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EX-31.1 - EXHIBIT 31.1 - FOX STRATEGIC HOUSING INCOME PARTNERSfox_ex31z1.htm
EX-32.1 - EXHIBIT 32.1 - FOX STRATEGIC HOUSING INCOME PARTNERSfox_ex32z1.htm
EX-31.2 - EXHIBIT 31.2 - FOX STRATEGIC HOUSING INCOME PARTNERSfox_ex31z2.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

Form 10-Q

 

(Mark One)

 

[X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2010

 

or

 

[ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

For the transition period from _________to _________

 

Commission file number 0-16877

 

 

FOX STRATEGIC HOUSING INCOME PARTNERS

(Exact name of registrant as specified in its charter)

 

California

94-3016373

(State or other jurisdiction of

 (I.R.S. Employer

incorporation or organization)

Identification No.)

 

 

55 Beattie Place, PO Box 1089

Greenville, South Carolina  29602

(Address of principal executive offices)

 

(864) 239-1000

(Registrant's telephone number, including area code)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 

[X] Yes  [ ] No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [ ] Yes  [ ] No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer [ ]

Accelerated filer [ ]

Non-accelerated filer [ ]

(Do not check if a smaller reporting company)

Smaller reporting company [X]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [ ] Yes  [X] No

 


PART I – FINANCIAL INFORMATION

 

ITEM 1.     Financial Statements

 

FOX STRATEGIC HOUSING INCOME PARTNERS

BALANCE SHEETS

(in thousands, except unit data)

 

 

 

March 31,

December 31,

 

2010

2009

 

(Unaudited)

(Note)

Assets

 

 

Cash and cash equivalents

  $     45

  $     63

Receivables and deposits

        16

        20

Other assets

       211

       208

Investment property:

 

 

Land

     1,981

     1,981

Buildings and related personal property

    20,910

    20,896

 

    22,891

    22,877

Less accumulated depreciation

   (10,645)

   (10,120)

 

    12,246

    12,757

 

 

  $ 12,518

  $ 13,048

 

 

 

 

 

 

Liabilities and Partners' Deficit

 

 

Liabilities

 

 

Accounts payable

  $    194

  $    222

Tenant security deposit liabilities

        31

        33

Due to affiliates (Note B)

     3,918

     3,864

Accrued property taxes

        65

        22

Other liabilities

        53

        64

Mortgage note payable

    13,713

    13,771

 

    17,974

    17,976

 

 

 

Partners' Deficit

 

 

General partner

    (1,732)

    (1,721)

Limited partners (26,111 units issued and

    (3,724)

    (3,207)

outstanding)

    (5,456)

    (4,928)

 

  $ 12,518

  $ 13,048

 

 

Note:   The balance sheet at December 31, 2009 has been derived from the audited financial statements at that date but does not include all the information and footnotes required by generally accepted accounting principles for complete financial statements.

 

See Accompanying Notes to Financial Statements

 


 

FOX STRATEGIC HOUSING INCOME PARTNERS

 

STATEMENTS OF OPERATIONS

(Unaudited)

 (in thousands, except per unit data)

 

 

 

 

Three Months Ended

 

March 31,

 

2010

2009

 

 

 

Revenues:

 

 

Rental income

$   494

$   441

Other income

     36

     36

Total revenues

    530

    477

 

 

 

Expenses:

 

 

Operating

    205

    216

General and administrative

     27

     30

Depreciation

    525

    521

Interest

    257

    258

Property taxes

     44

     21

Total expenses

  1,058

  1,046

 

 

 

Net loss

 $  (528)

 $  (569)

 

 

 

Net loss allocated to general partner

 $   (11)

 $   (11)

Net loss allocated to limited partners

    (517)

    (558)

 

 $  (528)

 $  (569)

 

 

 

Net loss per limited partnership unit

 $(19.80)

 $(21.37)

 

See Accompanying Notes to Financial Statements

 


 

FOX STRATEGIC HOUSING INCOME PARTNERS

 

