10QSB 1 0001.txt SECOND QUARTER 10-QSB FORM 10-QSB-QUARTERLY OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Quarterly or Transitional Report U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-QSB (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2000 [ ] 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 2-84760 WINTHROP GROWTH INVESTORS 1 LIMITED PARTNERSHIP (Exact name of small business issuer as specified in its charter) Massachusetts 04-2839837 (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 (Issuer's telephone number) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No___ PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS a) WINTHROP GROWTH INVESTORS 1 LIMITED PARTNERSHIP CONSOLIDATED BALANCE SHEET (Unaudited) (in thousands, except unit data) June 30, 2000
Assets Cash and cash equivalents $ 502 Receivables and deposits 678 Restricted escrows 529 Other assets 1,008 Investment properties: Land $ 4,015 Buildings and related personal property 43,124 47,139 Less accumulated depreciation (26,473) 20,666 $ 23,383 Liabilities and Partners' (Deficit) Capital Liabilities Accounts payable $ 92 Tenant security deposit liabilities 176 Accrued property taxes 166 Other liabilities 267 Mortgage notes payable 20,659 Partners' (Deficit) Capital General partners $ (1,271) Limited partners (23,139 units issued and outstanding) 3,294 2,023 $ 23,383
See Accompanying Notes to Consolidated Financial Statements b) WINTHROP GROWTH INVESTORS 1 LIMITED PARTNERSHIP CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except unit data)
Three Months Six Months Ended June 30, Ended June 30, 2000 1999 2000 1999 Revenues: Rental income $ 2,003 $ 1,880 $ 3,952 $ 3,713 Other income 98 81 182 154 Total revenues 2,101 1,961 4,134 3,867 Expenses: Operating 790 744 1,544 1,476 General and administrative 85 88 144 130 Depreciation 538 487 1,070 951 Interest 449 455 897 912 Property tax 138 122 278 212 Bad debt expense, net 19 26 117 47 Total expenses 2,019 1,922 4,050 3,728 Net income $ 82 $ 39 $ 84 $ 139 Net income allocated to general partner (10%) $ 8 $ 4 $ 8 $ 14 Net income allocated to limited partners (90%) 74 35 76 125 $ 82 $ 39 $ 84 $ 139 Net income per limited partnership unit $ 3.20 $ 1.51 $ 3.28 $ 5.40 Distributions per limited partnership unit $ 37.94 $ -- $ 37.94 $ --
See Accompanying Notes to Consolidated Financial Statements c) WINTHROP GROWTH INVESTORS 1 LIMITED PARTNERSHIP CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' (DEFICIT) CAPITAL (Unaudited) (in thousands, except unit data)
Limited Partnership General Limited Units Partners Partners Total Original capital contributions 23,149 $ 2,000 $23,149 $25,149 Partners' (deficit) capital at December 31, 1999 23,139 $(1,279) $ 4,096 $ 2,817 Distributions to limited partners -- -- (878) (878) Net income for the six months ended June 30, 2000 -- 8 76 84 Partners' (deficit) capital at June 30, 2000 23,139 $(1,271) $ 3,294 $ 2,023
See Accompanying Notes to Consolidated Financial Statements d) WINTHROP GROWTH INVESTORS 1 LIMITED PARTNERSHIP CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands)
Six Months Ended June 30, 2000 1999 Cash flows from operating activities: Net income $ 84 $ 139 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 1,070 951 Amortization of loan costs and deferred costs 58 55 Casualty gain -- (52) Bad debt expense, net 117 47 Change in accounts: Receivables and deposits (121) (150) Other assets 32 164 Accounts payable (66) (18) Tenant security deposit liabilities 6 6 Accrued property taxes 27 (123) Other liabilities (24) 32 Net cash provided by operating activities 1,183 1,051 Cash flows from investing activities: Property improvements and replacements (940) (586) Net insurance proceeds from casualties -- 66 Net deposits to restricted escrows (115) (30) Net cash used in investing activities (1,055) (550) Cash flows from financing activities: Payments on mortgage notes payable (147) (134) Distributions paid to limited partners (1,368) (600) Net cash used in financing activities (1,515) (734) Net decrease in cash and cash equivalents (1,387) (233) Cash and cash equivalents at beginning of period 1,889 1,863 Cash and cash equivalents at end of period $ 502 $ 1,630 Supplemental disclosure of cash flow information: Cash paid for interest $ 865 $ 879 At December 31, 1999 approximately $457,000 of property improvements and replacements were included in accounts payable. Distributions of approximately $490,000 were accrued at December 31, 1999 and paid in January 2000.
