss of an individual property has been recorded or not, the carrying value of each of the rental properties may still exceed their fair market value as of December 31, 1997. Should a Local Limited Partnership be forced to dispose of any of its properties, it could incur a loss.
4. TRANSACTIONS WITH THE GENERAL PARTNER AND AFFILIATES OF THE GENERAL PARTNER
The Partnership accrued administrative and reporting fees payable to the General Partner of $86,392 annually during 1997, 1996, and 1995. No payments for such fees were made to the General Partner in 1997, 1996 and 1995. As of December 31, 1997 and 1996, the Partnership owed $829,964 and $743,572, respectively, to the General Partner for accrued administrative and reporting fees.
During 1996, the General Partner advanced $9,911 to the Partnership to pay operating expenses. During 1997, repayments of principal and interest of $3,596 and $2,047, respectively were made by the Partnership to the General Partner. No repayments were made by the Partnership during 1996. Interest is charged on borrowing at the Chase Manhattan Bank prime interest rate plus 2%. Chase Manhattan Bank prime was 8.5% at December 31, 1997. Interest accrued for the years ended December 31, 1997 and 1996 was $1,203 and $844, respectively, which is included in other operating expenses on the Partnership's Statement of Operations.
An affiliate of the General Partner, NHP Management Company ("NHPMC"), formerly a wholly owned subsidiary of NHP Incorporated ("NHPI"), is the project management agent for the projects operated by eight of the Local Limited Partnerships. During May 1997, AIMCO acquired approximately 51% of the voting stock of NHPI. An additional 3% of the voting stock was acquired by AIMCO in August 1997. On December 8, 1997, the NHPI stockholders elected to merge with AIMCO. After the merger, NHPMC became a wholly owned subsidiary of AIMCO. NHPMC and other affiliates of NCHP earned $812,257, $775,238 and $756,629 from the Local Limited Partnerships for management fees and other services provided to the Local Limited Partnerships during 1997, 1996 and 1995, respectively. In 1996, NHPI paid an affiliate of NHP approximately $80,000 to secure the rights to manage Fairmeadows and Southridge for the year ended December 31, 1997. At December 31, 1997 and 1996, amounts due NHPMC and unpaid by the Local Limited Partnership amounted to $58,061and $57,915, respectively.
Personnel working at the project sites, which are managed by NHPMC, were employees of NHPI during the period January 1, 1996 through December 8, 1997 and became employees of NHPMC (as a successor employer) as of December 8, 1997 and, therefore, the projects reimbursed NHPI and NHPMC for the actual salaries and related benefits. At December 31, 1996, trade payables include $5,314 due to NHPI. At December 31, 1995, trade payables include $60 due to NCHP. Total reimbursements earned for salaries and benefits for the years ended December 31, 1997, 1996 and 1995, were approximately $875,000, $896,000 and $795,000, respectively. Additionally, at December 31, 1997, trade payables include $11,281 due to NHPMC.
An affiliate of the Local Partner of one of the Local Limited Partnerships provides management services for the property owned by the Local Limited Partnership. During 1997, 1996 and 1995, they received $69,797, $71,308 and $69,977, respectively, for these services. Additionally, in 1997, 1996 and 1995, $8,130 $6,456 and $4,949, respectively, was paid to another affiliate of this Local Partner for painting services.
5. INCOME TAXES
The Partnership is not taxed on its income. The partners are taxed in their individual capacities upon their distributive share of the Partnership's taxable income or loss and are allowed the benefits to be derived from off-setting their distributive share of the tax losses against taxable income from other sources subject to passive loss
NATIONAL HOUSING PARTNERSHIP REALTY FUND I
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
limitations. The taxable income or loss differs from amounts included in the statements of operations because different methods are used in determining the losses of the Local Limited Partnerships as discussed below. The tax loss is allocated to the partner groups in accordance with Section 704(b) of the Internal Revenue Code and therefore is not necessarily proportionate to the interest percentage owned.
For Federal income tax purposes, the ten Local Limited Partnerships compute depreciation of the buildings and improvements using the Accelerated Cost Recovery System (ACRS) and the Modified Accelerated Cost Recovery System (MACRS). Rent received in advance is included as income in determining the taxable income or loss for Federal income tax purposes, while, for financial statement purposes, the amount is considered a liability. In addition, interest expense on the acquisition notes payable by the Local Limited Partnerships is computed for Federal income tax purposes using the economic accrual method; while for financial statement purposes interest is computed using a simple interest rate. The Partnership's allocable share of losses from the Local Limited Partnerships is not recognized for financial statement purposes when its investment account is decreased to zero while, for income tax purposes, losses continue to be recognized. Other differences result from the allocation of tax losses in accordance with Section 704(b) of the Internal Revenue Code.
A reconciliation follows:
As discussed in Note 3, three of the Local Limited Partnerships in which the Partnership has invested may not be able to continue as going concerns. Should a Local Limited Partnership not continue as a going concern, or the Partnership itself not continue as a going concern (see Note 7), there could be adverse tax consequences to the partners in the Partnership. The impact of the tax consequences is dependent upon each partner's individual tax situation.
NATIONAL HOUSING PARTNERSHIP REALTY FUND I
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
6. ALLOCATION OF RESULTS OF OPERATIONS, CASH DISTRIBUTIONS AND GAINS AND LOSSES FROM SALES OR REFINANCING
Cash received by the Partnership from the sale or refinancing of any underlying property of the Local Limited Partnerships, after payment of the applicable mortgage debt and the payment of all expenses related to the transaction is to be distributed in the following manner in accordance with Realty Fund I's Partnership Agreement.
First, to the General Partner for any unrepaid loans to the Partnership and any unpaid fees (other than disposition and refinancing fees);
Second, to the establishment of any reserves which the General Partner deems reasonably necessary for contingent, unmatured or unforeseen liabilities or obligations of the Partnership.
Third, to the Limited Partners until the Limited Partners have received a return of their capital contributions, after deduction for prior cash distributions from sales or refinancing, but without deduction for prior cash distributions from operations;
Fourth, to the Limited Partners, until each Limited Partner has received an amount equal to a cumulative noncompounded 6% annual return on its capital contribution, after deduction of (a) an amount equal to 50% of the tax losses allocated to the Limited Partner and (b) prior cash distributions from operations and prior cash distributions from sales or refinancing;
Fifth, to the General Partner until the General Partner has received a return of its capital contribution, after deduction for prior cash distributions from sales or refinancing, but without deduction for prior cash distributions from operations;
Sixth, to the General Partner for disposition and refinancing fees, including prior disposition and refinancing fees which have been accrued but are unpaid;
Seventh, to the partners with positive capital accounts to bring such accounts to zero; and
Finally, 85% of the remaining sales proceeds to the Limited Partners and 15% to the General Partner.
