10QSB 1 wgi.txt WGI 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 September 30, 2001 [ ] 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) September 30, 2001
Assets Cash and cash equivalents $ 876 Receivables and deposits 310 Restricted escrows 178 Other assets 1,088 Investment properties: Land $ 2,391 Buildings and related personal property 36,855 39,246 Less accumulated depreciation (22,297) 16,949 $ 19,401 Liabilities and Partners' Deficit Liabilities Accounts payable $ 88 Tenant security deposit liabilities 157 Accrued property taxes 149 Due to affiliate 11 Other liabilities 288 Mortgage notes payable 19,698 Partners' Deficit General partners $ (969) Limited partners (23,139 units issued and outstanding) (21) (990) $ 19,401 See Accompanying Notes to Consolidated Financial Statements
b) WINTHROP GROWTH INVESTORS 1 LIMITED PARTNERSHIP CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except per unit data)
Three Months Nine Months Ended September 30, Ended September 30, 2001 2000 2001 2000 (restated) (restated) Revenues: Rental income $ 1,677 $ 1,970 $ 5,004 $ 5,805 Other income 103 121 291 303 Total revenues 1,780 2,091 5,295 6,108 Expenses: Operating 734 765 1,935 2,309 General and administrative 78 140 248 284 Depreciation 461 517 1,392 1,587 Interest 402 448 1,202 1,345 Property tax 95 142 292 420 Total expenses 1,770 2,012 5,069 5,945 Net income $ 10 $ 79 $ 226 $ 163 Net income allocated to general partner (10%) $ 1 $ 8 $ 23 $ 16 Net income allocated to limited partners (90%) 9 71 203 147 $ 10 $ 79 $ 226 $ 163 Net income per limited partnership unit $ .39 $ 3.07 $ 8.77 $ 6.35 Distributions per limited partnership unit $ -- $ -- $136.48 $ 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, 2000 23,139 $ (899) $ 2,934 $ 2,035 Distributions to partners -- (93) (3,158) (3,251) Net income for the nine months ended September 30, 2001 -- 23 203 226 Partners' deficit at September 30, 2001 23,139 $ (969) $ (21) $ (990) See Accompanying Notes to Consolidated Financial Statements
d) WINTHROP GROWTH INVESTORS 1 LIMITED PARTNERSHIP CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands)
Nine Months Ended September 30, 2001 2000 Cash flows from operating activities: Net income $ 226 $ 163 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 1,392 1,587 Amortization of loan costs and deferred costs 53 87 Bad debt expense, net 104 163 Change in accounts: Receivables and deposits (19) (327) Other assets (117) 11 Accounts payable (179) 38 Tenant security deposit liabilities 7 4 Accrued property taxes 149 168 Due to Affiliate 11 -- Other liabilities 7 (1) Net cash provided by operating activities 1,634 1,893 Cash flows from investing activities: Property improvements and replacements (633) (1,214) Net withdrawals from restricted escrows 81 15 Net cash used in investing activities (552) (1,199) Cash flows from financing activities: Payments on mortgage notes payable (254) (222) Distributions paid to partners (3,251) (1,368) Net cash used in financing activities (3,505) (1,590) Net decrease in cash and cash equivalents (2,423) (896) Cash and cash equivalents at beginning of period 3,299 1,889 Cash and cash equivalents at end of period $ 876 $ 993 Supplemental disclosure of cash flow information: Cash paid for interest $ 1,137 $ 1,296 At September 30, 2000, accounts payable and property improvements and replacements were adjusted by approximately $457,000 for non-cash activity. 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 PARTNERSHIP NOTES TO CONSOLIDATED 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. The general partner of the Partnership is Two Winthrop Properties, Inc. (the "Managing General Partner"), an affiliate 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 accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine month periods ended September 30, 2001 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2001. 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, 2000. 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. Segment Reporting Statement of Financial Standards ("SFAS") No. 131, Disclosure about Segments of an Enterprise and Related Information established standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports. It also established standards for related disclosures about products and services, geographic areas, and major customers. As defined in SFAS No. 131, the Partnership has only one reportable segment. The Managing General Partner believes that segment-based disclosures will not result in a more meaningful presentation than the consolidated financial statements as currently presented. Reclassification Certain reclassifications have been made to the 2000 balances to conform to the 2001 presentation. Note B - 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 its affiliates during the nine months ended September 30, 2001 and 2000: 2001 2000 (in thousands) Property management fees (included in