STATEMENT OF CHANGES IN PARTNERS' DEFICIT

(Unaudited)

(in thousands, except unit data)

 

 

 

 

 

Limited

 

 

 

 

Partnership

General

Limited

 

 

Units

Partner

Partners

Total

 

 

 

 

 

Original capital contributions

26,111

 $    --

$26,111

$26,111

 

 

 

 

 

Partners' deficit

 

 

 

 

at December 31, 2009

26,111

 $(1,721)

 $(3,207)

 $(4,928)

 

 

 

 

 

Net loss for the three months

 

 

 

 

ended March 31, 2010

    --

     (11)

    (517)

    (528)

 

 

 

 

 

Partners' deficit

 

 

 

 

   at March 31, 2010

26,111

 $(1,732)

 $(3,724)

 $(5,456)

 

 

 

 

 

 

See Accompanying Notes to Financial Statements

 


FOX STRATEGIC HOUSING INCOME PARTNERS

 

STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

 

 

Three Months Ended

 

March 31,

 

2010

2009

Cash flows from operating activities:

 

 

Net loss

 $  (528)

 $  (569)

Adjustments to reconcile net loss to net cash provided by

 

 

(used in) operating activities:

 

 

Depreciation

     525

     521

Amortization of loan costs

      12

      12

   Bad debt expense

      --

      10

   Change in accounts:

 

 

Receivables and deposits

       4

      (4)

Other assets

     (15)

      (1)

Accounts payable

     (33)

      23

Tenant security deposit liabilities

      (2)

       1

Accrued property taxes

      43

      37

Other liabilities

     (11)

       8

Due to affiliates

      54

     (46)

Net cash provided by (used in) operating

 

 

  activities

      49

      (8)

 

 

 

Cash flows used in investing activities:

 

 

Property improvements and replacements

      (9)

     (76)

 

 

 

Cash flows from financing activities:

 

 

Payments on mortgage note payable

     (58)

      --

Loan costs refunded

      --

      29

Net cash (used in) provided by financing

 

 

  activities

     (58)

      29

 

 

 

Net decrease in cash and cash equivalents

     (18)

     (55)

 

 

 

Cash and cash equivalents at beginning of period

      63

     142

 

 

 

Cash and cash equivalents at end of period

 $    45

 $    87

 

 

 

Supplemental disclosure of cash flow information:

 

 

Cash paid for interest

 $   264

 $   204

Supplemental disclosure of non-cash activity:

 

Property improvements and replacements included in

 

   accounts payable

 $   150

 $   148

 

Included in property improvements and replacements for the three months ended March 31, 2010 and 2009 are approximately $145,000 and $177,000 of property improvements and replacements, respectively, which were included in accounts payable at December 31, 2009 and 2008, respectively.

 

See Accompanying Notes to Financial Statements

 


FOX STRATEGIC HOUSING INCOME PARTNERS

 

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

 

Note A – Basis of Presentation

 

The accompanying unaudited financial statements of Fox Strategic Housing Income Partners (the "Partnership" or "Registrant") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 8-03 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.  Fox Partners VIII (the “General Partner”) is the general partner of the Partnership.  The general partners of Fox Partners VIII are Fox Capital Management Corporation ("FCMC" or the “Managing General Partner”), a California corporation, and Fox Realty Investors ("FRI"), a California general partnership. The Managing General Partner and the managing general partner of FRI are affiliates of Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust.  In the opinion of the Managing General Partner, all adjustments (consisting of normal recurring items) considered necessary for a fair presentation have been included.  Operating results for the three month period ended March 31, 2010 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2010.  For further information, refer to the financial statements and footnotes thereto included in the Partnership's Annual Report on Form 10-K for the fiscal year ended December 31, 2009.

 

The Partnership’s management evaluated subsequent events through the time this Quarterly Report on Form 10-Q was filed.

 

Note B – Transactions with Affiliated Parties

 

The Partnership has no employees and depends on the Managing General Partner and its affiliates for the management and administration of all Partnership activities.  The Partnership Agreement provides for payments to affiliates for services and reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. 