Net income or loss from operations of the Partnership is allocated 98% to the Limited Partners, 1% to the General Partner and 1% to the Original Limited Partner. Cash distributions from operations, after payment of certain obligations including reimbursement on a cumulative basis of direct expenses incurred by the General Partner or its affiliate in managing the properties and payment of annual cumulative administrative and reporting fees, is distributed 98% to the Limited Partners, 1% to the General Partner and 1% to the Original Limited Partner.
Gain for federal income tax purposes realized in the event of dissolution of the Partnership or upon sale of interests in a Local Limited Partnership or underlying property will be allocated in the following manner:
First, to the Limited Partners in an amount up to the negative balances of the capital accounts of Limited Partners in the same proportion as each Limited Partner's negative capital account bears to such aggregate negative capital accounts;
Second, to the General Partner in an amount up to the General Partner's negative capital account, if any;
NATIONAL HOUSING PARTNERSHIP REALTY FUND I
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
Third, to the Limited Partners up to the aggregate amount of capital contributions of the Limited Partners, after deduction for prior cash distributions from sales or refinancing, but without deduction for prior cash distributions from operations, in the same proportion that each Limited Partner's capital contribution bears to the aggregate of all Limited Partners' capital contributions;
Fourth, to the Limited Partners, until each Limited Partner has been allocated an amount equal to a cumulative noncompounded 6% annual return on its capital contribution, after deduction of (a) an amount equal to 50% of the tax losses allocated to the Limited Partner and (b) prior cash distributions from operations and prior cash distributions from sales or refinancing;
Fifth, to the General Partner up to the aggregate amount of capital contributions made by the General Partner, after deduction for prior cash distributions from sales or refinancing, but without deduction for prior cash distributions from operations; and
Finally, 85% of the remaining gain to the Limited Partners and 15% to the General Partner.
Losses for federal income tax purposes realized in the event of dissolution of the Partnership or upon sale of interests in a Local Limited Partnership or underlying property will be allocated 85% to the Limited Partners and 15% to the General Partner.
7. FUTURE OPERATIONS AND CASH FLOWS
In recent years, the Partnership has incurred operating expenses, exclusive of amounts due to the General Partner, in excess of operating revenues. Should cash and cash equivalents on hand, coupled with future distributions from the Local Limited Partnerships not be adequate to fund operating expenses, the Partnership may need other sources of funding such as loans from the General Partner. However, the General Partner is under no obligation to provide such loans.
The Partnership's continued existence as a going concern is dependent upon maintaining positive cash flows from operations, obtaining additional capital from partners, or borrowing additional funds. NHP intends to manage the Partnership prudently so as to produce positive cash flows from its operations.
8. RESTATEMENT OF DECEMBER 31, 1996 FINANCIAL STATEMENTS
Subsequent to the issuance of the Partnership's 1996 financial statements, the Partnership's management determined that its share of extraordinary gain from the extinguishment of debt recorded in the statement of operations was incorrectly calculated due to a clerical error.
As a result, the 1996 financial statements have been restated from the amounts previously reported to properly report the Partnership's share of extraordinary gain and its Investment in and Advances to Local Limited Partnerships.
NATIONAL HOUSING PARTNERSHIP REALTY FUND I
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
The effects of the restatement are as follows:
********************
NATIONAL HOUSING PARTNERSHIP REALTY FUND I A LIMITED PARTNERSHIP SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION OF LOCAL LIMITED PARTNERSHIPS I WHICH NHP REALTY FUND I HAS INVESTED DECEMBER 31, 1997
See notes to Schedule III.
NATIONAL HOUSING PARTNERSHIP REALTY FUND I
A LIMITED PARTNERSHIP
NOTES TO SCHEDULE III - REAL ESTATE AND
ACCUMULATED DEPRECIATION OF LOCAL LIMITED
PARTNERSHIPS IN WHICH NHP REALTY FUND I HAS INVESTED
DECEMBER 31, 1997
(2) The aggregate cost of land for Federal income tax purposes is $3,252,204 and the aggregate costs of buildings and improvements for Federal income tax purposes is $42,099,293. The total of the above-mentioned items is $45,351,497.
NATIONAL HOUSING PARTNERSHIP REALTY FUND I
A LIMITED PARTNERSHIP
NOTES TO SCHEDULE III - REAL ESTATE AND
ACCUMULATED DEPRECIATION OF LOCAL LIMITED
PARTNERSHIPS IN WHICH NHP REALTY FUND I HAS INVESTED
DECEMBER 31, 1997
(CONTINUED)
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant
(a), (b) and (c). The Partnership has no directors, executive officers or significant employees of its own.
(a), (b), (c), (e) and (f). The names, ages, business experience and involvement in legal proceedings of the directors and executive officers of National Corporation for Housing Partnerships (NCHP), the sole general partner of The National Housing Partnership, the sole general partner of the Partnership, and certain of its affiliates, are as follows:
Directors of NCHP
Six individuals comprise the Board of Directors of NCHP. Two directors were appointed by the President of the United States, by and with the advice and consent of the Senate.
Terry Considine (age 50) was elected Chairman, Chief Executive Officer and a Director of NCHP in 1997. Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO since July 1994, and was President until July 1997. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of the AIMCO Predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar. He served as a Colorado State Senator from 1987 - 1992 and in 1992 was the Republican nominee for election to the United States Senate from Colorado.
Peter K. Kompaniez (age 52) was elected Vice Chairman, President and a Director of NCHP in 1997. Mr. Kompaniez has been Vice President and a Director of AIMCO since July 1994 and was appointed President in July 1997. Mr. Kompaniez has also served as Chief Operating Officer of NHP and President of NHP Partners since June 1997. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall).
Susan R. Baron (age 46) is an attorney specializing in conventional and government-assisted real estate development and finance in the residential and commercial markets. From 1978 to 1993 she was with the Washington, D.C. law firm of Dunnells, Duvall & Porter. Ms. Baron serves on the of Seeds of Peace Advisory Board and is a past president of the National Leased Housing Association. She was appointed to the Board of Directors by the President of the United States in September 1994 to complete a term expiring in October 1994 and continues to serve until the appointment of a successor.
Alan A. Diamonstein (age 66) has been a member of the Virginia House of Delegates since 1967, currently serving as Chairman of the General Laws Committee and a member of the standing committees on Appropriations, Education and Rules. He is Chairman of the Virginia Housing Study Commission and is a member of the Peninsula Board of Advisors for Signet Bank, the Jamestown-Yorktown Board of Trustees, as well as a
number of educational and civic organizations. Mr. Diamonstein is the senior partner in the law firm of Diamonstein, Becker and Staley. He was appointed to the Board of Directors by the President of the United States in October 1994 and continues to serve until the appointment of a successor.