See Accompanying Notes to Consolidated Financial Statements e) WINTHROP GROWTH INVESTORS 1 LIMITED PARTNERHSIP NOTES TO CONSOLDIATED FINANCIAL STATEMENTS (Unaudited) Note A - Basis of Presentation The accompanying unaudited consolidated financial statements of Winthrop Growth Investors 1 Limited Partnership (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-QSB and Item 310(b) of Regulation S-B. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of Two Winthrop Properties, Inc., a Massachusetts corporation (the "Managing General Partner"), all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six month periods ended June 30, 2000 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2000. For further information, refer to the consolidated financial statements and footnotes thereto included in the Partnership's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1999. Principles of Consolidation The consolidated statements of the Partnership include its 99%, 99.9%, and 99.98% general partnership interests in DEK Associates, Meadow Wood Associates, and Stratford Place Investors Limited Partnership, respectively. Additionally, the Partnership is the 100% beneficiary of the Stratford Village Realty Trust. All significant interpartnership balances have been eliminated. Certain reclassifications have been made to the 1999 amounts to conform to the 2000 presentation. Note B - Transfer of Control On October 28, 1997, Insignia Financial Group, Inc. ("Insignia") acquired 100% of the Class B stock of First Winthrop Corporation, the sole shareholder of the Managing General Partner as well as a 20.7% limited partnership interest in the Partnership. Pursuant to this transaction, the by-laws of the Managing General Partner were amended to provide for the creation of a Residential Committee. Pursuant to the amended and restated by-laws, Insignia had the right to elect one director to the Managing General Partner's Board of Directors and to cause the Managing General Partner to take such actions as it deemed necessary and advisable in connection with the activities of the Partnership. Pursuant to a series of transactions which closed on October 1, 1998 and February 26, 1999, Insignia and Insignia Properties Trust merged into Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust, with AIMCO being the surviving corporation. As a result, AIMCO acquired all of the rights of Insignia in and to the limited partnership interest and the rights granted to Insignia pursuant to the First Winthrop Corporation transaction. The Managing General Partner does not believe that this transaction has had or will have a material effect on the affairs and operations of the Partnership. Note C - Transactions with Affiliated Parties The Partnership has no employees and is dependent on the Managing General Partner and its affiliates for the management and administration of all Partnership activities. The Partnership Agreement provides for certain payments to affiliates for services and as reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. The following payments were paid or accrued to the Managing General Partner and affiliates during the six months ended June 30, 2000 and 1999: 2000 1999 (in thousands) Property management fees (included in operating expenses) $201 $190 Reimbursement for services of affiliates (included in investment properties and general and administrative expenses) 80 71 During the six months ended June 30, 2000 and 1999, affiliates of the Managing General Partner were entitled to receive 5% of gross receipts from all of the Partnership's properties as compensation for providing property management services. The Partnership paid to such affiliates approximately $201,000 and $190,000 during the six months ended June 30, 2000 and 1999, respectively. An affiliate of the Managing General Partner received reimbursements of accountable administrative expenses amounting to approximately $80,000 and $71,000 for the six months ended June 30, 2000 and 1999, respectively. AIMCO and its affiliates currently own 6,489.34 limited partnership units in the Partnership representing approximately 28.05% of the outstanding units. A number of these units were acquired in the First Winthrop Corporation transaction and pursuant to tender offers made by AIMCO or its affiliates. It is possible that AIMCO or its affiliates will make one or more additional offers to acquire additional limited partnership interests in the Partnership for cash or in exchange for units in the operating partnership of AIMCO. Under the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters. When voting on matters, AIMCO would in all likelihood vote the Units it acquired in a manner favorable to the interest of the Managing General Partner because of their affiliation with the Managing General Partner. Note D - Supplementary Information Required Pursuant to Section 9.4 of the Partnership Agreement Statement of cash available for distribution for the three and six months ended June 30, 2000 (in thousands): Three Months Ended Six Months Ended June 30, 2000 June 30, 2000 Net Income $ 82 $ 84 Add: Amortization expense 34 58 Depreciation expense 538 1,070 Less: Cash to reserves (654) (1,212) Cash available for distribution $ -- $ -- Distributions allocated to Limited Partners $ -- $ -- General Partners' interest in cash available for distribution $ -- $ -- Note E - Distributions During the six months ended June 30, 2000, the Partnership paid a distribution to the limited partners from operations of approximately $490,000 ($21.18 per limited partnership unit) which had been declared and