 

Affiliates of the Managing General Partner receive 5% of gross receipts from the Partnership's investment property as compensation for providing property management services.  The Partnership paid to such affiliates approximately $25,000 for each of the three months ended March 31, 2010 and 2009, which are included in operating expenses.

 

Affiliates of the Managing General Partner charged the Partnership for reimbursement of accountable administrative expenses amounting to approximately $7,000 and $9,000 for the three months ended March 31, 2010 and 2009, respectively, which is included in general and administrative expenses. In connection with a redevelopment project that was completed in 2009, an affiliate of the Managing General Partner received a redevelopment supervision fee of 4% of the actual redevelopment costs. During the three months ended March 31, 2009, the Partnership was charged approximately $22,000 in redevelopment supervision fees, which is included in investment property. At March 31, 2010, approximately $7,000 of these accountable administrative expenses remain unpaid and are included in due to affiliates. No such amounts were unpaid at December 31, 2009.

 

Pursuant to the Partnership Agreement, AIMCO Properties, L.P., an affiliate of the Managing General Partner, may advance the Partnership funds. There were no such advances made during the three months ended March 31, 2010 and 2009. Interest is charged at the prime rate plus 2% (5.25% at March 31, 2010). Interest expense amounted to approximately $47,000 and $45,000 for the three months ended March 31, 2010 and 2009, respectively. At March 31, 2010 and December 31, 2009, the amount of the outstanding advances and accrued interest was approximately $3,639,000 and $3,592,000, respectively, and is included in due to affiliates. The Partnership may receive additional advances of funds from AIMCO Properties, L.P. although AIMCO Properties, L.P. is not obligated to provide such advances.  For more information on AIMCO Properties, L.P., including copies of its audited balance sheet, please see its reports filed with the Securities and Exchange Commission.

 

In accordance with the Partnership Agreement, the Managing General Partner earns partnership management fees on distributions from operations. There were no partnership management fees earned during the three months ended March 31, 2010 and 2009 as there were no operating distributions.  The Partnership Agreement requires that 62.5% of the fees earned be subordinated to the Limited Partners’ annual receipt of 8% of adjusted invested capital as defined in the Partnership Agreement. The cumulative subordinated fees owed to the Managing General Partner at both March 31, 2010 and December 31, 2009 amounted to approximately $272,000 and are included in due to affiliates.

 

The Partnership insures its property up to certain limits through coverage provided by AIMCO which is generally self-insured for a portion of losses and liabilities related to workers’ compensation, property casualty, general liability and vehicle liability. The Partnership insures its property above the AIMCO limits through insurance policies obtained by AIMCO from insurers unaffiliated with the Managing General Partner.  During the three months ended March 31, 2010, the Partnership was charged by AIMCO and its affiliates approximately $18,000 for hazard insurance coverage and fees associated with policy claims administration.  Additional charges will be incurred by the Partnership during 2010 as other insurance policies renew later in the year.  The Partnership was charged by AIMCO and its affiliates approximately $24,000 for insurance coverage and fees associated with policy claims administration during the year ended December 31, 2009.

 

Note C – Fair Value of Financial Instruments

 

FASB ASC Topic 825, “Financial Instruments”, requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate fair value. Fair value is defined as the amount at which the instruments could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The Partnership believes that the carrying amount of its financial instruments (except for long-term debt) approximates their fair value due to the short-term maturity of these instruments. The Partnership estimates the fair value of its long-term debt by discounting future cash flows using a discount rate commensurate with that currently believed to be available to the Partnership for similar term, long-term debt.  At March 31, 2010, the fair value of the Partnership's long-term debt at the Partnership's incremental borrowing rate approximated its carrying value.