Leeann Morein (age 43) was elected Senior Vice President Investor Services and a Director of NCHP in 1997. Ms Morein has served as Senior Vice President Investor Services AIMCO since November 1997. Ms. Morein has served as Secretary of AIMCO since July 1994 and from July 1994 until October 1997 also served as Chief Financial Officer. From September 1990 to March 1994, Ms. Morein served as Chief Financial Officer of the real estate subsidiaries of California Federal Bank, including the general partner of CF Income Partners, L.P., a publicly-traded master limited partnership. Ms. Morein joined California Federal in September 1988 as Director of Real Estate Syndications Accounting and became Vice President--Financial Administration in January 1990. From 1983 to 1988, Ms. Morein was Controller of Storage Equities, Inc., a real estate investment trust, and from 1981 to 1983, she was Director of Corporate Accounting for Angeles Corporation, a real estate syndication firm. Ms. Morein worked on the audit staff of Price Waterhouse from 1979 to 1981. Ms. Morein received a B.A. from Pomona College and is a Certified Public Accountant.
Thomas W. Toomey (age 37) was elected Executive Vice President Finance and Administration and a Director of NCHP in 1997. Mr. Toomey has served as Senior Vice President--Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice President--Finance and Administration in March 1997. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant.
EXECUTIVE OFFICERS
The current executive officers of NCHP and a description of their principal occupations in recent years are listed below.
Terry Considine (age 50). See "Directors of NCHP."
Peter K. Kompaniez (age 52). See "Directors of NCHP."
Leeann Morein (age 43). See "Directors of NCHP."
Thomas W. Toomey (age 37). See "Directors of NCHP."
Joel F. Bonder (age 49) was appointed Executive Vice President, General Counsel and Secretary of NCHP and AIMCO effective with the NHP merger. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NCHP since April 1994. Mr. Bonder also served as Vice President and Deputy General Counsel from June 1991 to March 1994, as Associate General Counsel from 1986 to 1991, and as Assistant General Counsel from 1985 to 1986. From 1983 to 1985, he was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies.
Steven D. Ira (age 47) has served as Executive Vice President of NCHP since 1997 and of AIMCO since 1994. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment
Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Boards of Directors of the National Multi-Housing Council, the National Apartment Association and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975.
David L. Williams (age 52) has served as Executive Vice President--Operations of NCHP and AIMCO since 1997. Prior to joining AIMCO, Mr. Williams was Senior Vice President of Operations at Evans Withycombe Residential, Inc. from January 1996 to January 1997. Previously, he was Executive Vice President at Equity Residential Properties Trust from October 1989 to December 1995. He has served on National Multi-Housing Council Boards and NAREIT committees. Mr. Williams Also served as Senior Vice President of Operations and Acquisitions of US Shelter Corporation from 1983 to 1989. Mr. Williams has been involved in the property management, development and acquisition of real estate properties since 1973. Mr. Williams received his B.A. in education and administration from the University of Washington in 1967.
Troy D. Butts (age 33) has served as Senior Vice President and Chief Financial Officer of NCHP and AIMCO since November 1997. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant.
(d) There is no family relationship between any of the foregoing directors and executive officers.
Item 11.
Item 11. Executive Compensation
National Housing Partnership Realty Fund I has no officers or directors. However, as outlined in the prospectus, various fees and reimbursements are paid to the General Partner and its affiliates. Following is a summary of such fees paid or accrued during the year ended December 31, 1997:
(i) Administrative and reporting fees of $86,392 accrued during the year but not yet paid to the General Partner for managing the affairs of the Partnership and for investor services.
(ii) Annual partnership administration fee of $75,000, payable but not yet paid, to the General Partner for its services as General Partner of the Local Limited Partnerships. Payments of $75,997 were made in 1997.
(iii) An affiliate of the General Partner, NHP Management Company (NHPMC) is the project management agent for the Properties operated by the Local Limited Partnerships. During 1997, NHPMC and other affiliates of NCHP earned $812,257 for management fees and other services provided to the Local Limited Partnerships. At December 31, 1997, $11,281 was due to NHPMC.
(iv) In 1997, personnel working at the project sites which were managed by NHPMC were NHPI employees, and therefore the project reimbursed NHPI for the actual salaries and related benefits. Total reimbursements for salaries and benefits earned for the year ended December 31, 1997, was approximately $875,000.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
1133 Fifteenth Street Associates, a Maryland Limited Partnership, whose general partner is NHP and whose limited partners were key employees of NCHP at the time the Partnership was formed, owns a 1% interest in the Partnership.
Item 13.
Item 13. Certain Relationships and Related Transactions
The Partnership has had no material transactions or business relationships with NHP or its affiliates except as described in Items 8, 10, and 11, above.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Documents filed as part of this report:
1. Financial statements
The financial statements, notes, and reports listed below are included herein:
2. Financial statement schedules
Financial statement schedules for the Registrant:
Schedule III is included in the financial statements listed under Item 14(a)(1) above. All other schedules have been omitted as the required information is inapplicable or the information is presented in the financial statements or related notes.
Financial statements required by Regulation S-X which are excluded from the annual report of shareholders by Rule 14a-3(b): See 3 below.
3. Exhibits
The following combined financial statements of the Local Limited Partnerships in which the Partnership has invested are included as an exhibit to this report and are incorporated herein by reference:
(b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
National Housing Partnership Realty Fund I By: The National Housing Partnership, its sole general partner By: National Corporation for Housing Partnerships, its sole general partner
April 14, 1998 /s/ Troy D. Butts - -------------- ----------------- Date Troy D. Butts Senior Vice President and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
April 14, 1998 /s/ Troy D. Butts - -------------- ----------------- Date Troy D. Butts Senior Vice President and Chief Financial Officer
This registrant is a limited partnership whose sole general partner, The National Housing Partnership, is also a limited partnership. The sole general partner of The National Housing Partnership is National Corporation for Housing Partnerships. The persons indicated are Directors of National Corporation for Housing Partnerships. Powers of Attorney are on file in Registration Statement No. 33-1141 and as Exhibit 24 to the Partnership's Form 10-K for the fiscal year ended December 31, 1997. Other than the Form 10-K report, no annual report or proxy materials have been sent to security holders.
*By Troy D. Butts pursuant to Power of Attorney.