operating expenses) $271 $303 Reimbursement for services of affiliates (included in investment properties, operating expense and general and administrative expenses) 216 191 During the nine months ended September 30, 2001 and 2000, affiliates of the Managing General Partner were entitled to receive from 5% to 7.87% of gross receipts from all of the Partnership's properties as compensation for providing property management services. The Partnership paid to such affiliates approximately $271,000 and $303,000 during the nine months ended September 30, 2001 and 2000, respectively. An affiliate of the Managing General Partner received reimbursements of accountable administrative expenses amounting to approximately $216,000 and $191,000 for the nine months ended September 30, 2001 and 2000, respectively. Construction service reimbursements of approximately $41,000 and $6,000 are included in these amounts for the nine months ended September 30, 2001 and 2000, respectively. During the nine months ended September 30, 2001, an affiliate of the Managing General Partner loaned the Partnership approximately $131,000, including interest. The amount was repaid during July 2001. In addition to its indirect ownership of the general partner interest in the Partnership, AIMCO and its affiliates owned 9,396.25 limited partnership units in the Partnership representing 40.61% of the outstanding units at September 30, 2001. 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 limited partnership interests in the Partnership for cash or in exchange for units in the operating partnership of AIMCO either through private purchases or tender offers. In this regard, on August 30, 2001, AIMCO Properties, LP, commenced a tender offer to acquire any and all of the Units not owned by affiliates of AIMCO for a purchase price of $466 per Unit. Pursuant to this offer, AIMCO acquired 297 Units during the quarter ended September 30, 2001. Under the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters, which would include voting on certain amendments to the Partnership Agreement and voting to remove the Managing General Partner. As a result of its ownership of 40.61% of the outstanding units, AIMCO is in a position of influence all voting decisions with respect to the Partnership. 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 its affiliation with the Managing General Partner. Note C - Supplementary Information Required Pursuant to Section 9.4 of the Partnership Agreement Statement of cash available for distribution for the three and nine months ended September 30, 2001 (in thousands): Three Months Ended Nine months Ended September 30, 2001 September 30, 2001 Net Income $ 10 $ 226 Add: Amortization expense 14 53 Depreciation expense 461 1,392 Less: Cash (to reserves) released from reserves (435) 1,580 Cash available for distribution $ 50 $3,251 Distributions allocated to Limited Partners $ 50 $3,158 General Partners' interest in cash available for distribution $ -- $ 93 Note D - Distributions During the nine months ended September 30, 2001, the Partnership paid distributions to the partners of approximately $3,251,000 (approximately $3,158,000 to the limited partners or $136.48 per limited partnership unit). These distributions consisted of approximately $1,893,000 (approximately $81.81 per limited partnership unit) all to the limited partners from the refinancing proceeds of Ashton Ridge Apartments and approximately $97,000 all to the limited partners ($4.18 per limited partnership unit) from the remaining sale proceeds of Sunflower Apartments. The distributions also consisted of approximately $1,261,000 (approximately $1,168,000 to the limited partners or $50.49 per limited partnership unit) from operations of the Partnership's remaining investment properties. During the nine months ended September 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 nine months ended September 30, 2000. Subsequent to September 30, 2001, the Partnership declared a distribution of approximately $50,000 (approximately $2.16 per limited partnership unit) to the limited partners from operations. Also, the Partnership is recouping approximately $8,000 of state withholding taxes paid on behalf of the partners. Note E - Change in Accounting Estimate During the nine months ended September 30, 2001, certain accruals of approximately $103,000 established related to the sale of Sunflower Apartments in December 2000 were reversed due to actual costs being less than anticipated. This accrual reversal is included as a reduction of operating expenses in the nine month period ended September 30, 2001. Note F - Legal Proceedings The Partnership is unaware of any pending or outstanding litigation that is not of a routine nature arising in the ordinary course of business. 