 

Note D – Contingencies

 

As previously disclosed, AIMCO Properties, L.P. and NHP Management Company, both affiliates of the Managing General Partner, were defendants in a lawsuit, filed as a collective action in August 2003 in the United States District Court for the District of Columbia, alleging that they willfully violated the Fair Labor Standards Act (“FLSA”) by failing to pay maintenance workers overtime for time worked in excess of 40 hours per week (“overtime claims”).  The plaintiffs also contended that AIMCO Properties, L.P. and NHP Management Company (“the Defendants”) failed to compensate maintenance workers for time that they were required to be "on-call" (“on-call claims”).  In March 2007, the court in the District of Columbia decertified the collective action. In July 2007, plaintiffs’ counsel filed individual cases in Federal court in 22 jurisdictions.  In the second quarter of 2008, AIMCO Properties, L.P. settled the overtime cases involving 652 plaintiffs and established a framework for resolving the 88 remaining “on-call” claims and the attorneys’ fees claimed by plaintiffs’ counsel.  As a result, the lawsuits asserted in the 22 Federal courts have been dismissed.  During the fourth quarter of 2008, the settlement amounts for alleged unpaid overtime to employees were paid by those partnerships where the respective employees had worked.  The Partnership was not required to pay any settlement amounts.  At this time, the 88 remaining “on-call” claims and the attorneys’ fees claimed by plaintiffs’ counsel are not resolved. The parties have selected six “on-call” claims that will proceed forward through the arbitration process and have selected arbitrators. After those arbitrations have been completed, the parties will revisit settling the on-call claims.  The first two arbitrations took place in December 2009 and the Defendants received a defense verdict against the first two claimants, and plaintiffs dismissed the claims of the next two claimants.  The remaining two arbitration hearings took place in April 2010 and the Defendants are awaiting the results. The Managing General Partner is uncertain as to the amount of any loss that may be allocable to the Partnership. Therefore, the Partnership cannot estimate whether any loss will occur or a potential range of loss.

 

The Partnership is unaware of any other pending or outstanding litigation matters involving it or its investment property that are not of a routine nature arising in the ordinary course of business.

 

Environmental

 

Various Federal, state and local laws subject property owners or operators to liability for management, and the costs of removal or remediation, of certain hazardous substances present on a property, including lead-based paint. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the release or presence of the hazardous substances. The presence of, or the failure to manage or remedy properly, hazardous substances may adversely affect occupancy at affected apartment communities and the ability to sell or finance affected properties. In addition to the costs associated with investigation and remediation actions brought by government agencies, and potential fines or penalties imposed by such agencies in connection therewith, the presence of hazardous substances on a property could result in claims by private plaintiffs for personal injury, disease, disability or other infirmities. Various laws also impose liability for the cost of removal, remediation or disposal of hazardous substances through a licensed disposal or treatment facility. Anyone who arranges for the disposal or treatment of hazardous substances is potentially liable under such laws. These laws often impose liability whether or not the person arranging for the disposal ever owned or operated the disposal facility. In connection with the ownership, operation and management of its property, the Partnership could potentially be liable for environmental liabilities or costs associated with its property. 

 

Mold

 

The Partnership is aware of lawsuits against owners and managers of multifamily properties asserting claims of personal injury and property damage caused by the presence of mold, some of which have resulted in substantial monetary judgments or settlements.  The Partnership has only limited insurance coverage for property damage loss claims arising from the presence of mold and for personal injury claims related to mold exposure.  Affiliates of the Managing General Partner have implemented policies, procedures, third-party audits and training and the Managing General Partner believes that these measures will prevent or eliminate mold exposure and will minimize the effects that mold may have on residents.  To date, the Partnership has not incurred any material costs or liabilities relating to claims of mold exposure or to abate mold conditions.  Because the law regarding mold is unsettled and subject to change, the Managing General Partner can make no assurance that liabilities resulting from the presence of or exposure to mold will not have a material adverse effect on the Partnership’s financial condition or results of operations.