/s/ Troy D. Butts -----------------
Independent Auditors' Report
To The Partners of National Housing Partnership Realty Fund I Indianapolis, IN
We have audited the accompanying combined statements of financial position of the Local Limited Partnerships in which National Housing Partnership Realty Fund I (the Partnership) holds a limited partnership interest as of December 31, 1997 and 1996, and the related combined statements of operations, partners' deficit, and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of Hurbell IV Limited Partnership and Gates Mills I Limited Partnership (two of the ten Local Limited Partnerships) for the years ended December 31, 1997, 1996 and 1995 which statements represent total assets constituting 22% of combined total assets at December 31, 1997 and 1996 and net operating losses constituting 26%, 1% and 15% of combined net operating loss before extraordinary item for each of the three years in the period ended December 31, 1997. The financial statements of these two Local Limited Partnerships were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to amounts included for these Local Limited 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 audit 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. 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, such financial statements present fairly, in all material respects, the combined financial position of the Local Limited Partnerships in which National Housing Partnership Realty Fund I holds a limited partnership interest as of December 31, 1997 and 1996, and the combined results of their operations and cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles.
Deloitte & Touche LLP McLean, VA March 3, 1998
Independent Auditor's Report
Partners Hurbell IV Limited Partnership - Talladega Downs Vienna, VA
We have audited the accompanying statement of financial position of Hurbell IV Limited Partnership (Talladega Downs), A Limited Partnership. FHA Project No. 062-44054-LD, as of December 31, 1997, and the related statements of profit and loss (on HUD Form No. 92410), changes in partners' equity (deficit), and cash flows for the year then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards, and Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit 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. 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Hurbell IV Limited Partnership (Talladega Downs), A Limited Partnership, at December 31, 1997, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles.
In accordance with Government Auditing Standards and the Consolidated Audit Guide for Audits of HUD Programs issued by the U.S. Department of Housing and Urban Development, we have also issued reports dated January 25, 1997 on our consideration of the partnership's internal control structure, on its compliance with laws and regulations applicable to the basic financial statements, the major HUD programs, and Affirmative Fair Housing.
Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The additional information, as referred to in the Table of Contents, is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole.
Russell, Thompson, Butler & Houston Mobile, Alabama January 16, 1998
Independent Auditor's Report
Partners Hurbell IV Limited Partnership - Talladega Downs Vienna, VA
We have audited the accompanying statement of financial position of Hurbell IV Limited Partnership (Talladega Downs), A Limited Partnership. FHA Project No. 062-44054-LD, as of December 31, 1996, and the related statements of profit and loss (on HUD Form No. 92410), changes in partners' equity (deficit), and cash flows for the year then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards, and Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit 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. 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Hurbell IV Limited Partnership (Talladega Downs), A Limited Partnership, at December 31, 1996, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles.
As discussed in Note K to the financial statements, in 1996 the Partnership changed its method of accounting for the impairment of long-lived assets.
In accordance with Government Auditing Standards and the Consolidated Audit Guide for Audits of HUD Programs issued by the U.S. Department of Housing and Urban Development, we have also issued reports dated January 25, 1997 on our consideration of the partnership's internal control structure, on its compliance with laws and regulations applicable to the basic financial statements, the major HUD programs, and Affirmative Fair Housing.
Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The additional information, as referred to in the Table of Contents, is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole.
Russell, Thompson, Butler & Houston Mobile, Alabama January 25, 1997
Independent Auditor's Report
Partners Hurbell IV Limited Partnership - Talladega Downs Reston, VA
We have audited the accompanying statement of financial position of Hurbell IV Limited Partnership (Talladega Downs), A Limited Partnership, FHA Project No. 062-44054-LD, as of December 31, 1995, and the related statements of profit and loss (on HUD Form No. 92410), changes in partners' equity (deficit), and cash flows for the year then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards, Government Auditing Standards, issued by the Comptroller General of the United States, and the Consolidated Audit Guide for Audits of HUD Programs, issued by the U.S. Department of Housing and Urban Development, Office of Inspector General, in July 1993. Those standards require that we plan and perform the audit 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. 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Hurbell IV Limited Partnership (Talladega Downs), a Limited Partnership, at December 31, 1995, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles.
Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The additional information, as referred to in the Table of Contents, is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole.
Russell, Thompson, Butler & Houston Mobile, Alabama January 20, 1996
Independent Auditor's Report
Partners Gates Mills I Limited Partnership Washington, D.C.
We have audited the accompanying statement of financial position of Gates Mills I Limited Partnership, An Ohio Limited Partnership, F.H.A. Project No.: 042-44062-LDP, as of December 31, 1997, and the related statements of profit and loss (on HUD Form No. 92410), partners' deficit and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards and Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit 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. 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Gates Mills I Limited Partnership as of December 31, 1997, and the results of its operations, changes in partners' deficit and cash flows for the year then ended, in conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information, as referred to in the Table of Contents, is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the audit procedures applied in the audit of the basic financial statements, and in our opinion, the supplemental information is fairly stated in all material respects in relation to the basic financial statements taken as a whole.
In accordance with Government Auditing Standards, and the Consolidated Audit Guide for Audits of HUD Programs, we have also issued reports dated January 23, 1997, on our consideration of Gates Mills I Limited Partnership's internal control structure and on its compliance with specific requirements applicable to major HUD programs, affirmative fair housing, and laws and regulations applicable to the financial statements.
Reznick Fedder & Silverman Bethesda, Maryland January 23 ,1998
Independent Auditors' Report
Partners Gates Mills I Limited Partnership Washington, D.C.
We have audited the accompanying statement of financial position of Gates Mills I Limited Partnership, An Ohio Limited Partnership, F.H.A. Project No.: 042-44062-LDP, as of December 31, 1996, and the related statements of profit and loss (on HUD Form No. 92410), partners' deficit and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards and Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit 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. 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Gates Mills I Limited Partnership as of December 31, 1996, and the results of its operations, changes in partners' deficit and cash flows for the year then ended, in conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information, as referred to in the Table of Contents, is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the audit procedures applied in the audit of the basic financial statements, and in our opinion, the supplemental information is fairly stated in all material respects in relation to the basic financial statements taken as a whole.
In accordance with Government Auditing Standards, and the Consolidated Audit Guide for Audits of HUD Programs, we have also issued reports dated January 23, 1997, on our consideration of Gates Mills I Limited Partnership's internal control structure and on its compliance with specific requirements applicable to major HUD programs, affirmative fair housing, and laws and regulations applicable to the financial statements.
Reznick Fedder & Silverman Bethesda, Maryland January 23 ,1997
Independent Auditors' Report
Partners Gates Mills I Limited Partnership Washington, D.C.
