SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 2004
Commission File Number 33-19316
Qualified Housing Partners Limited Partnership
(Exact name of registrant as specified in its charter)
North Carolina 56-1589469
(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification Number)
Suite 220
4700 Homewood Court
Raleigh, North Carolina 27609
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code:
(919)787-4243
Indicate by a 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 such shorter period the registrant has
been required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark whether the registrant is an accelerated filer (as
defined by Rule 12b-2 of the Act.). Yes No X
As of September 30, 2004, there were 8,673 units of limited partnership
interests in registrant outstanding, $1,000 per unit, and the aggregate
value of such units was $8,673,000. Of such units, 4,371 having an
aggregate value of $4,371,000, were held by limited partners deemed
by the registrant to be non-affiliates.
PART I
FINANCIAL INFORMATION
QUALIFIED HOUSING PARTNERS LIMITED PARTNERSHIP
Item 1: Financial Statements
- Consolidated Balance Sheets
- Unaudited Consolidated Statements of Income and
Expenses (Three Months)
- Unaudited Consolidated Statements of Income and
Expenses (Nine Months)
- Unaudited Consolidated Statements of Cash Flows
- Unaudited Notes to Financial Statements
Item 2: Management's Discussion
- Liquidity and Capital Resources
- Results of Operations
- Tax Credits
Item 4: Controls and Procedures
The Partnership carried out an evaluation under the supervision
and with the participation of the Partnership's management,
including the Partnership's Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and
operation of the Partnership's disclosure controls and procedures
as of September 30, 2004, pursuant to Securities Exchange Act
Rule 13a-15(e). Based upon that evaluation, the Chief Executive
Officer and Chief Financial Officer concluded that the
Partnership's disclosure controls and procedures are effective
in timely alerting them to material information relating to the
Partnership required to be included in the Partnership's
periodic SEC Filings. There were no significant changes in
the Partnership's internal controls or in other factors that
could significantly affect these controls during the most recent
fiscal quarter.
QUALIFIED HOUSING PARTNERS LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
September 30, 2004 and December 31, 2003
09/30/04 12/31/03
(Unaudited) (*)
ASSETS
Rental Properties
Land $1,326,402 $1,326,402
Buildings 34,773,704 34,757,798
Furniture & Fixtures 2,362,449 2,357,006
38,462,555 38,436,206
Accumulated Depreciation (14,159,595) (13,484,052)
24,302,960 24,952,154
Cash 374,659 305,114
Other Assets 2,047,401 1,877,743
TOTAL ASSETS $26,725,020 $27,145,011
LIABILITIES AND PARTNERS' CAPITAL
Liabilities Applicable to Rental
Properties $23,994,919 $24,070,613
Other Liabilities 1,469,923 1,325,332
Total Liabilities 25,464,842 25,395,945
Minority Interests in Subsidiary
Operating Partnerships 1,693,407 1,698,076
Partners' Capital (433,229) 50,990
TOTAL LIABILITIES AND PARTNERS'
CAPITAL $26,725,020 $27,145,011
See accompanying notes.
*Derived from audited consolidated balance sheet.
CONSOLIDATED STATEMENTS OF INCOME AND EXPENSES
Three Months Ended September 30, 2004 and 2003
(Unaudited)
07/01/04- 07/01/03-
09/30/04 09/30/03
Revenue
Rent $957,502 $1,024,639
Other 20,649 14,966
978,151 1,039,605
Rental Expense
Interest 130,302 136,216
Depreciation 225,182 215,415
Repairs and Maintenance 288,369 290,273
Utilities 91,600 88,525
Real Estate Taxes 94,171 91,317
Management Fees 123,159 111,065
Advertising 2,485 2,339
Other 170,234 163,080
1,125,502 1,098,230
Loss from Rental Activities (147,351) (58,625)
Other Income (Expenses)
Interest Income 19 18
Management Fees 0 (21,141)
Administrative Costs (5,875) (8,745)
Loss Before Deducting Minority
Interests in Subsidiary Operating
Partnerships (153,207) (88,493)
Minority Interests in Losses of
Subsidiary Operating Partnerships 1,491 600
Net Loss ($151,716) ($87,893)
Net Loss Allocated to General Partners ($1,517) ($879)
Net Loss Allocated to Limited Partners (150,199) (87,014)
Net Loss ($151,716) ($87,893)
Net Loss per Limited Partnership Unit ($17.32) ($10.03)
Average Number of Limited Partnership
Units Outstanding 8,673 8,673
See accompanying notes.
CONSOLIDATED STATEMENTS OF INCOME AND EXPENSES
Nine Months Ended September 30, 2004 and 2003
(Unaudited)
01/01/04- 01/01/03-
09/30/04 09/30/03
Revenue
Rent $2,896,975 $3,061,303
Other 56,722 63,309
2,953,697 3,124,612
Rental Expense
Interest 406,169 438,629
Depreciation 675,543 659,730
Repairs and Maintenance 870,825 852,842
Utilities 264,293 273,177
Real Estate Taxes 276,054 272,210
Management Fees 371,108 346,769
Advertising 7,018 5,918
Other 520,960 495,186
3,391,970 3,344,461
Loss from Rental Activities (438,273) (219,849)
Other Income (Expenses)
Interest Income 45 61
Management Fees (13,000) (63,422)
Administrative Costs (37,421) (36,463)
Loss Before Deducting Minority
Interests in Subsidiary Operating
Partnerships (488,649) (319,673)
Minority Interests in Losses of
Subsidiary Operating Partnerships 4,429 2,224
Net Loss ($484,220) ($317,449)
Net Loss Allocated to General Partners ($4,842) ($3,174)
Net Loss Allocated to Limited Partners (479,378) (314,275)
Net Loss ($484,220) ($317,449)
Net Loss per Limited Partnership Unit ($55.27) ($36.24)
Average Number of Limited Partnership
Units Outstanding 8,673 8,673
See accompanying notes.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 2004 and 2003
(Unaudited)
01/01/04- 01/01/03-
09/30/04 09/30/03
Cash Flows from Operating Activities
Net Loss ($484,220) ($317,449)
Adjustments to Reconcile Net Loss
To Net Cash Provided by Operating
Activities:
Depreciation 675,543 659,730
Minority Interest in Losses of
Subsidiary Operating Partnerships (4,429) (2,224)
Change in Other Assets and
Liabilities (15,066) 325,062
Net Cash Provided by Operating Activities 171,828 665,119
Cash Flows from Investing Activities
Purchases of Buildings and Equipment (26,349) (146,466)
Net Cash Used by Investing Activities (26,349) (146,466)
Cash Flows from Financing Activities
Principal Payments on Borrowings (75,694) (483,270)
Return of Equity to Minority Investors (240) (225)
Net Cash Used by Financing Activities (75,934) (483,495)
Net Increase (Decrease) in Cash 69,545 35,158
Cash Beginning 305,114 211,526
Cash Ending $374,659 $246,684
See accompanying notes.
NOTES TO FINANCIAL STATEMENTS (Unaudited)
Note A - Basis of Presentation
The unaudited consolidated financial statements included
herein have been prepared in accordance with the rules and
regulations of the Securities and Exchange Commission. In
the opinion of the Partnership, all adjustments which are
considered necessary for a fair statement of the results for
the interim periods have been made; all such adjustments are
of a normal recurring nature. These consolidated financial
statements, which do not include all disclosures included
in the annual financial statements, should be read in
conjunction with the consolidated financial statements
and notes thereto included in the Partnership's latest
annual report on Form 10-K. The results of operations for
the nine months ended September 30, 2004 are not necessarily
indicative of the results to be achieved for the year.
Note B - Net Loss Per Limited Partnership Unit
Net loss per limited partnership Unit is based upon the net
loss allocated to the limited partners and is computed using
the number of Units outstanding of 8,673.
Note C - Liabilities Applicable to Rental Properties
Liabilities applicable to rental properties at September 30,
2004 consist of $23,994,919 of permanent mortgage loans to
Subsidiary Operating Partnerships.
Note D - Related Party Transactions
The accompanying consolidated financial statements reflect
transactions between Qualified Housing Partners Limited
Partnership ("QHP") and its general partners or affiliates
and between the various Subsidiary Operating Partnerships
and their general partners or affiliates.
Frederick Investment Corporation, the Managing General
Partner of QHP, is a general or special limited partner in
each of the Operating Partnerships. Each Operating
Partnership also has one or more other general partners (the
"Local General Partners"). Following is a summary of
related party transactions for the three months ended
September 30, 2004.
QHP General Local General
Items Paid or Payable Partners Partners of
Operating
Partnerships
Management Fees $0 $108,000
Reimbursable Operating Expenses $4,800 $0
Following is a summary of related party transactions for the
nine months ended September 30, 2004.