ITEM 2.     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 Quarterly Report contains or may contain information that is forward-looking within the meaning of the federal securities laws, including, without limitation, statements regarding the effect of redevelopments, the Partnership’s future financial performance, including the Partnership’s ability to maintain current or meet projected occupancy and rent levels, and the effect of government regulations. Actual results may differ materially from those described in these forward-looking statements and, in addition, will be affected by a variety of risks and factors some of which are beyond the Partnership’s control including, without limitation: financing risks, including the availability and cost of financing and the risk that the Partnership’s cash flows from operations may be insufficient to meet required payments of principal and interest; natural disasters and severe weather such as hurricanes; national and local economic conditions; the general level of interest rates; energy costs; the terms of governmental regulations that affect the Partnership’s property and interpretations of those regulations; the competitive environment in which the Partnership operates; real estate risks, including fluctuations in real estate values and the general economic climate in local markets and competition for residents in such markets; insurance risk, including the cost of insurance; development risks; litigation, including costs associated with prosecuting or defending claims and any adverse outcomes; and possible environmental liabilities, including costs, fines or penalties that may be incurred due to necessary remediation of contamination of properties presently owned or previously owned by the Partnership. Readers should carefully review the Partnership’s financial statements and the notes thereto, as well as the other documents the Partnership files from time to time with the Securities and Exchange Commission.

 

The Partnership's investment property consists of one apartment complex.  The following table sets forth the average occupancy of the property for the three months ended March 31, 2010 and 2009:

 

 

Average Occupancy

Property

2010

2009

 

 

 

The Views at Vinings Mountain Apartments

 

 

Atlanta, Georgia

96%

87%

 

The Managing General Partner attributes the increase in occupancy at The Views at Vinings Mountain Apartments to competitive pricing and increased resident retention efforts.

 

The Partnership’s financial results depend upon a number of factors including the ability to attract and maintain tenants at the investment property, interest rates on mortgage loans, costs incurred to operate the investment property, general economic conditions and weather. As part of the ongoing business plan of the Partnership, the Managing General Partner monitors the rental market environment of its investment property to assess the feasibility of increasing rents, maintaining or increasing occupancy levels and protecting the Partnership from increases in expenses. As part of this plan, the Managing General Partner attempts to protect the Partnership from the burden of inflation-related increases in expenses by increasing rents and maintaining a high overall occupancy level. However, the Managing General Partner may use rental concessions and rental rate reductions to offset softening market conditions; accordingly, there is no guarantee that the Managing General Partner will be able to sustain such a plan. Further, a number of factors that are outside the control of the Partnership such as the local economic climate and weather can adversely or positively affect the Partnership’s financial results.

 

Results of Operations

 

The Partnership recognized net losses of approximately $528,000 and $569,000 for the three months ended March 31, 2010 and 2009, respectively.  The decrease in net loss is due to an increase in total revenues, partially offset by an increase in total expenses.  The increase in total revenues is due to an increase in rental income. Other income remained constant for the comparable periods. The increase in rental income is due to an increase in occupancy, partially offset by a decrease in the average rental rate at The Views at Vinings Mountain Apartments.

 

Total expenses increased due to an increase in property tax expense, partially offset by a decrease in operating expense. General and administrative, depreciation and interest expenses remained relatively constant for the comparable periods. Property tax expense increased due to an increase in the assessed value of the property and the receipt of refunds related to prior years during the three months ended March 2009 as a result of a successful appeal of the assessed value of the Partnership’s investment property. Operating expenses decreased primarily due to a decrease in advertising expenses, partially offset by an increase in contract services at the Partnership’s investment property.

 

Included in general and administrative expenses for the three months ended March 31, 2010 and 2009 are reimbursements to the Managing General Partner as allowed under the Partnership Agreement, costs associated with the quarterly and annual communications with investors and regulatory agencies and the annual audit required by the Partnership Agreement.

 

Liquidity and Capital Resources

 

At March 31, 2010, the Partnership had cash and cash equivalents of approximately $45,000, compared to approximately $63,000 at December 31, 2009.  Cash and cash equivalents decreased approximately $18,000 due to approximately $58,000 and $9,000 of cash used in financing and investing activities, respectively, partially offset by approximately $49,000 of cash provided by operating activities. Cash used in financing activities consisted of principal payments made on the mortgage encumbering The Views at Vinings Mountain Apartments. Cash used in investing activities consisted of property improvements and replacements. 