We have audited the accompanying statement of financial position of Gates Mills I Limited Partnership, An Ohio Limited Partnership, FHA Project No. 042-44062-LDP, as of December 31, 1995, and the related statements of profit and loss (on HUD Form No. 92410), partners' deficit and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards and Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit 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. 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Gates Mills I Limited Partnership as of December 31, 1995, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information, as referred to in the Table of Contents, is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, the supplemental information is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole.
Reznick Fedder & Silverman Bethesda, Maryland January 30, 1996
NATIONAL HOUSING PARTNERSHIP REALTY FUND I LOCAL LIMITED PARTNERSHIPS COMBINED STATEMENTS OF FINANCIAL POSITION
See notes to combined financial statements.
NATIONAL HOUSING PARTNERSHIP REALTY FUND I
LOCAL LIMITED PARTNERSHIPS
COMBINED STATEMENTS OF OPERATIONS
See notes to combined financial statements.
NATIONAL HOUSING PARTNERSHIP REALTY FUND I
LOCAL LIMITED PARTNERSHIPS
COMBINED STATEMENTS OF PARTNERS' DEFICIT
(A) Holds a 98% limited partnership interest in Gates Mills I Limited Partnership and a 99% limited partnership interest in the nine remaining Local Limited Partnerships.
(B) Holds a 1% general partnership interest in ten Local Limited Partnerships.
(C) Holds a 1% limited partnership interest in Gates Mills I Limited Partnership.
See notes to combined financial statements.
NATIONAL HOUSING PARTNERSHIP REALTY FUND I LOCAL LIMITED PARTNERSHIPS COMBINED STATEMENTS OF CASH FLOWS
See notes to combined financial statements.
NATIONAL HOUSING PARTNERSHIP REALTY FUND I
LOCAL LIMITED PARTNERSHIPS
COMBINED STATEMENTS OF CASH FLOWS
(CONTINUED)
See notes to combined financial statements.
NATIONAL HOUSING PARTNERSHIP REALTY FUND I
LOCAL LIMITED PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS
1. SUMMARY OF PARTNERSHIP ORGANIZATION, BASIS OF COMBINATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
National Housing Partnership Realty Fund I (the Partnership) is a limited partnership organized on October 21, 1983, under the laws of the State of Maryland under the Maryland Revised Uniform Limited Partnership Act. The Partnership was formed for the purpose of raising capital by offering and selling limited partnership interests and then investing in Local Limited Partnerships, each of which owns and operates an existing rental housing project which is financed and/or operated with one or more forms of rental assistance or financial assistance from the U.S. Department of Housing and Urban Development (HUD). A substantial portion of each Local Limited Partnership is received from the housing assistance agreements discussed in Note 3 below. On May 25, 1984, inception of operations, the Partnership began raising capital and acquiring interests in Local Limited Partnerships.
During 1984, the Partnership acquired a 98% limited partnership interest in Gates Mills I Limited Partnership and 99% limited partnership interests in nine other Local Limited Partnerships, each of which was organized during 1984 to acquire and operate an existing rental housing project originally organized under Section 236 of the National Housing Act. As a limited partner in these Local Limited Partnerships, the Partnership does not exercise control over the activities of the Local Limited Partnerships in accordance with the partnership agreements.
On June 3, 1997, Apartment Investment and Management Company, a Maryland corporation ("AIMCO" and, together with its subsidiaries and other controlled entities, the "AIMCO Group"), acquired all of the issued and outstanding capital stock of NHP Partners, Inc., a Delaware corporation ("NHP Partners"), and the AIMCO Group acquired all of the outstanding interests in NHP Partners Two Limited Partnership, a Delaware limited partnership ("NHP Partners Two"). The acquisitions were made pursuant to a Real Estate Acquisition Agreement, dated as of May 22, 1997 (the "Agreement"), by and among AIMCO, AIMCO Properties, L.P., a Delaware limited partnership (the "Operating Partnership"), Demeter Holdings Corporation, a Massachusetts corporation ("Demeter"), Phemus Corporation, a Massachusetts corporation ("Phemus"), Capricorn Investors, L.P., a Delaware limited partnership ("Capricorn"), J. Roderick Heller, III and NHP Partners Two LLC, a Delaware limited liability company ("NHP Partners Two LLC"). NHP Partners owns all of the outstanding capital stock of the National Corporation for Housing Partnerships, a District of Columbia corporation ("NCHP"), which is the general partner of The National Housing Partnership, a District of Columbia limited partnership ("NHP"). Together, NCHP and NHP Partners Two own all of the outstanding partnership interests in NHP. NHP is the general partner of National Housing Partnership Realty Fund I (a Maryland Limited Partnership) (the "Registrant" or "Partnership"). As a result of these transactions, the AIMCO Group has acquired control of the general partner of the Registrant and, therefore, may be deemed to have acquired control of the Registrant.
Basis of Combination
The combined financial statements include the accounts of the following ten Local Limited Partnerships in which the Partnership holds a limited partnership interest.
Fairmeadows Limited Partnership Forest Green Limited Partnership Gates Mills I Limited Partnership Griffith Limited Partnership Hurbell IV Limited Partnership Northgate Village Limited Partnership San Jose Limited Partnership Southridge Apartments Limited Partnership
NATIONAL HOUSING PARTNERSHIP REALTY FUND I
LOCAL LIMITED PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS
(CONTINUED)
Southward Limited Partnership Village Green Limited Partnership
Significant Accounting Policies
The financial statements of the Local Limited Partnerships are prepared on the accrual basis of accounting. For eight of the Local Limited Partnerships, depreciation of the buildings and improvements is computed using the straight-line method, assuming a 50-year life from the date of initial occupancy, and depreciation of equipment is calculated using accelerated methods over estimated useful lives of 5 to 27 years. Depreciation of the buildings and improvements is computed using the straight-line method, assuming a 30-year life and a 30% salvage value for one of the Local Limited Partnerships, while a 40-year life is assumed for the tenth Local Limited Partnership. Cash distributions are limited by the Regulatory Agreement between the Local Limited Partnerships and HUD to the extent of surplus cash as defined by HUD. Undistributed amounts are cumulative and may be distributed in subsequent years if future operations provide surplus in excess of current requirements.
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
For purposes of the statements of cash flows, the Local Limited Partnerships consider all highly liquid debt instruments purchased with initial maturities of three months or less to be cash equivalents.
2. CHANGE IN ESTIMATE
During 1996, depreciation of the building owned by Hurbell IV Local Limited Partnerships has been computed using the straight-line method, assuming a 40-year life from the date of initial occupancy at the time of construction or after substantial rehabilitation of the building. Depreciation of the building in prior years was computed using the straight-line method, assuming a 50-year life. This change in estimate did not have a significant impact on the accompanying combined statement of operations.
