EX-99 6 apthousing04.txt SIGINIFICANT SUB APT HOUSING OF E BREWTON APARTMENT HOUSING OF EAST BREWTON, LTD. FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 APARTMENT HOUSING OF EAST BREWTON, LTD. TABLE OF CONTENTS DECEMBER 31, 2004 AND 2003 Page ---- Independent Auditors' Report 1 Financial Statements Balance Sheets 2 Statements of Operations and Comprehensive Income 4 Statements of Partners' Capital 5 Statements of Cash Flows 6 Notes to Financial Statements 7 Supplemental Information 11 GRANBERRY & ASSOCIATES, LLC Certified Public Accountants Michelle M. Granberry, CPA P.O. Box 3196 Kellie B. Blackmon, CPA Auburn, AL 36831-3196 MEMBER Phone: (334) 741-1050 American Institute of CPAs Fax. (334) 741-1059 Alabama Society of CPAs www.granberrycpa.com INDEPENDENT AUDITORS' REPORT To the Partners of Apartment Housing of East Brewton, Ltd. We have audited the accompanying balance sheets of Apartment Housing of East Brewton, Ltd. (an Alabama limited partnership) as of December 31, 2004 and 2003, and the related statements of operations and comprehensive income, partners' capital, and cash flows for the years then ended. These financial statements are the responsibility of Apartment Housing of East Brewton, Ltd.'s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Apartment Housing of East Brewton, Ltd. as of December 31, 2004 and 2003 and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on page 11 is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. Granberry & Associates, LLC January 19, 2005 1 APARTMENT HOUSING OF EAST BREWTON, LTD. BALANCE SHEETS DECEMBER 31, 2004 AND 2003 2004 2003 ----------- ----------- ASSETS Current Assets Cash $ 9,399 $ 2,945 Accounts Receivable - Tenant 1,221 1,550 Prepaid Insurance 1,322 1,322 Other Receivable 56,950 -- ----------- ----------- Total Current Assets 68,892 5,817 ----------- ----------- Restricted Deposits and Funded Reserves Taxes and Insurance 760 3,651 Replacement Reserve 44,528 40,288 Security Deposits 11,582 12,081 Owner Financed Rental Assistance -- 1,928 ----------- ----------- Total Restricted Deposits and Funded Reserves 56,870 57,948 ----------- ----------- Property and Equipment Land 69,000 69,000 Buildings and Improvements 2,185,247 2,185,247 Furniture, Fixtures and Equipment 99,454 92,648 ----------- ----------- 2,353,701 2,346,895 Less Accumulated Depreciation (492,347) (417,315) ----------- ----------- Total Property and Equipment 1,861,354 1,929,580 ----------- ----------- Other Assets Deposits 75 75 ----------- ----------- TOTAL ASSETS $ 1,987,191 $ 1,993,420 =========== =========== The accompanying notes are an integral part of these financial statements. 2 2004 2003 ----------- ----------- LIABILITIES AND EQUITY Current Liabilities Accounts Payable $ 8,181 $ 15,398 Deferred Revenue 65,350 1,200 Security Deposits Payable 10,070 9,115 Tenant Overage Payable 159 -- Payroll Taxes Payable 548 646 Accrued Interest Payable 27,303 22,396 Accrued Partner Fees 750 500 Accrued Property Taxes Payable 4,245 3,356 Current Maturities of Mortgage Payable 7,704 7,040 ----------- ----------- Total Current Liabilities 124,310 59,651 ----------- ----------- Long-Term Liabilities Mortgage Payable, net of current maturities 1,119,199 1,126,903 Obligation Under Interest Rate Swap 23,966 21,059 ----------- ----------- Total Long-Term Liabilities 1,143,165 1,147,962 ----------- ----------- Total Liabilities 1,267,475 1,207,613 Partners' Equity Partners' Capital 743,682 806,866 Unrealized Loss on Cash Flow Hedge (23,966) (21,059) ----------- ----------- Total Partners' Equity 719,716 785,807 ----------- ----------- TOTAL LIABILITIES AND EQUITY $ 1,987,191 $ 1,993,420 =========== =========== The accompanying notes are an integral part of these financial statements. 3 APARTMENT HOUSING OF EAST BREWTON, LTD. STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME YEARS ENDED DECEMBER 31, 2004 AND 2003 2004 2003 --------- --------- Revenues Rental $ 127,614 $ 136,179 Miscellaneous Charges 6,430 4,262 --------- --------- Total Revenues 134,044 140,441 --------- --------- Operating Expenses Administrative 21,333 20,824 Advertising 188 200 Bad Debt 4,706 17,537 Management Fees 11,346 10,285 Repair and Maintenance 28,848 28,968 Taxes and Insurance 35,468 30,217 Utilities 5,300 4,724 --------- --------- Total Operating Expenses 107,189 112,755 --------- --------- Income (Loss) from Operations 26,855 27,686 Partnership and Financial