accrued at December 31, 1999. In addition, the Partnership declared and paid cash distributions to the limited partners from operations of approximately $878,000 ($37.94 per limited partnership unit) during the six months ended June 30, 2000. There were no distributions declared during the six months ended June 30, 1999. During the six months ended June 30, 1999, the Partnership paid a distribution to the limited partners from operations of approximately $600,000 ($25.93 per limited partnership unit) which was declared and accrued at December 31, 1998. Note F - Mortgage Note Payable Although there is no assurance that it will be able to do so, the Managing General Partner believes it will be able to refinance the debt at Ashton Ridge Apartments maturing in December 2000. Note G - Segment Reporting Description of the types of products and services from which the reportable segment derives its revenues: The Partnership has one reportable segment: residential properties. The Partnership's residential property segment consists of four apartment complexes, one each located in Alabama, Florida, Maryland, and Texas. The Partnership rents apartment units to tenants for terms that are typically twelve months or less. Measurement of segment profit or loss: The Partnership evaluates performance based on segment profit (loss) before depreciation. The accounting policies of the reportable segments are the same as those of the Partnership as described in the Partnership's Annual Report on Form 10-KSB for the year ended December 31, 1999. Factors management used to identify the Partnership's reportable segment: The Partnership's reportable segment consists of investment properties that offer similar products and services. Although each of the investment properties is managed separately, they have been aggregated into one segment as they provide services with similar types of products and customers. Segment information for the three and six month periods ended June 30, 2000 and 1999, is shown in the tables below (in thousands). The "Other" column includes Partnership administration related items and income and expense not allocated to the reportable segment. Three months ended June 30, 2000 Residential Other Totals (in thousands) Rental income $ 2,003 $ -- $ 2,003 Other income 96 2 98 Depreciation 538 -- 538 Interest expense 449 -- 449 General and administrative expense -- 85 85 Bad debt expense 19 -- 19 Segment profit (loss) 165 (83) 82 Six months ended June 30, 2000 Residential Other Totals (in thousands) Rental income $ 3,952 $ -- $ 3,952 Other income 176 6 182 Depreciation 1,070 -- 1,070 Interest expense 897 -- 897 General and administrative expense -- 144 144 Bad debt expense 117 -- 117 Segment profit (loss) 222 (138) 84 Total assets 22,925 458 23,383 Capital expenditures for investment properties 483 -- 483 Three months ended June 30, 1999 Residential Other Totals (in thousands) Rental income $ 1,880 $ -- $ 1,880 Other income 79 2 81 Depreciation 487 -- 487 Interest expense 455 -- 455 General and administrative expense -- 88 88 Bad debt expense 26 -- 26 Segment profit (loss) 125 (86) 39 Six months ended June 30, 1999 Residential Other Totals (in thousands) Rental income $ 3,713 $ -- $ 3,713 Other income 144 10 154 Depreciation 951 -- 951 Interest expense 912 -- 912 General and administrative expense -- 130 130 Bad debt expense 47 -- 47 Segment profit (loss) 259 (120) 139 Total assets 18,300 6,954 25,254 Capital expenditures for investment properties 586 -- 586 Note H - Casualty Gain In January 1999, Sunflower Apartments had a fire that damaged six apartment units. Total insurance proceeds received less the write-off of assets replaced resulted in a net casualty gain of approximately $52,000. Additionally, the Partnership received approximately $40,000 of insurance proceeds during the six months ended June 30, 1999 related to a casualty claim made in 1996 on behalf of Sunflower Apartments. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION The matters discussed in this Form 10-QSB contain certain forward-looking statements and involve risks and uncertainties (including changing market conditions, competitive and regulatory matters, etc.) detailed in the disclosures contained in this Form 10-QSB and the other filings with the Securities and Exchange Commission made by the Partnership from time to time. The discussion of the Partnership's business and results of operations, including forward-looking statements pertaining to such matters, does not take into account the effects of any changes to the Partnership's business and results of operations. Accordingly, actual results could differ materially from those projected in the forward-looking statements as a result of a number of factors, including those identified herein. The Partnership's investment properties consist of four apartment complexes. The following table sets forth the average occupancy of the properties for the six months ended June 30, 2000 and 1999: Average Occupancy 2000 1999 Ashton Ridge Apartments Jacksonville, Florida 94% 89% Stratford Place Apartments Gaithersburg, Maryland 98% 98% Stratford Village Apartments Montgomery, Alabama 92% 95% Sunflower Apartments Dallas, Texas 98% 96% The Managing General Partner attributes the increase in occupancy at Ashton Ridge Apartments to the completion of renovation projects at the property which enhanced the property's curb appeal as well as improved marketing efforts. The Managing General Partner attributes the decrease in occupancy at Stratford Village Apartments to increased competition in the apartment rental market of