 

The sufficiency of existing liquid assets to meet future liquidity and capital expenditure requirements is directly related to the level of capital expenditures required at the property to adequately maintain the physical assets and other operating needs of the Partnership and to comply with Federal, state, and local legal and regulatory requirements.  The Managing General Partner monitors developments in the area of legal and regulatory compliance.  Capital improvements planned for the Partnership's property are detailed below.

 

During the three months ended March 31, 2010, the Partnership completed approximately $14,000 of capital improvements at The Views at Vinings Mountain Apartments, consisting primarily of interior improvements and floor covering replacement.  These improvements were funded from operating cash flow.  The Partnership regularly evaluates the capital improvement needs of the property.  While the Partnership has no material commitments for property improvements and replacements, certain routine capital expenditures are anticipated during the remainder of 2010.  Such capital expenditures will depend on the physical condition of the property as well as anticipated cash flow generated by the property.

 

Capital expenditures will be incurred only if cash is available from operations, Partnership reserves or advances from AIMCO Properties, L.P., although AIMCO Properties, L.P. is not obligated to fund advances to the Partnership. To the extent that capital improvements are completed, the Partnership’s distributable cash flow, if any, may be adversely affected at least in the short term.

 

Pursuant to the Partnership Agreement, AIMCO Properties, L.P., an affiliate of the Managing General Partner, may advance the Partnership funds. There were no such advances made during the three months ended March 31, 2010 and 2009. Interest is charged at the prime rate plus 2% (5.25% at March 31, 2010). Interest expense amounted to approximately $47,000 and $45,000 for the three months ended March 31, 2010 and 2009, respectively. At March 31, 2010 and December 31, 2009, the amount of the outstanding advances and accrued interest was approximately $3,639,000 and $3,592,000, respectively, and is included in due to affiliates. The Partnership may receive additional advances of funds from AIMCO Properties, L.P. although AIMCO Properties, L.P. is not obligated to provide such advances.  For more information on AIMCO Properties, L.P., including copies of its audited balance sheet, please see its reports filed with the Securities and Exchange Commission.

 

The Partnership's assets are thought to be generally sufficient for any near-term needs (exclusive of capital improvements and payments of amounts due to affiliates) of the Partnership. The mortgage indebtedness encumbering the Partnership’s investment property of approximately $13,713,000 bears interest at 5.77% per annum and requires monthly payments of principal and interest of approximately $81,000 until the September 2013 maturity date, at which time a balloon payment of approximately $13,045,000 is due.  In September 2010, if the Partnership does not meet a prescribed debt service coverage ratio, the Partnership will be required to make an additional payment of principal to reduce the outstanding principal balance to the prescribed debt service coverage ratio. The Managing General Partner will attempt to refinance such indebtedness and/or sell the property prior to such maturity date. If the property cannot be refinanced or sold for a sufficient amount, the Partnership will risk losing such property through foreclosure.

 

There were no distributions to the partners during the three months ended March 31, 2010 and 2009. Future cash distributions will depend on the levels of net cash generated from operations, and the timing of the debt maturity, refinancing and/or property sale. The Partnership's cash available for distribution is reviewed on a monthly basis. In light of the amounts accrued and payable to affiliates of the Managing General Partner at March 31, 2010, there can be no assurance that the Partnership will generate sufficient funds from operations after required capital expenditures to permit any distributions to its partners during 2010 or subsequent periods.