3. ACCOUNTS RECEIVABLE
NATIONAL HOUSING PARTNERSHIP REALTY FUND I
LOCAL LIMITED PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS
(CONTINUED)
4. HOUSING ASSISTANCE AGREEMENTS
The Federal Housing Administration (FHA) has contracted with the ten Local Limited Partnerships under Section 8 of Title II of the Housing and Community Development Act of 1974, to make housing assistance payments to the Local Limited Partnerships on behalf of qualified tenants. The terms of the agreements are five years with either one or two five-year renewal options. The agreements expire at various dates over the next six years. Each Local Limited Partnership has an agreement in effect during 1997. The Local Limited Partnerships received a total of $3,408,105, $3,542,254 and $3,467,209 in the form of housing assistance payments during 1997, 1996 and 1995, respectively, which is included in "Rental Income" on the combined statements of operations.
The following table indicates the year within the Section 8 rent subsidy contracts expire:
Of the contracts above expiring during 1998, contracts for 837 units expire on or prior to September 30, 1998. Congress has passed legislation which will provide a one-year renewal contract to replace those contracts.
The contract covering the remaining 124 units expires in October, 1998. It is uncertain whether this agreement, as well as the agreements expiring subsequent to 1998, will be renewed, and if so, on what terms.
For the past several years, various proposals have been advanced by the United States Department of Housing and Urban Development ("HUD"), Congress and others proposing the restructuring of HUD's rental assistance programs under Section 8 of the United States Housing Act of 1937 ("Section 8"), under which 1,213 units, 77 percent of the total units owned by the properties in which the Partnership has invested, receive rental subsidies. On October 27, 1997, the President signed into law the Multifamily Assisted Housing Reform and Affordability Act of 1997 (the "1997 Housing Act"). Under the 1997 Housing Act, certain properties assisted under Section 8, with rents above market levels and financed with HUD-insured mortgage loans, will be restructured by adjusting subsidized rents to market levels, thereby potentially reducing rent subsidies, and lowering required debt service costs as needed to ensure financial viability at the reduced rents and rent subsidies. The 1997 Housing Act retains project-based subsidies for most properties (properties in rental markets with limited supply, properties serving the elderly, and certain other properties). The 1997 Housing Act phases out project-based subsidies on selected properties servicing families not located in rental markets with limited supply, converting such subsidies to a tenant-based subsidy. Under a tenant-based system, rent vouchers would be issued to qualified tenants who then could elect to reside at properties of their choice, provided such tenants have the financial ability to pay the difference between the selected properties' monthly rent and the value of the vouchers, which would be established based on HUD's regulated fair market rent for the relevant geographical areas. The 1997 Housing Act provides that properties will begin the restructuring process in federal fiscal year 1999 (beginning October 1, 1998), and that HUD will issue final regulations implementing 1997 Housing Act on or before October 27, 1998. With respect to Housing Assistance Payments Contracts ("HAP Contracts") expiring before October 1, 1998, Congress has elected to renew them for one-year terms, generally at existing rents, so long as the properties remain in compliance with the HAP
NATIONAL HOUSING PARTNERSHIP REALTY FUND I
LOCAL LIMITED PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS
(CONTINUED)
Contracts. While the Partnership does not expect the provisions of the 1997 Housing Act to result in a significant number of tenants relocating from properties owned by the Local Limited Partnerships, there can be no assurance that the provisions will not significantly affect the operations of the properties of the Local Limited Partnerships. Furthermore, there can be no assurance that other changes in Federal housing subsidy policy will not occur. Any such changes could have an adverse effect on the operation of the Partnership.
5. RENTAL PROPERTY
Rental property consists of the following:
6. MORTGAGE NOTES PAYABLE
The mortgage notes payable are insured by FHA and collateralized by first deeds of trust on the rental properties. The notes bear interest at rates ranging from 7% to 8.5% per annum. However, FHA makes subsidy payments directly to the mortgage lender reducing the monthly principal and interest payments of the project owner to an effective interest rate of 1% over the forty-year term of the notes. The liability of the Local Limited Partnerships under the mortgage notes is limited to the underlying value of the real estate collateral, plus other amounts deposited with the lenders.
Under agreements with the mortgage lenders and FHA, the Local Limited Partnerships are required to make monthly escrow deposits for taxes, insurance and reserves for the replacement of project assets, and are subject to restrictions as to operating policies, rental charges, operating expenditures and distributions to partners.
Approximate maturities of mortgage notes payable for the next five years are as follows:
NATIONAL HOUSING PARTNERSHIP REALTY FUND I
LOCAL LIMITED PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS
(CONTINUED)
7. DEFERRED ACQUISITION NOTES PAYABLE
The deferred acquisition notes bear simple interest at rates of 9% and 10% per annum. These notes are nonrecourse and are collateralized by security interests in all partnership interests of the Local Limited Partnerships. All principal balances and accrued interest are payable upon the earlier of the sale, transfer or refinancing of the projects, or the final maturity date of the notes. The notes may be prepaid in whole or in part at any time without penalty.
Maturities of deferred acquisition notes payable as of December 31, 1997, are as follows:
The Fairmeadows and Southridge deferred acquisition note matured on September 24, 1994 and October 18, 1994, respectively. On September 10, 1996, the Fairmeadows and Southridge Limited Partnerships and the holders of the acquisition notes entered into a Modification, Renewal and Extension of Note and Lien Agreement (the "Agreements") for each of these two properties effective retroactively to December 31, 1995. Simultaneous with the execution of the Agreements, the General Partner made loans in the amount of $33,314 to the Fairmeadows Local Limited Partnerships and $37,338 to the Southridge Local Limited Partnership to cover interest payments to the note holders of $20,000 for Fairmeadows and $24,000 for Southridge, as well as additional fees required to be paid third parties to accomplish these transactions. The Agreements extend the term of the acquisition notes through December 1, 2011, provided that minimum annual interest installments are paid on or before December 31 of each year beginning in 1996. The 1996 annual interest installments, in the amount of $45,000 for Fairmeadows and $50,000 for Southridge paid prior to December 31, 1996, will increase each year by the amount of the Consumer Price Index for All Urban Consumers (CPI-U), but no more than 5% and no less than 2.5%. The 1997 annual interest installments, in the amount of $46,530 for Fairmeadows and $51,700 for Southridge paid prior to December 31, 1997. Any failure to pay the annual interest payments required under the provisions of the Agreements will result in a default of the acquisition notes, enabling the holders of the notes to proceed to foreclosure. Prior to December 31, 2010, and provided there is no default, the Local Limited Partnerships shall have the right to make a discounted cash payment in full payment and satisfaction of the notes. Such discounted cash payments were specific as $450,000 for Fairmeadows and $500,000 for Southridge for 1996 and increase each year calculated as ten times the minimum annual installment of interest due in that year. The balances of the deferred acquisition notes at December 31, 1997, were $1,848,750 and $2,166,725 with accrued interest of $3,363,192 and $3,002,453 for Fairmeadows and Southridge, respectively. There can be no assurance that the Local Limited Partnerships will have sufficient cash or that the General Partner will loan additional cash to the Local Limited Partnerships, if necessary, to make the annual installment payments required under the Agreements. The failure to make the required payments may result in a loss of interest in these Local Limited Partnerships, which may result in the partners incurring adverse tax consequences.
