EX-99 6 apthouse06.txt EX 99.24 APARTMENT HOUISNG OF EAST BREWTON, LTD FYE 12/31/06 AND 05 APARTMENT HOUSING OF EAST BREWTON, LTD. FINANCIAL STATEMENTS DECEMBER 31, 2006 AND 2005 APARTMENT HOUSING OF EAST BREWTON, LTD. TABLE OF CONTENTS DECEMBER 31, 2006 AND 2005 Page ---- Independent Auditors' Report 1 Financial Statements Balance Sheets 2 Statements of Operations and Comprehensive Income 4 Statements of Partners' Capital (Deficit) 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, 2006 and 2005, and the related statements of operations and comprehensive income, partners' capital (deficit), 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, 2006 and 2005, 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. /s/ Granberry & Associates, LLC ------------------------------- January 22, 2007 1 APARTMENT HOUSING OF EAST BREWTON, LTD. BALANCE SHEETS DECEMBER 31, 2006 AND 2005 2006 2005 ----------- ----------- ASSETS Current Assets Cash $ 2,082 $ 2,350 Accounts Receivable - Tenant 2,220 1,073 Prepaid Insurance 1,124 963 ----------- ----------- Total Current Assets 5,426 4,386 ----------- ----------- Restricted Deposits and Funded Reserves Taxes and Insurance 2,975 3,271 Replacement Reserve 60,515 50,237 Security Deposits 12,218 9,654 ----------- ----------- Total Restricted Deposits and Funded Reserves 75,708 63,162 ----------- ----------- Property and Equipment Land 69,000 69,000 Buildings and Improvements 2,185,247 2,185,247 Furniture, Fixtures and Equipment 99,454 99,454 ----------- ----------- 2,353,701 2,353,701 Less Accumulated Depreciation (626,003) (559,908) ----------- ----------- Total Property and Equipment 1,727,698 1,793,793 ----------- ----------- Other Assets Deposits 75 75 ----------- ----------- TOTAL ASSETS $ 1,808,907 $ 1,861,416 =========== =========== The accompanying notes are an integral part of these financial statements. 2 APARTMENT HOUSING OF EAST BREWTON, LTD. BALANCE SHEETS DECEMBER 31, 2006 AND 2005 2006 2005 ----------- ----------- LIABILITIES AND PARTNERS' EQUITY Current Liabilities Accounts Payable $ 6,838 $ 7,336 Accrued Partners' Fee Payable 1,250 1,000 Security Deposits Payable 9,715 9,105 Tenant Overage Payable 160 686 Payroll Taxes Payable 670 534 Accrued Interest Payable 36,895 32,185 Accrued Property Taxes Payable 4,593 4,232 Current Maturities of Mortgage Payable 9,018 8,373 ----------- ----------- Total Current Liabilities 69,139 63,451 ----------- ----------- Long-Term Liabilities Mortgage Payable, net of current maturities 1,101,809 1,110,827 Obligation Under Interest Rate Swap 15,297 18,866 ----------- ----------- Total Long-Tenn Liabilities 1,117,106 1,129,693 ----------- ----------- Total Liabilities 1,186,245 1,193,144 Partners' Equity Partners' Capital 637,959 687,138 Unrealized Loss on Cash Flow Hedge (15,297) (18,866) ----------- ----------- Total Partners' Equity 622,662 668,272 ----------- ----------- TOTAL LIABILITIES AND PARTNERS' EQUITY $ 1,808,907 $ 1,861,416 =========== =========== 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, 2006 AND 2005 2006 2005 --------- --------- Revenues Rental $ 138,115 $ 133,352 Miscellaneous Charges 3,507 2,417 --------- --------- Total Revenues 141,622 135,769 --------- --------- Operating Expenses Administrative 17,210 18,105 Advertising 134 103 Bad Debt 4,610 8,708 Management Fees 11,993 11,237 Repair and Maintenance 25,194 24,528 Taxes and Insurance 35,669 35,835 Utilities 8,860 5,320 --------- --------- Total Operating Expenses 103,670 103,836 --------- --------- Income from Operations 37,952 31,933 Partnership and Financial Income (Expense) Interest Income 374 266 Interest Expense (21,160) (20,932) Partnership Management Fees (250) (250) --------- --------- Total Partnership and Financial Income (Expense) (21,036) (20,916) --------- --------- Income (Loss) from Operations before Depreciation 16,916 11,017 Depreciation (66,095) (67,561) --------- --------- Net Loss (49,179) (56,544) --------- --------- Other Comprehensive Income (Loss) Unrealized Gain (Loss) on cash flow hedge arising during the period 3,569 5,100 --------- --------- Total Other Comprehensive Income (Loss) 3,569 5,100 --------- --------- Total Comprehensive Loss $ (45,610) $ (51,444) ========= ========= The accompanying notes are an integral part of these financial statements. 4 APARTMENT HOUSING OF EAST BREWTON, LTD. STATEMENTS OF PARTNERS' CAPITAL (DEFICIT) YEARS ENDED DECEMBER 31, 2006 AND 2005 General Limited Partners Partners Total --------- --------- --------- Partners' Capital, December 31, 2004 $ 339 $ 743,343 $ 743,682 Net Loss (565) (55,979) (56,544) --------- --------- --------- Partners' Capital (Deficit), December 31, 2005 (226) 687,364 687,138 Net Loss (492) (48,687) (49,179) --------- --------- --------- Partners' Capital (Deficit), December 31, 2006 $ (718) $ 638,677 $ 637,959 ========= ========= ========= 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, 2006 AND 2005 2006 2005 -------- -------- Cash flows from operating activities Net Loss $(49,179) $(56,544) Adjustments to reconcile net income (loss) to net cash provided (used) by operating activitIes: Depreciation 66,095 67,561 (Increase) Decrease in Accounts Receivable - Tenant (1,147) 148 (Increase) Decrease in Prepaid Insurance (161) 359 (Increase) Decrease in Security Deposit Cash (2,564) 1,928 (Increase) Decrease in Other Receivables -- 56,950 Increase (Decrease) in Accounts Payable (498) (845) Increase (Decrease) in Accrued Partners' Fees 250 250 Increase (Decrease) in Security Deposits Payable 610 (965) Increase (Decrease) in Tenant Overage Payable (526) 527 Increase (Decrease) in Payroll Taxes Payable 136 (14) Increase (Decrease) in Accrued Interest Payable 4,710 4,882 Increase (Decrease) in Accrued Property Taxes 361 (13) Increase (Decrease) in Deferred Revenue -- (65,350) -------- -------- Total Adjustments 67,266 65,418 -------- -------- Net cash provided (used) by operating activities 18,087 8,874 -------- -------- Cash flows from investing activities: Deposits to Taxes and Insurance Escrow (34,328) (36,026) Deposits to Reserve Account (10,278) (10,206) Transfers from Taxes and Insurance 34,624 33,514 Transfers from Reserve for Replacement -- 4,498 -------- -------- Net cash provided (used) by investing activities (9,982) (8,220) -------- -------- Cash flows from financing activities: Principal Payments on Mortgage Loan (8,373) (7,703) -------- -------- Net cash provided (used) by financing activities (8,373) (7,703) -------- -------- Net increase (decrease) in cash and cash equivalents (268) (7,049) Cash and cash equivalents, beginning of year 2,350 9,399 -------- -------- Cash and cash equivalents, end of year $ 2,082 $ 2,350 ======== ======== Supplemental disclosures of cash flow information Interest Paid $ 16,295 $ 15,986 ======== ======== The accompanying notes are an integral part of these financial statements. 6
APARTMENT HOUSING OF EAST BREWTON, LTD. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2006 AND 2005 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 unrestricted 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, 2006 AND 2005 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, 2006 and 2005, this account is not properly funded. SECURITY DEPOSITS - A separate account is maintained for tenant security deposits as specified under Alabama law. At December 31, 2006 and 2005, 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. At December 31, 2006 and 2005, this account is properly funded. 3. LONG-TERM DEBT Long-term debt is summarized as follows: 2006 2005 ----------- ----------- 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 12/31/06 is 7.10 % $ 189,827 $ 198,200 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 ----------- ----------- 1,110,827 1,119,200 Less principal due within one year (9,018) (8,373) ----------- ----------- Total long-term debt $ 1,101,809 $ 1,110,827 =========== ===========
See independent auditors' report. 8 APARTMENT HOUSING OF EAST BREWTON, LTD. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2006 AND 2005 3. LONG-TERM DEBT - continued Principal payments due on long-term debt for the subsequent five years are as follows: 2007 $ 9,018 2008 9,930 2009 10,748 2010 11,682 2011 12,698 Thereafter 1,056,751 ------------- $ 1,110,827 ============= Total 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 Bank. 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 2007. 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 $5,590 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 2006 and 2005 pursuant to a contract approved by Alabama Housing Finance Authority. Management fees are $11,993 and $11,237 in 2006 and 2005, respectively. Management fees included in accounts payable at December 31, 2006 and 2005 are $6,200 and $6,677, respectively. See independent auditors' report. 9 APARTMENT HOUSING OF EAST BREWTON, LTD. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2006 AND 2005 5. RELATED PARTY TRANSACTIONS - CONTINUED REPAIRS AND MAINTENANCE - Southeast Maintenance, Inc., a corporation wholly owned by the general partner's son, was paid $1,884 in 2006 and $68,286 in 2005 for repairs related to Hurricane Katrina and Ivan. The partnership received insurance monies to cover the cost of these repairs. (See Hurricane Damage footnote 9.) Also, during 2005 Southeast Maintenance, Inc. was paid $18,342 for repairs made to a fire-damaged unit and other various repairs. The partnership received insurance monies in the amount of $14,659 to cover the cost of the repairs to the fire-damaged unit. 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: 2006 2005 -------- -------- Financial statement net loss $(49,179) $(56,544) Reconciling items: Financial statement depreciation 66,095 67,561 Tax return depreciation (86,840) (87,660) -------- -------- Partnership tax return ordinary loss $(69,924) $(76,643) ======== ======== 8. COMMITMENTS AND CONTINGENCIES On December 31, 2006, the partnership was contingently liable under a $37,412 standby letter of credit at Wachovia Bank expiring September 2009. 9. HURRICANE DAMAGE During 2005 and 2004, the apartment complex sustained damage as a result of Hurricane Katrina and Ivan. The partnership received insurance proceeds in the amount of $72,736 in 2005 to pay for the necessary repairs to the complex. At December 31, 2005, the repairs were completed and all insurance proceeds were disbursed. See independent auditors' report. 10 APARTMENT HOUSING OF EAST BREWTON, LTD. SUPPLEMENTAL INFORMATION YEARS ENDED DECEMBER 31, 2006 AND 2005 2006 2005 ------- ------- Administrative Bank Charges $ 146 $ 233 Consultant Fees 628 176 Dues and Subscriptions 284 96 Miscellaneous 227 125 Office Supplies and Postage 934 1,504 Professional Fees 3,776 3,178 Salaries - Office 8,924 10,246 Telephone 2,186 2,057 Travel and Entertainment Expense 105 490 ------- ------- Total Administrative $17,210 $18,105 ======= ======= Repairs and Maintenance Equipment Rental $ 455 $ 385 Maintenance Supplies 2,262 784 Interior Paint and Decorating 287 981 General Maintenance 8,952 4,563 Grounds Maintenance 3,514 5,399 Exterminating Services 1,148 972 Reserve -- 4,498 Salaries - Maintenance 8,576 6,946 ------- ------- Total Repairs and Maintenance $25,194 $24,528 ======= ======= Taxes and Insurance Property, Liability and Workers' Compensation $13,182 $14,699 Medical Insurance 1,992 2,340 Payroll Taxes 1,584 1,633 Real Estate Taxes 18,731 16,914 Other Taxes, Licenses, and Permits 180 249 ------- ------- Total Taxes and Insurance $35,669 $35,835 ======= ======= Utilities Electricity $ 6,232 $ 4,331 Water 137 362 Sewer 135 190 Miscellaneous 2,356 437 ------- ------- Total Utilities $ 8,860 $ 5,320 ======= ======= See independent auditors' report. 11