Income (Expense) Partnership Management Fees (250) (250) Forgiveness of Management Fees 3,085 -- Interest Income 209 275 Interest Expense (18,051) (17,885) --------- --------- Total Partnership and Financial Income (Expense) (15,007) (17,860) --------- --------- Income (Loss) from Operations before Depreciation 11,848 9,826 Depreciation (75,032) (81,193) --------- --------- Net Loss (63,184) (71,367) --------- --------- Other Comprehensive Income (Loss) Unrealized Gain (Loss) on cash flow hedge arising during the period (2,907) 19,066 --------- --------- Total Other Comprehensive Income (Loss) (2,907) 19,066 --------- --------- Total Comprehensive Loss $ (66,091) $ (52,301) ========= ========= The accompanying notes are an integral part of these financial statements. 4
APARTMENT HOUSING OF EAST BREWTON, LTD. STATEMENTS OF PARTNERS' CAPITAL YEARS ENDED DECEMBER 31, 2004 AND 2003 General Limited Partners Partners Total --------- --------- --------- Partners' Capital, December 31, 2002 $ 1,685 $ 876,548 $ 878,233 Net Loss (714) (70,653) (71,367) --------- --------- --------- Partners' Capital, December 31, 2003 971 805,895 806,866 Net Loss (632) (62,552) (63,184) --------- --------- --------- Partners' Capital, December 31, 2004 $ 339 $ 743,343 $ 743,682 ========= ========= ========= The accompanying notes are an integral part of these financial statements. 5 APARTMENT HOUSING OF EAST BREWTON, LTD. STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2004 AND 2003 2004 2003 -------- -------- Cash flows from operating activities Net Loss $(63,184) $(71,367) -------- -------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 75,032 81,193 (Increase) Decrease in Accounts Rec. Tenants 329 674 (Increase) Decrease in Prepaid Insurances -- 68 (Increase) Decrease in Other Receivables (56,950) -- Increase (Decrease) in Accounts Payable (8,417) 4,723 Increase (Decrease) in Security Deposits Payable 955 1,046 Increase (Decrease) in Tenant Overage Payable 159 (200) Increase (Decrease) in Accrued Partners' Fees 250 250 Increase (Decrease) in Payroll Taxes Payable (98) (192) Increase (Decrease) in Accrued Interest 4,907 4,691 Increase (Decrease) in Accrued Property Taxes 889 (12) Increase (Decrease) in Deferred Revenue 65,350 -- -------- -------- Total adjustments 82,406 92,241 -------- -------- Net cash provided (used) by operating activities 19,222 20,874 -------- -------- Cash flow from investing activities: Purchase of Fixed Assets (6,806) (4,375) -------- -------- Net cash provided (used) by investing activities (6,806) (4,375) -------- -------- Cash flow from financing activities: Payment of Loan Principal (7,040) (6,573) -------- -------- Net cash provided (used) by financing activities (7,040) (6,573) -------- -------- Net increase (decrease) in cash and equivalents 5,376 9,926 Cash and equivalents, beginning of year 60,893 50,967 Cash and equivalents, end of year $ 66,269 $ 60,893 ======== ======== Supplemental disclosures of cash flow information: Cash paid during the year for: Interest expense $ 13,027 $ 13,194 ======== ======== The accompanying notes are an integral part of these financial statements. 6 APARTMENT HOUSING OF EAST BREWTON, LTD. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES HISTORY - Apartment Housing of East Brewton, Ltd., an Alabama limited partnership, formed during June 1998. The partnership owns and operates a forty (40) unit apartment complex in East Brewton, Alabama for low and moderate income persons. Such projects are regulated by the Alabama Housing Finance Authority as to rent charges and operating methods. The regulatory agreement limits annual distributions of net operating receipts. Construction was completed and the units were available for rental in February of 1999. BASIS OF ACCOUNTING - The financial statements are prepared on the accrual basis of accounting whereby revenues are recognized when earned and expenses are recognized when the liability is incurred. PROPERTY, EQUIPMENT AND RELATED DEPRECIATION - Property and equipment are stated at cost less accumulated depreciation as calculated under the straight-line and declining balance methods. The assets are being depreciated as follows: Buildings 40 years, straight-line Furniture, fixtures, and equipment 5-7 years, declining balance INCOME TAXES - Items of income and loss pass through to the individual partners for both Federal and State income tax purposes; therefore, the financial statements reflect no tax liability or benefit. Modified accelerated cost recovery system (MACRS) is used for income tax reporting purposes. CASH AND CASH EQUIVALENTS - For purposes of the statement of cash flows, cash includes cash investments with an initial maturity not in excess of ninety (90) days. Cash flows from interest rate swap hedging the company's mortgage payable are classified as interest paid in the statement of cash flows. ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. ADVERTISING - The partnership expenses the cost of advertising the first time the advertising activity takes place. See independent auditors' report. 7 APARTMENT HOUSING OF EAST BREWTON, LTD. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 2. RESTRICTED DEPOSITS AND FUNDED RESERVES Under the terms of the HOME Investment Partnership Program agreement the partnership is required to maintain these restricted accounts as follows: REPLACEMENT RESERVE - The partnership is to transfer monthly the amount of $833 until the account reaches a balance of $70,000. Any disbursements from this account are subject to the approval of Alabama Housing Finance Authority. At December 31, 2004 and 2003, this account was not properly funded. SECURITY DEPOSITS - A separate account is maintained for tenant security deposits as specified under Alabama law. At December 31, 2004 and 2003, this account is properly funded. TAXES AND INSURANCE - The partnership is to transfer monthly an amount estimating one-twelfth of the annual cost of real estate taxes and insurance. These expenditures are then to be paid from this account. In addition to escrowing taxes and insurance, the partnership also escrows funds for payment of various expenses such as accounting fees. All fees are paid quarterly except real estate taxes, which are paid annually. At December 31, 2004 and 2003, this account is properly funded. 3. LONG-TERM DEBT Long-term debt is summarized as follows: 2004 2003 ----------- ----------- Mortgage note payable in monthly installments (including principal and interest at a variable rate of 1.75% per annum over LIBOR) to Compass Bank, secured by land, building, cash, receivables and income, maturing May 2019. The interest rate at 12/31/04 is 4.05625% $ 205,903 $ 212,943 Mortgage note payable to Alabama's HOME Investment Partnership Program. No payment due until maturity in May 2019. Interest accrues annually at 1/2 of 1% until maturity 921,000 921,000 ----------- ----------- 1,126,903 1,133,943 Less principal due within one year (7,704) (7,040) ----------- ----------- Total long-term debt $ 1,119,199 $ 1,126,903 =========== ===========
See independent auditors' report. 8 APARTMENT HOUSING OF EAST BREWTON, LTD. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 3. LONG-TERM DEBT - continued Principal payments due on long-term debt for the subsequent five years are as follows: 2005 $ 7,704 2006 8,373 2007 9,018 2008 9,930 2009 10,748 Thereafter 1,081,130 ---------- Total $1,126,903 ========== 4. INTEREST RATE SWAP - On July 12, 2002, the partnership entered into an interest rate swap agreement with Compass Bank. The purpose of this agreement was to hedge cash flows against variable interest rates on their mortgage loan to Compass. The terms include a notional amount equal to the outstanding mortgage loan whereby the partnership pays a fixed rate of interest, 8.25%, and receives a variable rate of interest equal to 1.75% over LIBOR not less than 5.25% and expires May 1, 2019. The net payments are calculated and paid on a monthly basis. The carrying amount of the swap has been adjusted to its fair value at the end of the year, which because of changes in forecasted levels of LIBOR resulted in reporting a liability for the fair value of the future net payments forecasted under the swap. The liability is classified as non-current since management does not intend to settle it during 2004. Since the critical terms of the swap and the note are the same, the swap is assumed to be completely effective as a hedge, and none of the change in its fair value is included in income. Accordingly, all of the adjustment of the swap's carrying amount is reported as other comprehensive loss. Estimated net payments of $6,091 are expected to be reclassified into earnings within the next twelve months. 5. RELATED PARTY TRANSACTIONS MANAGEMENT CONTRACTS - Apartment Services and Management, Inc., an affiliate of the general partners, managed the project during 2004 and 2003 pursuant to a contract approved by Alabama Housing Finance Authority. Management fees were $11,346 and $10,285 in 2004 and 2003, respectively. Unpaid management fees included in accounts payable were $6,428 and $13,370 at December 31, 2004 and 2003, respectively. CAPITAL IMPROVEMENTS - Southeast Maintenance, Inc., a corporation wholly owned by the general partner's son, provided various capital improvements during 2004 and 2003 totaling $5,640 and $2,015, respectively. Unpaid capital improvements included in accounts payable at December 31, 2004 and 2003 totaled $547 and $1,200, respectively. REPAIRS AND MAINTENANCE - Southeast Maintenance, Inc., a corporation wholly owned by the general partner's son, was paid $2,450 in 2004 for repairs related to Hurricane Ivan. The partnership received insurance monies to cover the cost of these repairs. See footnote 9. Also, Southeast Maintenance, Inc. provided various repairs and maintenance during 2004 and 2003 totaling $876 and $615, respectively. See independent auditors' report. 9 APARTMENT HOUSING OF EAST BREWTON, LTD. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 6. CURRENT VULNERABILITY DUE TO CERTAIN CIRCUMSTANCES The partnership's operations are concentrated in the low-income real estate market. In addition, the partnership operates in a heavily regulated environment. The operations of the partnership are subject to the administrative directives, rules and regulations of federal and state regulatory agencies, including, but not limited to, the state housing financing agency. Such administrative directives, rules and regulations are subject to change by federal and state agencies. Such changes may occur with little notice or inadequate funding to pay for the related cost, including the additional administrative burden, to comply with a change. 7. RECONCILIATION OF FINANCIAL TO TAXABLE LOSS A reconciliation of financial statement net loss to ordinary loss of the partnership, as reported on the partnership's information return, for the year ended December 31 is as follows: 2004 2003 --------- --------- Financial statement net loss $ (63,184) $ (71,367) Reconciling items: Financial statement depreciation 75,032 81,193 Tax return depreciation (98,564) (104,774) --------- --------- Partnership tax return ordinary loss $ (86,716) $ (94,948) ========= ========= 8. COMMITMENTS AND CONTINGENCIES On December 31, 2004 and 2003, the partnership was contingently liable under a $37,412 standby letter of credit at SouthTrust Bank expiring September 2005 and 2004, respectively. 9. HURRICANE DAMAGE During 2004, the apartment complex sustained damage as a result of Hurricane Ivan. The partnership received insurance proceeds in the amount of $10,850 to pay for the necessary repairs to the complex. At December 31, 2004, insurance proceeds in the amount of $56,950 are due to the complex and are recorded as other receivables. Also at December 31, 2004, $65,350 is recorded in deferred revenue and will be paid upon completion of repairs. See independent auditors' report. 10 APARTMENT HOUSING OF EAST BREWTON, LTD. SUPPLEMENTAL INFORMATION YEARS ENDED DECEMBER 31, 2004 AND 2003 2004 2003 ------- ------- Administrative Bank Charges $ 210 $ 166 Consultant Fees 138 -- Dues and Subscriptions 110 160 Miscellaneous 84 139 Office Supplies & Postage 1,182 2,075 Professional Fees 4,509 3,067 Salaries - Office 12,557 13,015 Telephone 2,248 2,045 Training Expense 295 -- Travel & Entertainment Expense -- 157 ------- ------- Total Administrative $21,333 $20,824 ======= ======= Repairs & Maintenance Equipment Rental $ 803 $ 498 Maintenance Supplies 3,172 777 Interior Paint & Decorating 2,557 406 General Maintenance 4,020 5,408 Grounds Maintenance 5,602 2,832 Exterminating Services 1,148 927 Reserve 876 3,600 Salaries - Maintenance 10,670 14,520 ------- ------- Total Repairs & Maintenance $28,848 $28,968 ======= ======= Taxes & Insurance Property, Liability and Workmen's Comp. Insurance $11,478 $11,646 Medical Insurance 3,920 2,668 Payroll Taxes 2,100 2,390 Real Estate Taxes 17,870 13,413 Other Taxes, Licenses, and Permits 100 100 ------- ------- Total Taxes & Insurance $35,468 $30,217 ======= ======= Utilities Electricity $ 4,628 $ 4,116 Water 199 174 Sewer 128 112 Miscellaneous 345 322 ------- ------- Total Utilities $ 5,300 $ 4,724 ======= ======= See independent auditors' report. 11