On October 2, 1995, Village Green and Forest Green Limited Partnerships entered into Note Purchase and Sale Agreements ("Agreements") for the discounted purchase of the deferred acquisition notes due to the original owners of these Properties. The Agreements require two installment payments totaling $175,000 for the purchase of each of the notes. The initial installment payments of $120,000 each were made upon execution of the Agreements. The final installments of $55,000 each were paid on May 1, 1996.
NATIONAL HOUSING PARTNERSHIP REALTY FUND I
LOCAL LIMITED PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS
(CONTINUED)
The Forest Green Local Limited Partnership paid the final installment with surplus cash generated during 1995. The final installment for the Village Green Local Limited Partnership was made with $21,201 of surplus cash generated during 1995 and by obtaining loans from the Partnership and the General Partner of $23,472 and $237, respectively during 1996. As a result of the payment of the final installments, the balances of the total deferred acquisition notes payable and related accrued interest have been reduced to zero, resulting in gains on extinguishment of debt of $1,367,660 and $1,378,734 for Forest Green and Village Green Limited Partnerships, respectively, for the year ended December 31, 1996.
Griffith Limited Partnership has defaulted on its deferred acquisition note and related accrued interest which became due on October 31, 1997, with a balance of $2,619,623 at December 31, 1997, which raises substantial doubt about the Local Limited Partnership's ability to continue as a going concern with its present ownership structure. The Local Limited Partnership's continued existence as a going concern with its present ownership structure is dependent on the ability to repay, refinance, restructure, or renegotiate this note. The general partner is currently negotiating to extend the note and maintain ownership of the property.
Southward Limited Partnership and Northgate Village Limited Partnership have deferred acquisition notes due on October 4, 1998 and July 26, 1999, respectively, with balances of $3,525,458 and $2,270,380, respectively, including accrued interest of $1,916,908 and $1,301,380 at December 31, 1997, which raises substantial doubt about the Local Limited Partnerships' ability to continue as going concerns with their present ownership structure. The Local Limited Partnerships' continued existence as going concerns with their present ownership structure is dependent on the ability to repay, refinance, restructure, or renegotiate these notes. The general partner is currently negotiating to extend the notes and maintain ownership of the properties.
8. DUE TO PARTNERS
The Local Limited Partnerships accrued annual partnership administration fees payable to the General Partner, The National Housing Partnership (NHP), of $75,000 during 1997, 1996 and 1995, respectively. Payments of these fees are made to NHP without interest from surplus cash available for distribution to partners pursuant to HUD regulations. During 1997, 1996 and 1995, the Local Limited Partnerships paid $75,997, $76,444 and $52,500, respectively. The accumulated fees owed to NHP are $385,328 and $386,325 at December 31, 1997 and 1996, respectively.
During 1997, 1996 and 1995, the General Partner advanced $124,368, $178,562 and $39,049 to ten, five and six Local Limited Partnerships to fund partnership entity expenses, including expenses incurred relating to potential sales or refinancing under the Low Income Housing Preservation and Resident Homeownership Act of 1990 (LIHPRHA). During 1997, 1996 and 1995, three, two and one Local Limited Partnerships made payments of principal of $13,961, $25,415 and $6,927 and interest of $5,622, $2,587 and $1,749, respectively. At December 31, 1997 and 1996, the balance owed to NHP by ten and eight Local Limited Partnerships was $326,072 and $215,665, respectively. Interest on these advances is charged at a rate equal to the Chase Manhattan Bank prime interest rate plus 2%. Chase Manhattan Bank prime was 8.5% at December 31, 1997.
During 1996 and 1995, the Partnership advanced $23,472 and $95,230 to one and two Local Limited Partnerships to fund the early settlement of their deferred acquisition notes. During 1997, the Partnership made no advances for working capital purposes. Repayments of advances of $2,639, $36,612 and zero and accrued interest of $3,004, $24,277 and $37,561 were received from one, two and one Local Limited Partnership during 1997, 1996 and 1995, respectively. At December 31, 1997 and 1996, the Partnership's working capital advances to Local Limited Partnerships amounted to $376,951 and $379,590, respectively. Interest is charged at the Chase Manhattan Bank rate of prime plus 2%. Chase Manhattan Bank prime was 8.5% at December 31, 1997.
NATIONAL HOUSING PARTNERSHIP REALTY FUND I
LOCAL LIMITED PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS
(CONTINUED)
All advances and accumulated interest will be paid in conformity with HUD and/or other regulator requirements and applicable partnership agreements.
9. FEDERAL AND STATE INCOME TAXES
The Local Limited Partnerships are not taxed on their income. The partners are taxed in their individual capacities upon their distributive share of the partnerships' taxable income or loss and are allowed the benefits to be derived from offsetting their distributive share of the tax losses against taxable income from other sources subject to passive loss rule limitations. The taxable income or loss differs from amounts included in the statement of operations primarily because of different methods used in determining depreciation expense and interest on acquisition notes for tax purposes.
For Federal income tax purposes, the Local Limited Partnerships compute depreciation of the buildings and improvements using the Accelerated Cost Recovery System (ACRS) and the Modified Accelerated Cost Recovery System (MACRS). Rent received in advance is included as income in determining the taxable income or loss for Federal income tax purposes; while for financial statement purposes the amount is considered a liability. In addition, interest expense on the acquisition notes payable by the Local Limited Partnerships is computed for Federal income tax purposes using the economic accrual method; while for financial statement purposes interest is computed using a simple interest rate. Other differences result from the allocation of tax losses in accordance with Section 704(b) of the Internal Revenue Code.
A reconciliation follows:
10. IMPAIRMENT LOSS ON RENTAL PROPERTY
In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" (the "Statement") effective for financial statements for fiscal years beginning after December 15, 1995. Adoption of this Statement during the year ended December 31, 1996 requires an impairment loss to be recognized if the sum of estimated future cash flows (undiscounted and without interest charges) is less than the carrying amount of rental property. The impairment loss would be the amount by which the carrying value exceeds the fair value of the rental property. If the rental property is to be disposed of, fair value is calculated net of costs to sell.
NATIONAL HOUSING PARTNERSHIP REALTY FUND I
LOCAL LIMITED PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS
(CONTINUED)
During 1996, the Hurbell IV Limited Partnership recorded an impairment loss of $455,845, which is the difference between fair value and the cost (net of accumulated depreciation) of its rental property. Fair value has been determined by dividing the estimated annual cash flow by an assumed cap rate of 11 percent. These assets were evaluated for impairment as a result of an analysis of cash flows and future operating plans of the Local Limited Partnership. Because of inherent uncertainties in estimating cash flows and fair values, it is at least reasonably possible that actual results will vary from these estimates.
Additionally, regardless of whether an impairment loss of an individual property has been recorded or not, the carrying value of each of the rental properties may still exceed their fair market value as of December 31, 1997. Should a Local Limited Partnership be forced to dispose of any of its properties, it could incur a loss.
11. RELATED-PARTY TRANSACTIONS
An affiliate of the General Partner, NHP Management Company ("NHPMC"), formerly a wholly owned subsidiary of NHP Incorporated ("NHPI"), is the project management agent for the projects operated by eight of the Local Limited Partnerships under agreements which, subject to certain conditions, extend to the year 2020. During May 1997, AIMCO acquired approximately 51% of the voting stock of NHPI. An additional 3% of the voting stock was acquired by AIMCO in August 1997. On December 8, 1997, the NHPI stockholders elected to merge with AIMCO. After the merger, NHPMC became a wholly owned subsidiary of AIMCO. NHPMC and other affiliates of NCHP earned $812,257, $775,238 and $756,629 from the Local Limited Partnerships for management fees and other services provided to the Local Limited Partnerships during 1997, 1996 and 1995, respectively. In 1996, NHPI paid an affiliate of NHP approximately $80,000 to secure the rights to manage Fairmeadows and Southridge for the year ending December 31, 1997. At December 31, 1997 and 1996, amounts due NHPMC and unpaid by the Local Limited Partnership amounted to $58,061 and $57,915, respectively.
Personnel working at the project sites, which are managed by NHPMC, were employees of NHPI during the period January 1, 1996 through December 8, 1997 and became employees of NHPMC (as a successor employer) as of December 8, 1997 and, therefore, the projects reimbursed NHPI and NHPMC for the actual salaries and related benefits. Prior to January 1, 1996, project employees were employees of NCHP. At December 31, 1997 and 1996, trade payables include $11,281 and $5,314 due to NHPMC and NHPI, respectively. Total reimbursements earned for salaries and benefits for the years ended December 31, 1997, 1996 and 1995, were approximately $875,000, $896,000 and $795,000, respectively.
An affiliate of the Local Partner of one of the Local Limited Partnerships provides management services for the property owned by the Local Limited Partnership. During 1997, 1996 and 1995, they received $69,797, $71,308 and $69,977, respectively, for these services. Additionally, in 1997, 1996 and 1995, $8,130 $6,456 and $4,949, respectively, was paid to another affiliate of this Local Partner for painting services.
12. FUTURE OPERATIONS AND CASH FLOWS
As discussed in Note 7, eight of the Local Limited Partnerships in which the Partnership has invested carry deferred acquisition notes due the original owner of each property. With the exception of Fairmeadows and Southridge Limited Partnerships, these notes are due between 1997 and 1999. These notes are secured by both the Partnership's and the General Partner's interests in the Local Limited Partnerships. In the event of a default on the notes, the noteholders would be able to assume the Partnership's and the General Partner's interests in the Local Limited Partnerships.
Griffith Limited Partnership has defaulted on its deferred acquisition note and related accrued interest which became due on October 31, 1997, with a balance of $2,619,623 at December 31, 1997, which raises
NATIONAL HOUSING PARTNERSHIP REALTY FUND I
LOCAL LIMITED PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS
(CONTINUED)
substantial doubt about the Local Limited Partnership's ability to continue as a going concern with its present ownership structure. The Local Limited Partnership's continued existence as a going concern with its present ownership structure is dependent on the ability to repay, refinance, restructure, or renegotiate this note. The general partner is currently negotiating to extend the note and maintain ownership of the property.
Southward Limited Partnership and Northgate Village Limited Partnership have deferred acquisition notes due on October 4, 1998 and July 26, 1999, respectively, with balances of $3,525,458 and $2,270,380, respectively, including accrued interest of $1,916,908 and $1,301,380 at December 31, 1997, which raises substantial doubt about the Local Limited Partnerships' ability to continue as going concerns with their present ownership structure. The Local Limited Partnerships' continued existence as going concerns with their present ownership structure is dependent on the ability to repay, refinance, restructure, or renegotiate these notes. The general partner is currently negotiating to extend the notes and maintain ownership of the properties.
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
FASB Statement No. 107, "Disclosures About Fair Value of Financial Instruments," requires disclosure of fair value information about financial instruments, when it is practicable to estimate that value. The mortgage notes payable are insured by the FHA and are secured by the rental property. The operations generated by the rental property are subject to various government rules, regulations and restrictions which make it impracticable to obtain the information to estimate the fair value of the mortgage note and the partner loans and related accrued interest. For the deferred acquisition notes and related accrued interest, a reasonable estimate of fair value could not be made without incurring excessive costs. The carrying amount of other assets and liabilities reported on the statement of financial position that require such disclosure approximates fair value.
14. NON-CASH INVESTING ACTIVITY
During 1997, one of the Local Limited Partnerships incurred costs in the aggregate of $78,488 for buildings and equipment which are included in trade payables as of December 31, 1997. Included in trade payables as of December 31, 1996 is $84,355 of such costs incurred by three Local Limited Partnerships.
15. CONTINGENCY
In accordance with FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", the Local Limited Partnerships record impairment losses on their rental property when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than their carrying amount. The Local Limited Partnerships listed below, estimates of cash flows anticipates that they will be able to successfully refinance, restructure, or renegotiate their deferred acquisition note payable which are due to 1999. If the Local Limited Partnerships are unsuccessful in these efforts, the Local Limited Partnerships' estimate of undiscounted cash flows will change resulting in the need to write-down the rental property to fair value.
Gates Mills I Limited Partnership Northgate Village Limited Partnership Southward Limited Partnership San Jose Limited Partnership Hurbell IV Limited Partnership