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 three apartment complexes. The following table sets forth the average occupancy of the properties for the nine months ended September 30, 2001 and 2000: Average Occupancy 2001 2000 Ashton Ridge Apartments Jacksonville, Florida 96% 94% Stratford Place Apartments Gaithersburg, Maryland 96% 98% Stratford Village Apartments Montgomery, Alabama 91% 92% Results of Operations The Partnership reported net income of approximately $226,000 for the nine months ended September 30, 2001 as compared to net income of approximately $163,000 for the nine months ended September 30, 2000. The Partnership reported net income of approximately $10,000 for the three months ended September 30, 2001 as compared to approximately $79,000 for the three months ended September 30, 2000. The increase in net income for the nine month period ended September 30, 2001 is due primarily to a decrease in total expenses as a result of the sale of Sunflower Apartments in December 2000 partially offset by a decrease in total revenues. The decrease in net income for the three month period ended September 30, 2001 is due to a decrease in total revenues and a decrease in total expenses also as a result of the sale of Sunflower Apartments. Excluding the impact of the reversal of $103,000 in accruals related to the sale of Sunflower Apartments for the nine months ended September 30, 2001 and the impact of operations of Sunflower Apartments, the Partnership's net income for the nine months ended September 31, 2001 was approximately $123,000 as compared to a net loss of approximately $20,000 for the nine months ended September 30, 2000. The Partnership's net income was approximately $9,000 for both three month periods ended September 30, 2001 and 2000, respectively. The increase in net income for the nine month period was due to an increase in total revenues partially offset by an increase in total expenses. Net income for the three month period remained constant as a result of an increase in total revenues offset by an increase in total expenses. Total revenues increased for the three and nine months ended September 30, 2001 due to an increase in rental income and other income. Rental income increased due to an increase in average rental rates at Ashton Ridge Apartments and Stratford Place Apartments, an increase in occupancy at Ashton Ridge Apartments and a decrease in bad debt expense at Ashton Ridge Apartments, which were partially offset by a decrease in average rental rates at Stratford Village Apartments. Other income increased due to an increase in utilities reimbursements at Ashton Ridge Apartments and higher cash balances maintained in interest bearing accounts. Total expenses increased for the three and nine months ended September 30, 2001 due primarily to an increase in operating and depreciation expenses partially offset by a decrease in general and administrative expense. Operating expense increased due to an increase in property expenses and insurance expense primarily at Ashton Ridge Apartments and Stratford Place Apartments. Property expense increased due to an increase in salaries and related benefits at Ashton Ridge Apartments and an increase in utility reimbursements at Stratford Place Apartments as a result of vacant apartments. The increase in insurance expense is the result of an increase in insurance premiums at Ashton Ridge Apartments and Stratford Place Apartments. Depreciation expense increased at all the Partnership's properties due to the increase in property improvements and replacements placed into service during the past twelve months which are now being depreciated. General and administrative expenses decreased for both the three and nine months periods due to a decrease in the cost of services included in the management reimbursements to the General Partner as allowed under the Partnership Agreement and legal and professional fees associated with managing the partnership partially offset by an increase in audit fees. Also included in general and administrative expense are costs associated with the quarterly and annual communications with investors and regulatory agencies. 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 September 30, 2001, the Partnership had cash and cash equivalents of approximately $876,000 compared to approximately $993,000 at September 30, 2000. The decrease in cash and cash equivalents for the nine months ended September 30, 2001 from the Partnership's year ended December 31, 2000 was approximately $2,423,000. This decrease is due to approximately $3,505,000 of cash used in financing activities and approximately $552,000 of cash used in investing activities which were partially offset by approximately $1,634,000 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 partially offset by net withdrawals from restricted escrows maintained by the mortgage lenders. The Partnership invests its working capital reserves in interest bearing accounts. 