 

Other

 

In addition to its indirect ownership of the general partner interests in the Partnership, AIMCO and its affiliates owned 13,719 limited partnership units (the "Units") in the Partnership representing 52.54% of the outstanding Units at March 31, 2010.  A number of these Units were acquired pursuant to tender offers made by AIMCO or its affiliates.  It is possible that AIMCO or its affiliates will acquire additional Units in the Partnership in exchange for cash or a combination of cash and units in AIMCO Properties, L.P., the operating partnership of AIMCO, either through private purchases or tender offers. Pursuant to the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters that include, but are not limited to, voting on certain amendments to the Partnership Agreement and voting to remove the General Partner.  As a result of its ownership of 52.54% of the outstanding Units, AIMCO and its affiliates are in a position to control all voting decisions with respect to the Partnership.  Although the General Partner owes fiduciary duties to the limited partners of the Partnership, the Managing General Partner also owes fiduciary duties to both the General Partner and AIMCO as the sole stockholder of the Managing General Partner.

 

Critical Accounting Policies and Estimates

 

The financial statements are prepared in accordance with accounting principles generally accepted in the United States, which require the Partnership to make estimates and assumptions.  The Partnership believes that of its significant accounting policies, the following may involve a higher degree of judgment and complexity.

 

Impairment of Long-Lived Asset

 

Investment property is recorded at cost, less accumulated depreciation, unless the carrying amount of the asset is not recoverable.  If events or circumstances indicate that the carrying amount of the property may not be recoverable, the Partnership will make an assessment of its recoverability by comparing the carrying amount to the Partnership’s estimate of the undiscounted future cash flows, excluding interest charges, of the property.   If the carrying amount exceeds the estimated aggregate undiscounted future cash flows, the Partnership would recognize an impairment loss to the extent the carrying amount exceeds the estimated fair value of the property.

 

Real property investment is subject to varying degrees of risk.  Several factors may adversely affect the economic performance and value of the Partnership’s investment property.  These factors include, but are not limited to, general economic climate; competition from other apartment communities and other housing options; local conditions, such as loss of jobs or an increase in the supply of apartments that might adversely affect apartment occupancy or rental rates; changes in governmental regulations and the related cost of compliance; increases in operating costs (including real estate taxes) due to inflation and other factors, which may not be offset by increased rents; changes in tax laws and housing laws, including the enactment of rent control laws or other laws regulating multi-family housing; and changes in interest rates and the availability of financing.  Any adverse changes in these and other factors could cause an impairment of the Partnership’s asset.

 

Revenue Recognition

 

The Partnership generally leases apartment units for twelve-month terms or less.  The Partnership will offer rental concessions during particularly slow months or in response to heavy competition from other similar complexes in the area.  Rental income attributable to leases, net of any concessions, is recognized on a straight-line basis over the term of the lease.  The Partnership evaluates all accounts receivable from residents and establishes an allowance, after the application of security deposits, for accounts greater than 30 days past due on current tenants and all receivables due from former tenants.

 

ITEM 4T.   Controls and Procedures

 

(a)   Disclosure Controls and Procedures.

 

The Partnership’s management, with the participation of the principal executive officer and principal financial officer of the Managing General Partner, who are the equivalent of the Partnership’s principal executive officer and principal financial officer, respectively, has evaluated the effectiveness of the Partnership’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, the principal executive officer and principal financial officer of the Managing General Partner, who are the equivalent of the Partnership’s principal executive officer and principal financial officer, respectively, have concluded that, as of the end of such period, the Partnership’s disclosure controls and procedures are effective.

 

(b)   Changes in Internal Control Over Financial Reporting.

 

There has been no change in the Partnership’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that has materially affected, or is reasonably likely to materially affect, the Partnership’s internal control over financial reporting.


PART II - OTHER INFORMATION

 

 

ITEM 1.     Legal Proceedings

 

As previously disclosed, AIMCO Properties, L.P. and NHP Management Company, both affiliates of the Managing General Partner, were defendants in a lawsuit, filed as a collective action in August 2003 in the United States District Court for the District of Columbia, alleging that they willfully violated the Fair Labor Standards Act (“FLSA”) by failing to pay maintenance workers overtime for time worked in excess of 40 hours per week (“overtime claims”).  The plaintiffs also contended that AIMCO Properties, L.P. and NHP Management Company (“the Defendants”) failed to compensate maintenance workers for time that they were required to be "on-call" (“on-call claims”).  In March 2007, the court in the District of Columbia decertified the collective action. In July 2007, plaintiffs’ counsel filed individual cases in Federal court in 22 jurisdictions.  In the second quarter of 2008, AIMCO Properties, L.P. settled the overtime cases involving 652 plaintiffs and established a framework for resolving the 88 remaining “on-call” claims and the attorneys’ fees claimed by plaintiffs’ counsel.  As a result, the lawsuits asserted in the 22 Federal courts have been dismissed.  During the fourth quarter of 2008, the settlement amounts for alleged unpaid overtime to employees were paid by those partnerships where the respective employees had worked.  The Partnership was not required to pay any settlement amounts.  At this time, the 88 remaining “on-call” claims and the attorneys’ fees claimed by plaintiffs’ counsel are not resolved. The parties have selected six “on-call” claims that will proceed forward through the arbitration process and have selected arbitrators. After those arbitrations have been completed, the parties will revisit settling the on-call claims.  The first two arbitrations took place in December 2009 and the Defendants received a defense verdict against the first two claimants, and plaintiffs dismissed the claims of the next two claimants. The remaining two arbitration hearings took place in April 2010 and the Defendants are awaiting the results. The Managing General Partner is uncertain as to the amount of any loss that may be allocable to the Partnership. Therefore, the Partnership cannot estimate whether any loss will occur or a potential range of loss.

 

ITEM 6.     Exhibits

 

See Exhibit Index.

 

The agreements included as exhibits to this Form 10-Q contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement and:

 

  • should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate;

 

  • have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;

 

  • may apply standards of materiality in a way that is different from what may be viewed as material to an investor; and

 

  • were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments.

 

Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. The Partnership acknowledges that, notwithstanding the inclusion of the foregoing cautionary statements, it is responsible for considering whether additional specific disclosures of material information regarding material contractual provisions are required to make the statements in this Form 10-Q not misleading. Additional information about the Partnership may be found elsewhere in this Form 10-Q and the Partnership’s other public filings, which are available without charge through the SEC’s website at http://www.sec.gov. 


SIGNATURES

 

 

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

FOX STRATEGIC HOUSING INCOME PARTNERS

 

(a California Limited Partnership)

 

 

 

By:   FOX PARTNERS VIII

 

      Its General Partner

 

 

 

By:   Fox Capital Management Corporation

 

      Its Managing General Partner

 

 

Date: May 17, 2010

By:   /s/Steven D. Cordes

 

      Steven D. Cordes

 

      Senior Vice President

 

 

Date: May 17, 2010

By:   /s/Stephen B. Waters

 

      Stephen B. Waters

 

      Senior Director of Partnership Accounting

 

 

 

 

 

 


FOX STRATEGIC HOUSING INCOME PARTNERS

EXHIBIT INDEX

 

 

Exhibit     Description of Exhibit

 

 

3.1         Agreement of Limited Partnership, incorporated by reference to Exhibit A to the Prospectus of the Partnership dated March 24, 1987, and thereafter supplemented, included in the Registrant's Registration Statement on Form S-11 (Reg. No. 33-8481).

 

3.2         Amendment to the Amended and Restated Limited Partnership Agreement incorporated by reference to the Partnership’s Annual Report on Form 10-KSB for the fiscal year ended December 31, 2006.

 

10.7        Promissory Note, dated September 11, 2008, between Fox Strategic Housing Income Partners, a California limited partnership, and Washington Mutual Bank, a federal association. (Incorporated by reference to the Partnership’s Current Report on Form 8-K dated September 11, 2008).

 

10.8        Deed of Secure Debt, Security Agreement and Assignment of Leases and Rents, dated September 11, 2008, between Fox Strategic Housing Income Partners, a California limited partnership, and Washington Mutual Bank, a federal association. (Incorporated by reference to the Partnership’s Current Report on Form 8-K dated September 11, 2008).

 

31.1        Certification of equivalent of Chief Executive Officer pursuant to   Securities Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

31.2        Certification of equivalent of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

32.1        Certification of the equivalent of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.