Montgomery, Alabama. Results of Operations The Partnership reported net income of approximately $84,000 for the six months ended June 30, 2000 as compared to net income of approximately $139,000 for the corresponding period in 1999. The Partnership reported net income of approximately $82,000 for the three months ended June 30, 2000 as compared to approximately $39,000 for the three months ended June 30, 1999. The decrease in net income for the six month period is due to increased total expenses, partially offset by increased total revenues. The increase in net income for the three month period is due to an increase in total revenues, partially offset by an increase in total expenses. The increase in total revenues for both the three and six month periods was due to increased rental income and other income. Rental income increased due to an increase in market rent at all the Partnership's properties and increases in occupancy at Ashton Ridge Apartments and Sunflower Apartments which more than offset the decrease in occupancy at Stratford Village Apartments. Other income increased primarily due to an increase in cable television income and telephone commissions, partially offset by reduced interest income due to lower cash balances in interest bearing accounts. Total expenses increased for the six month periods ended June 30, 2000 and 1999 due primarily to increased operating, depreciation, property tax, bad debt and general and administrative expenses. Total expenses increased for the three month periods ended June 30, 2000 and 1999 due primarily to increased operating, depreciation, and property tax expense. Operating expense increased for both the three and six month periods due primarily to increases in utility charges primarily at Stratford Place Apartments, increased employee bonuses, increased insurance expense and net insurance proceeds received in 1999 for the casualties at Sunflower apartments, partially offset by reduced business license expense at Stratford Place Apartments. Depreciation expense increased at all the Partnership's properties for both the three and six month periods due to the increase in depreciable assets placed into service over the past twelve months. Property tax expense increased for the six month period primarily due to a refund received during the first quarter of 1999 for the Stratford Place Apartments. In addition, there were increases in the assessed values at the Partnership's other properties. Bad debt expense increased for the six month period ended June 30, 2000 due primarily to an increase in tenant evictions at Ashton Ridge Apartments, which resulted in tenant receivable balances being written off during the first quarter of 2000. For the three months ended June 30, 2000 there were no large receivable write-offs. General and administrative expenses increased for the six months ended June 30, 2000 due to increased general partner reimbursements allowed under the Partnership agreement and increased professional fees associated with managing the Partnership. For the three months ended June 30, 2000 general and administrative expense decreased slightly due to the timing of the receipt of charges for general partner reimbursements and professional services. Included in general and administrative expenses are reimbursements to affiliates of the Managing General Partner allowed under the Partnership Agreement associated with its management of the Partnership. In addition, costs associated with the quarterly and annual communications with investors and regulatory agencies and the annual audit required by the Partnership Agreement are also included. As part of the ongoing business plan of the Partnership, the Managing General Partner monitors the rental market environment of its investment properties to assess the feasibility of increasing rents, maintaining or increasing occupancy levels and protecting the Partnership from increases in expense. 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, due to changing market conditions, which can result in the use of rental concessions and rental reductions to offset softening market conditions, there is no guarantee that the Managing General Partner will be able to sustain such a plan. Liquidity and Capital Resources At June 30, 2000, the Partnership had cash and cash equivalents of approximately $502,000 compared to approximately $1,630,000 at June 30, 1999. The decrease in cash and cash equivalents for the six months ended June 30, 2000 from the Partnership's year ended December 31, 1999 was approximately $1,387,000. This decrease is due to approximately $1,515,000 of cash used in financing activities and approximately $1,055,000 of cash used in investing activities partially offset by approximately $1,183,000 of cash provided by operating activities. Cash used in financing activities consisted primarily of distributions paid to the limited partners and, to a lesser extent, principal payments made on the mortgages encumbering the Partnership's investment properties. Cash used in investing activities consisted of property improvements and replacements and net deposits to restricted escrows maintained by the mortgage lenders. The Partnership invests its working capital reserves in a money market account. 