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 During the nine months ended September 30, 2001, the Partnership spent approximately $254,000 for capital improvements consisting primarily of structural improvements, floor covering and appliance replacements, the installation of a sprinkler system, and air conditioning unit replacements. These improvements were funded from operating cash flow and replacement reserves. Approximately $390,000 has been budgeted for capital improvements during the year 2001 at Ashton Ridge Apartments consisting primarily of floor covering and appliance replacements, installation of a sprinkler system, plumbing improvements, and air conditioning unit replacement. 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 During the nine months ended September 30, 2001, the Partnership spent approximately $206,000 for budgeted and non-budgeted capital improvements consisting primarily of counter top replacements, structural improvements, plumbing enhancements, and floor covering and appliance replacements. These improvements were funded from Partnership reserves and operating cash flow. Approximately $110,000 has been budgeted, but is not limited to, for capital improvements during the year 2001 at Stratford Place Apartments consisting primarily of floor covering replacements, water heater replacements, air conditioning unit replacements, and appliance replacements. 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 During the nine months ended September 30, 2001, the Partnership spent approximately $173,000 for capital improvements consisting primarily of major landscaping, floor covering and appliance replacements, air conditioning improvements, structural improvements, and interior decorations. These improvements were funded from Partnership reserves and operating cash flow. Approximately $185,000 has been budgeted for capital improvements during the year 2001 at Stratford Village Apartments consisting primarily of air conditioning unit replacements, floor covering and appliance replacements, and plumbing enhancements. 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 $19,698,000 has maturity dates ranging from July 2006 to November 2024 at which time the mortgages will be fully amortized. During the nine months ended September 30, 2001, the Partnership paid distributions to the partners of approximately $3,251,000 (approximately $3,158,000 to the limited partners or $136.48 per limited partnership unit). These distributions consisted of approximately $1,893,000 (approximately $81.81 per limited partnership unit) all to the limited partners from the refinancing proceeds of Ashton Ridge Apartments and approximately $97,000 all to the limited partners ($4.18 per limited partnership unit) from the remaining sale proceeds of Sunflower Apartments. The distributions also consisted of approximately $1,261,000 (approximately $1,168,000 to the limited partners or $50.49 per limited partnership unit) from operations of the Partnership's remaining investment properties. During the nine months ended September 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 nine months ended September 30, 2000. Subsequent to September 30, 2001, the Partnership declared a distribution of approximately $50,000 (approximately $2.16 per limited partnership unit) to the limited partners from operations. Also, the Partnership is recouping approximately $8,000 of state withholding taxes paid on behalf of the partners. The Partnership's distribution policy is reviewed on a monthly 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 2001 or subsequent periods. In addition to its indirect ownership of the general partner interest in the Partnership, AIMCO and its affiliates owned 9,396.25 limited partnership units in the Partnership representing 40.61% of the outstanding units at September 30, 2001. 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 limited partnership interests in the Partnership for cash or in exchange for units in the operating partnership of AIMCO either through private purchases or tender offers. In this regard, on August 30, 2001, AIMCO Properties, LP, commenced a tender offer to acquire any and all of the Units not owned by affiliates of AIMCO for a purchase price of $466 per Unit. Pursuant to this offer, AIMCO acquired 297 Units during the quarter ended September 30, 2001. Under the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters, which would include voting on certain amendments to the Partnership Agreement and voting to remove the Managing General Partner. As a result of its ownership of 40.61% of the outstanding units, AIMCO is in a position to influence all voting decisions with respect to the Partnership. 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 its affiliation with the Managing General Partner. PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits: None. b) Reports on Form 8-K filed during the quarter ended September 30, 2001: 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: November 6, 2001