QHP General Local General
Items Paid or Payable Partners Partners of
Operating
Partnerships
Management Fees $13,000 $324,000
Reimbursable Operating Expenses $21,300 $0
MANAGEMENT'S DISCUSSION
Accounting/SEC Reporting Issues
Because QHP is a public company, its interests are
with the SEC, and therefore it is subject to new
financial reporting and other compliance requirements
of the Sarbanes-Oxley Act of 2002. Even though
Sarbanes-Oxley was enacted to prevent fraud such as
that which occurred at WorldCom and Enron, it still
applies to small untraded entities including QHP.
Because of Sarbanes-Oxley, QHP's auditor,Dixon Hughes,
PLLC has stated that they intend to resign effective
December 31, 2004. It is important to note that their
resignation is not the result of any disagreement over
accounting or financial issues, and that they have
agreed to continue preparing the tax returns. QHP
approached other accounting firms who also, because of
Sarbanes-Oxley, decided not to perform the audit. If
an audit is not performed, and QHP remains a public
company, QHP will be out of compliance with the SEC.
Dixon Hughes and its predecessor have served as
QHP's auditor since QHP's formation sixteen years ago.
Their reasons for resigning include QHP's unusual structure
and its insufficient financial resources to pay the
substantial cost of compliance with Sarbanes-Oxley. QHP
is an upper tier partnership whose only assets are limited
partnership interests in lower tier partnerships. Dixon
Hughes is unwilling to accept the additional risk imposed
by Sarbanes-Oxley if it must audit the upper tier
partnerships only and rely upon others to audit the lower
tier partnerships, where all the assets are held and the
business takes place. QHP does not have the authority
to require the lower tier partnerships to retain Dixon
Hughes. Even if another auditing firm can be found,
it is highly unlikely that the cost will be affordable
to QHP.
Without an audit, QHP will be out of compliance
unless it deregisters with the SEC. If the total number
of investors falls below 300, QHP can elect to
deregister and the Sarbanes-Oxley requirements will not
apply. 318 investors have elected to divest within the
past year, which will bring the number of investors
remaining down to 328. If another 29 investors elect
to divest, the general partners will be able to
deregister and will do so.
Many investors are divesting as part of an exit
strategy the general partners proposed in 2003.
Divesting investors can gain federal tax savings of
up to 34% of their original investment, and still receive
cash distributions, if any, through December 31, 2018.
The exit strategy was explained in letters over the past
year, and is summarized in "Divestiture" below.
Liquidity and Capital Resources
Net of the Subsidiary Operating Partnerships, QHP held
approximately $26,000 in cash and liquid investments at
September 30, 2004. These assets will be held as working
capital.
At September 30, 2004, there were 403 holders of limited
partnership Units.
Results of Operations
The Partnership's loss from rental activities, including
depreciation, during the third quarter of 2004 is $147,351
as compared with a loss of $58,625 for the same period in
2003. Third quarter revenue decreased as a result of
increased vacancy loss at Litton, the largest property in
QHP's portfolio. Repairs and maintenance continue to
increase as the properties age. In addition, management
fees, approved by USDA-Rural Development, on a number of
properties have also increased.
Occupancy at the 24-unit property located in Dimmitt, TX
increased slightly from 58% at the end of the second quarter,
2004, to 62.5% as of the date of this report. Local
management is still in discussions with the taxing
authority to work out a payment plan for 2003 taxes. No
payments have been made to-date.
Divestiture
In November 2003, the general partners offered an exit
strategy whereby many investors could divest and receive
a one-time tax benefit. Investors electing that strategy
assign their interest to the general partner, and, by doing
so, will (a) receive a one-time Federal tax benefit of up
to 34% of their investment plus any state tax savings, (b)
still receive cash distributions (if any) until December
31, 2018, and (c) stop future reporting of QHP results in
their tax returns. As of the date of this report, 318
investors owning 4,387 units had elected divestiture.
Those investors who divested in divested in 2003, received
their additional tax benefit on their 2003 tax return and
will receive no further mailings from the Partnership unless
there are cash distributions. Those who are divesting in
2004 will continue to receive QHP mailings through the
remainder of the year and will receive their final k-1
in March 2005. If you are interested in divesting,
contact Ramona Logan at either (919) 787-4243 or
[email protected].
Form 10-Q
A copy of the Partnership's Quarterly Report on Form 10-Q
as filed with the Securities and Exchange Commission will
be furnished without charge to any investor upon written
request.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security
Holders
None
Item 5. Other Information
None
Item 6. Exhibits
(a) Exhibits
4 The Partnership Agreement is Exhibit A
to the Prospectus that is part of the
Registration Statement on Form S-11,
Number 33-19316 and effective May 20,
1988, the final form of which was filed
on May 20, 1988 pursuant to Rule 424(b),
and is incorporated herein by reference.
31.1 Section 302 Certification by Chief
Executive Officer
31.2 Section 302 Certification by Chief
Financial Officer
32.1 Section 906 Certification by Chief
Executive Officer
32.2 Section 906 Certification by Chief
Financial Officer
SIGNATURES
Under the requirements of the Securities Exchange Act of 1934,
the Bank has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Frederick Investment Corporation
A General Partner
Date: November 15, 2004 By: /s/ George F. Marshall
George F. Marshall, President
(Chief Executive Officer)
Date: November 15, 2004 By: /s/ Jenny C. Petri
Jenny C. Petri, Vice President
(Chief Financial Officer)
Date: November 15, 2004 By: /s/ George F. Marshall
George F. Marshall
A General Partner
EXHIBIT 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
Section 302 Certification
I, George F. Marshall, certify that:
I have reviewed this quarterly report on Form 10-Q of Qualified
Housing Partners Limited Partnership, a North Carolina limited
partnership (the "registrant");
Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
report;
Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present
in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for,
the periods presented in this report;
The registrant's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) for the registrant and have:
designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material
information relating to the registrant, is made known
to us by others within those entities, particularly
during the period in which this report is being prepared;
evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
disclosed in this report any change in the registrant's
internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter that
has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over
financial reporting;
The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons
performing the equivalent functions):
all significant deficiencies and material weaknesses in
the design or operation of internal controls over financial
reporting which are reasonably likely to adversely affect
the registrant's ability to record, process, summarize and
report financial information; and
any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls over financial
reporting.
Date: November 15, 2004 By: /s/ George F. Marshall
George F. Marshall, General Partner
Chief Executive Officer
EXHIBIT 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
Section 302 Certification
I, Jenny C. Petri, certify that:
I have reviewed this quarterly report on Form 10-Q of Qualified
Housing Partners Limited Partnership, a North Carolina limited
partnership (the "registrant");
Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
report;
Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present
in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for,
the periods presented in this report;
The registrant's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) for the registrant and have:
designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material
information relating to the registrant, is made known
to us by others within those entities, particularly
during the period in which this report is being prepared;
evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
disclosed in this report any change in the registrant's
internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter that
has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over
financial reporting;
The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons
performing the equivalent functions):
all significant deficiencies and material weaknesses in
the design or operation of internal controls over financial
reporting which are reasonably likely to adversely affect
the registrant's ability to record, process, summarize and
report financial information; and
any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls over financial
reporting.
FREDERICK INVESTMENT CORPORATION
Date: November 15, 2004 By: /s/ Jenny C. Petri
Jenny C. Petri, Vice President
(Chief Financial Officer)
EXHIBIT 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(18 U.S.C.ss.1350)
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(18 U.S.C.ss.1350), the undersigned, George F. Marshall,
Chief Executive Officer of Qualified Housing Partners
Limited Partnership, a North Carolina limited partnership,
does hereby certify, to his knowledge, that:
The Quarterly Report on Form 10-Q for the period ended
September 30, 2004 of the Partnership (the "Report")
fully complies with the requirements of Section 13(a)
or 15(d) of the Securities Exchange Act of 1934, and
the information contained in the Report fairly presents,
in all material respects, the financial condition and
results of operations of the Partnership.
Date: November 15, 2004 By: /s/ George F. Marshall
George F. Marshall
General Partner
(Chief Executive Officer)
EXHIBIT 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(18 U.S.C.ss.1350)
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(18 U.S.C.ss.1350), the undersigned, Jenny C. Petri,
Chief Financial Officer of Qualified Housing Partners
Limited Partnership, a North Carolina limited partnership,
does hereby certify, to her knowledge, that:
The Quarterly Report on Form 10-Q for the period ended
September 30, 2004 of the Partnership (the "Report")
fully complies with the requirements of Section 13(a)
or 15(d) of the Securities Exchange Act of 1934, and
the information contained in the Report fairly presents,
in all material respects, the financial condition and
results of operations of the Partnership.
FREDERICK INVESTMENT CORPORATION
Date: November 15, 2004 By: /s/ Jenny C. Petri
Jenny C. Petri, Vice President
(Chief Financial Officer)