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 properties 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. Capital improvements planned for each of the Partnership's properties are detailed below. Ashton Ridge Apartments Approximately $257,000 has been budgeted for capital improvements during the year 2000 at Ashton Ridge Apartments consisting primarily of floor covering replacements, air conditioning unit replacement, and appliance replacement. During the six months ended June 30, 2000, the Partnership spent approximately $164,000 for capital improvements consisting primarily of floor covering replacement, water meter and sewer upgrades, roof replacement, structural upgrades, appliance replacement, and air conditioning unit replacements. These improvements were funded from operating cash flow and replacement reserves. Additional improvements may be considered and will depend on the physical condition of the property as well as replacement reserves and anticipated cash flow generated by the property. Stratford Place Apartments Approximately $329,000 has been budgeted for capital improvements during the year 2000 at Stratford Place Apartments consisting primarily of carpet replacement, water heater replacements, air conditioning unit replacements, and appliance replacements. During the six months ended June 30, 2000, the Partnership spent approximately $211,000 for capital improvements consisting primarily of plumbing enhancements, carpet replacement, water heater replacements, appliance replacements, and other building improvements. These improvements were funded from operating cash flow. Additional improvements may be considered and will depend on the physical condition of the property as well as replacement reserves and anticipated cash flow generated by the property. Stratford Village Apartments Approximately $225,000 has been budgeted for capital improvements during the year 2000 at Stratford Village Apartments consisting primarily of roof replacements, floor covering replacements, parking lot upgrades, and structural upgrades. During the six months ended June 30, 2000, the Partnership spent approximately $74,000 for capital improvements consisting primarily of floor covering replacements, structural upgrades, appliance replacements, and plumbing replacements. These improvements were funded from operating cash flow. Additional improvements may be considered and will depend on the physical condition of the property as well as replacement reserves and anticipated cash flow generated by the property. Sunflower Apartments Approximately $80,000 has been budgeted for capital improvements during the year 2000 at Sunflower Apartments consisting primarily of floor covering replacement, interior decoration, appliance replacement, and major landscaping. During the six months ended June 30, 2000, the Partnership spent approximately $34,000 for capital improvements consisting primarily of floor covering replacement, appliance replacement, and other building enhancements. These improvements were funded from operating cash flow. Additional improvements may be considered and will depend on the physical condition of the property as well as replacement reserves and anticipated cash flow generated by the property. The additional capital expenditures will be incurred only if cash is available from operations or from Partnership reserves. To the extent that such budgeted capital improvements are completed, the Partnership's distributable cash flow, if any, may be adversely affected at least in the short term. The Partnership's current assets are thought to be sufficient for any near-term needs (exclusive of capital improvements) of the Partnership. The mortgage indebtedness of approximately $20,659,000 is amortized over varying periods with balloon payments of approximately $4,071,000 due in December 2000 and $8,000,000 in 2006. The Managing General Partner will attempt to refinance such indebtedness and/or sell the properties prior to such maturity dates. If the properties cannot be refinanced or sold for a sufficient amount, the Partnership will risk losing such properties through foreclosure. During the six months ended June 30, 2000, the Partnership paid a distribution to the limited partners from operations of approximately $490,000 ($21.18 per limited partnership unit) which had been declared and accrued at December 31, 1999. In addition, the Partnership declared and paid cash distributions to the limited partners from operations of approximately $878,000 ($37.94 per limited partnership unit) during the six months ended June 30, 2000. There were no distributions declared during the six months ended June 30, 1999. During the six months ended June 30, 1999, the Partnership paid a distribution to the limited partners from operations of approximately $600,000 ($25.93 per limited partnership unit) which was declared and accrued at December 31, 1998. The Partnership's distribution policy is reviewed on a semi-annual basis. Future cash distributions will depend on the levels of net cash generated from operations, the availability of cash reserves, and the timing of debt maturities, refinancings and/or property sales. There can be no assurance, however, that the Partnership will generate sufficient funds from operations, after required capital expenditures, to permit additional distributions to its partners during the remainder of 2000 or subsequent periods. PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits: Exhibit 27, Financial Data Schedule, is filed as an exhibit to this report. b) Reports on Form 8-K filed during the quarter ended June 30, 2000: None. SIGNATURES In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. WINTHROP GROWTH INVESTORS 1 LIMITED PARTNERSHIP By: Two Winthrop Properties, Inc. Managing General Partner By: /s/Patrick J. Foye Patrick J. Foye Vice President - Residential By: /s/Martha L. Long Martha L. Long Vice President and Controller - Residential Date: