Exhibit 99.1
HAMILTON ON MAIN LLC |
HAMILTON ON MAIN APARTMENTS LLC |
HAMILTON 1025 LLC |
Combined Financial Statements |
As of December 31, 2006 and 2005 |
and for the years ended December 31, 2006, 2005 and 2004 |
Together With Report of Independent |
Registered Public Accounting Firm |
1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Joint Venture Participants of Hamilton on Main LLC, Hamilton on Main Apartments LLC and Hamilton 1025 LLC
We have audited the accompanying combined balance sheets of Hamilton on Main LLC, Hamilton on Main Apartments LLC and Hamilton 1025 LLC as of December 31, 2006 and 2005, and the related combined statements of income, changes in joint venture capital and cash flows for each of the years in the three-year period ended December 31, 2006. The combined financial statements are the responsibility of the Joint Ventures’ management. Our responsibility is to express an opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with auditing standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the combined 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 audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of Hamilton on Main LLC, Hamilton on Main Apartments LLC and Hamilton 1025 LLC at December 31, 2006 and 2005 and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2006 in conformity with accounting principles generally accepted in the United States of America.
/s/ MILLER WACHMAN LLP |
|
|
|
Boston, Massachusetts | |||
March 15, 2007 | |||
2
HAMILTON ON MAIN LLC, HAMILTON ON MAIN APARTMENTS LLC, AND HAMILTON 1025 LLC COMBINED BALANCE SHEETS
|
| December 31, |
| ||||
|
| 2006 |
| 2005 |
| ||
ASSETS |
|
|
|
|
| ||
Rental Properties |
| $ | 44,793,270 |
| $ | 54,836,362 |
|
Cash and Cash Equivalents |
| 324,729 |
| 445,634 |
| ||
Rents Receivable |
| 6,979 |
| 25,123 |
| ||
Real Estate Tax Escrows |
| 374,094 |
| 191,085 |
| ||
Prepaid Expenses and Other Assets |
| 456,275 |
| 570,968 |
| ||
Financing and Leasing Fees |
| 133,798 |
| 163,325 |
| ||
Total Assets |
| $ | 46,089,145 |
| $ | 56,232,497 |
|
LIABILITIES AND JOINT VENTURE CAPITAL |
|
|
|
|
| ||
Mortgage Notes Payable |
| $ | 24,205,745 |
| $ | 34,932,274 |
|
Accounts Payable and Accrued Expenses |
| 198,896 |
| 251,591 |
| ||
Advance Rental Payments and Security Deposits |
| 227,251 |
| 251,468 |
| ||
Total Liabilities |
| 24,631,892 |
| 35,435,333 |
| ||
Commitments (Note 7) |
|
|
|
|
| ||
Joint Venture Capital |
| 21,457,253 |
| 20,797,164 |
| ||
Total Liabilities and Joint Venture Capital |
| $ | 46,089,145 |
| $ | 56,232,497 |
|
See notes to combined financial statements.
3
HAMILTON ON MAIN LLC, HAMILTON ON MAIN APARTMENTS LLC, AND HAMILTON 1025 LLC COMBINED STATEMENTS OF INCOME
|
| Year Ended December 31, |
| |||||||
|
| 2006 |
| 2005 |
| 2004 |
| |||
Revenues |
|
|
|
|
|
|
| |||
Rental income |
| $ | 3,819,267 |
| $ | 4,785,521 |
| $ | 1,475,223 |
|
Laundry and sundry income |
| 56,039 |
| 35,609 |
| 18,335 |
| |||
|
| 3,875,306 |
| 4,821,130 |
| 1,493,558 |
| |||
Expenses |
|
|
|
|
|
|
| |||
Administrative |
| 158,943 |
| 187,367 |
| 42,520 |
| |||
Depreciation and amortization |
| 2,337,808 |
| 2,741,521 |
| 384,465 |
| |||
Interest |
| 1,780,049 |
| 2,370,930 |
| 598,589 |
| |||
Management fees |
| 157,214 |
| 142,337 |
| 66,177 |
| |||
Operating |
| 334,011 |
| 392,852 |
| 213,472 |
| |||
Renting |
| 48,955 |
| 115,556 |
| 28,795 |
| |||
Repairs and maintenance |
| 1,167,640 |
| 1,790,884 |
| 224,871 |
| |||
Taxes and insurance |
| 717,725 |
| 787,205 |
| 171,319 |
| |||
|
| 6,702,345 |
| 8,528,652 |
| 1,730,209 |
| |||
Operating Income (Loss) |
| (2,827,039 | ) | (3,707,522 | ) | (236,650 | ) | |||
Other Income (Loss) |
|
|
|
|
|
|
| |||
Interest income |
| 840 |
| 357 |
| ¾ |
| |||
Gains from condominium sales |
| 2,986,238 |
| 8,484,363 |
| ¾ |
| |||
Other Income (expenses) |
| 50 |
| (404,881 | ) | ¾ |
| |||
|
| 2,987,128 |
| 8,079,839 |
| ¾ |
| |||
Net Income (Loss) |
| $ | 160,089 |
| $ | 4,372,316 |
| $ | (236,650 | ) |
See notes to combined financial statements.
4
HAMILTON ON MAIN LLC, HAMILTON ON MAIN APARTMENTS LLC, AND HAMILTON 1025 LLC COMBINED STATEMENTS OF CHANGES IN JOINT VENTURE CAPITAL
|
| Hamilton on |
| Hamilton on Main |
| Hamilton |
| Total |
| ||||||
Balance, January 1, 2004 |
| $ | — |
|
| $ | — |
|
| $ | — |
| $ | — |
|
Investment by owners |
| — |
|
| 16,031,500 |
|
| — |
| 16,031,500 |
| ||||
Net Income (loss) |
| — |
|
| (236,650 | ) |
| — |
| (236,650 | ) | ||||
Balance, December 31, 2004 |
| — |
|
| 15,794,850 |
|
| — |
| 15,794,850 |
| ||||
Investment by owners |
| — |
|
| — |
|
| 4,705,000 |
| 4,705,000 |
| ||||
Distribution to owners |
| — |
|
| (50,000 | ) |
| (4,025,00 | ) | (4,075,000 | ) | ||||
Net Income (loss) |
| 2,995,480 |
|
| (2,069,031 | ) |
| 3,445,866 |
| 4,372,315 |
| ||||
Balance, December 31, 2005 |
| 2,995,480 |
|
| 13,675,819 |
|
| 4,125,866 |
| 20,797,165 |
| ||||
Transfer of equity |
| 2,550,594 |
|
| (2,550,594 | ) |
| — |
| — |
| ||||
Investment by owners |
| — |
|
| 600,000 |
|
| — |
| 600,000 |
| ||||
Distribution to owners |
| — |
|
| — |
|
| (100,000 | ) | (100,000 | ) | ||||
Net Income (loss) |
| 752,220 |
|
| (1,150,258 | ) |
| 558,126 |
| 160,088 |
| ||||
Balance, December 31, 2006 |
| $ | 6,298,294 |
|
| $ | 10,574,967 |
|
| $ | 4,583,992 |
| $ | 21,457,253 |
|
See notes to combined financial statements.
5
HAMILTON ON MAIN LLC, HAMILTON ON MAIN APARTMENTS LLC, AND HAMILTON 1025 LLC COMBINED STATEMENTS OF CASH FLOWS
|
| Year Ended December |
| |||||||
|
| 2006 |
| 2005 |
| 2004 |
| |||
Cash Flows from Operating Activities |
|
|
|
|
|
|
| |||
Net income (loss) |
| $ | 160,089 |
| $ | 4,372,316 |
| $ | (236,648 | ) |
Adjustments to reconcile net income to net cash provided (used) by operating activities: |
|
|
|
|
|
|
| |||
Gain on sale of condominiums |
| (2,986,239 | ) | (8,484,363 | ) | — |
| |||
Depreciation and amortization |
| 2,337,808 |
| 2,741,521 |
| 384,465 |
| |||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
| |||
(Increase) Decrease in rents receivable |
| 18,144 |
| (12,140 | ) | (12,983 | ) | |||
(Decrease) Increase in accounts payable and accrued expense |
| (52,696 | ) | (72,315 | ) | 323,904 |
| |||
(Increase) in real estate tax escrow |
| (183,008 | ) | (191,085 | ) | — |
| |||
(Increase) decrease in financing and leasing fees |
| (42,205 | ) | (331,009 | ) | (176,094 | ) | |||
(Increase) Decrease in prepaid expenses and other assets |
| 114,695 |
| (407,934 | ) | (163,036 | ) | |||
(Decrease) Increase in advance rental payments and security deposits |
| (24,217 | ) | 82,289 |
| 169,177 |
| |||
Total adjustments |
| (817,718 | ) | (6,675,036 | ) | 525,433 |
| |||
Net cash provided by (used in) operating activities |
| (657,629 | ) | (2,302,720 | ) | 288,785 |
| |||
Cash flows provided by (used in) investing activities |
|
|
|
|
|
|
| |||
Proceeds from sales of condominiums |
| 11,530,646 |
| 33,037,589 |
| — |
| |||
Purchase and improvement of rental properties |
| (767,392 | ) | (25,661,017 | ) | (56,510,778 | ) | |||
Net cash provided by (used in) investing activities |
| 10,763,254 |
| 7,376,572 |
| (56,510,778 | ) | |||
Cash flows provided by (used in) investing activities |
|
|
|
|
|
|
| |||
Proceeds of mortgage notes payable |
| 5,000,000 |
| 25,740,085 |
| 40,237,563 |
| |||
Principal payments of mortgage notes payable |
| (4,818,886 | ) | (26,057 | ) | — |
| |||
Principal payments from sales proceeds |
| (10,907,643 | ) | (31,019,316 | ) | — |
| |||
Distributions to/investment by investors |
| 500,000 |
| 630,000 |
| 16,031,500 |
| |||
Net cash provided by (used in) financing activities |
| (10,226,529 | ) | (4,675,288 | ) | 56,269,063 |
| |||
Net increase (decrease) in cash and cash equivalents |
| (120,904 | ) | 398,564 |
| 47,070 |
| |||
Cash and cash equivalents, at beginning of year |
| 445,634 |
| 47,070 |
| — |
| |||
Cash and cash equivalents, at end of year |
| $ | 324,730 |
| $ | 445,634 |
| $ | 47,070 |
|
See notes to combined financial statements.
6
HAMILTON ON MAIN LLC, HAMILTON ON MAIN APARTMENTS LLC, AND HAMILTON 1025 LLC
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2006
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
Principles of Combination: The combined financial statements include the accounts of Hamilton on Main LLC, Hamilton on Main Apartments LLC, and Hamilton 1025 LLC (“The Joint Ventures”) or (“The Investment Properties”), each of which is owned 50% by New England Realty Associates, LP (“NERA”) and are “significant subsidiaries” under Rule 3-09 of Regulation S-X requiring separate financial statements. All significant intercompany accounts and transactions are eliminated in the combined statements. All significant intercompany accounts and transactions are eliminated in the combined statements.
Accounting Estimates: The preparation of the financial statements, in conformity with accounting principles generally accepted in the United State of America, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Accordingly, actual results could differ from those estimates.
Revenue Recognition: Rental income is recognized over the term of the related lease. Amounts 60 days in arrears are charged against income. Certain leases of commercial properties provide for increasing stepped minimum rents, which are accounted for on a straight-line basis over the term of the lease.
Rental Properties: Properties are stated at cost less accumulated depreciation. Maintenance and repairs are charged to expense as incurred; improvements and additions are capitalized. When assets are retired or otherwise disposed of, the cost of the asset and related accumulated depreciation is eliminated from the accounts, and any gain or loss on such disposition is included in other income. Fully depreciated assets are removed from the accounts. Properties are depreciated by both straight-line and accelerated methods over their estimated useful lives.
In the event that facts and circumstances indicate that the carrying value of a property may be impaired, an analysis of the value is prepared. The estimated future undiscounted cash flows are compared to the asset’s carrying value to determine if a write-down to fair value is required.
Financing and Leasing Fees: Financing fees are capitalized and amortized, using the interest method, over the life of the related mortgages. Leasing fees are capitalized and amortized on a straight-line basis over the life of the related lease. Unamortized balances are expensed when the corresponding fee is no longer applicable.
Income Taxes: The financial statements have been prepared on the basis that the joint ventures are entitled to tax treatment as partnerships. Accordingly, no provision for income taxes has been recorded.
Cash Equivalents: The Joint Ventures considers cash equivalents to be all highly liquid instruments purchased with a maturity of three months or less.
Segment Reporting: Operating segments are revenue-producing components of the joint venture for which separate financial information is produced internally for management. Under the definition, The Joint Ventures operated, for all periods presented, as one segment.
Concentration of Credit Risks and Financial Instruments: The Joint Venture’s properties are located in Greater Boston, and are subject to the general economic risks related thereto. No single tenant
7
HAMILTON ON MAIN LLC, HAMILTON ON MAIN APARTMENTS LLC, AND HAMILTON 1025 LLC
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2006
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (Continued)
accounted for more than 5% of the joint ventures revenues in 2006, 2005 or 2004. The joint ventures make its temporary cash investments with high-credit-quality financial institutions.
Advertising Expense: Advertising is expensed as incurred. Advertising expense was insignificant in 2006, 2005 and 2004.
Properties consist of the following:
|
| Year Ended December 31, |
|
|
| ||||
|
| 2006 |
| 2005 |
| Useful Life |
| ||
Land, improvements and parking lots |
| $ | 7,482,694 |
| $ | 8,673,730 |
| 10-31 years |
|
Buildings and improvements |
| 38,090,014 |
| 45,278,640 |
| 15-31 years |
| ||
Kitchen cabinets |
| 489,276 |
| 465,124 |
| 5-10 years |
| ||
Carpets |
| 222,781 |
| 180,479 |
| 5-10 years |
| ||
Air conditioning |
| 67,821 |
| 56,236 |
| 7-10 years |
| ||
Laundry equipment |
| 11,543 |
| 12,786 |
| 5-7 years |
| ||
Equipment |
| 107,352 |
| 94,641 |
| 5-7 years |
| ||
Motor vehicles |
| 28,588 |
| 28,588 |
| 5 years |
| ||
Fences |
| 990 |
| 990 |
| 5-10 years |
| ||
Furniture and fixtures |
| 2,774,741 |
| 2,694,482 |
| 5-7 years |
| ||
Smoke alarms |
| 2,943 |
| 520 |
| 5-7 years |
| ||
|
| 49,278,743 |
| 57,486,216 |
|
|
| ||
Less accumulated depreciation |
| (4,485,473 | ) | (2,649,854 | ) |
|
| ||
|
| $ | 44,793,270 |
| $ | 54,836,362 |
|
|
|
8
HAMILTON ON MAIN LLC, HAMILTON ON MAIN APARTMENTS LLC, AND HAMILTON 1025 LLC
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2006
NOTE 2. RENTAL PROPERTIES (Continued)
A reconciliation of rental properties and accumulated depreciation at December 31, 2006 is as follows:
|
| Hamilton |
| Hamilton |
| Hamilton |
| Total |
| ||||||
Rental Properties at Cost |
|
|
|
|
|
|
|
|
|
|
| ||||
Balance, January 1, 2004 |
| $ | — |
|
| $ | — |
|
| $ | — |
| $ | — |
|
Purchase of and addition to property |
| — |
|
| 56,510,778 |
|
| — |
| 56,510,778 |
| ||||
Balance, December 31, 2004 |
| — |
|
| 56,510,778 |
|
| 56,510,778 |
|
|
| ||||
Purchase of and addition to property |
| 452,871 |
|
| 833,263 |
|
| 24,374,883 |
| 25,661,017 |
| ||||
Transfers between affiliates |
| 27,259,994 |
|
| (27,259,994 | ) |
| — |
| — |
| ||||
Condominium sale |
| (12,900,859 | ) |
| — |
|
| (11,784,720 | ) | (24,685,579 | ) | ||||
Balance, December 31, 2005 |
| 14,812,006 |
|
| 30,084,047 |
|
| 12,590,163 |
| 57,486,216 |
| ||||
Purchase of and addition to property |
| 284,603 |
|
| 223,090 |
|
| 259,698 |
| 767,391 |
| ||||
Transfers between affiliates |
| 107,833 |
|
| (107,833 | ) |
| — |
| — |
| ||||
Condominium sale |
| (5,965,515 | ) |
| — |
|
| (3,009,349 | ) | (8,974,864 | ) | ||||
Balance, December 31, 2006 |
| $ | 9,238,927 |
|
| $ | 30,199,304 |
|
| $ | 9,840,512 |
| $ | 49,278,743 |
|
Accumulated Depreciation |
|
|
|
|
|
|
|
|
|
|
| ||||
Balance, January 1, 2004 |
| $ | — |
|
| $ | — |
|
| $ | — |
| $ | — |
|
Depreciation for year |
| — |
|
| 365,309 |
|
| — |
| 365,309 |
| ||||
Balance, December 31, 2004 |
| — |
|
| 365,309 |
|
| — |
| 365,309 |
| ||||
Depreciation for year |
| 649,475 |
|
| 1,447,897 |
|
| 489,665 |
| 2,587,037 |
| ||||
Depreciation of dispositions |
| (170,139 | ) |
| — |
|
| (132,353 | ) | (302,492 | ) | ||||
Balance, December 31, 2005 |
| 479,336 |
|
| 1,813,206 |
|
| 357,312 |
| 2,649,854 |
| ||||
Depreciation for year |
| 407,286 |
|
| 1,428,340 |
|
| 430,450 |
| 2,266,076 |
| ||||
Depreciation of dispositions |
| (292,127 | ) |
| — |
|
| (138,330 | ) | (430,457 | ) | ||||
Balance, December 31, 2006 |
| $ | 594,495 |
|
| $ | 3,241,546 |
|
| $ | 649,432 |
| $ | 4,485,473 |
|
Book Value |
| 8,644,432 |
|
| 26,957,758 |
|
| 9,191,080 |
| 44,793,270 |
| ||||
Book value of unsold condominiums |
| 8,644,432 |
|
| — |
|
| 2,196,636 |
| 10,841,068 |
| ||||
9
HAMILTON ON MAIN LLC, HAMILTON ON MAIN APARTMENTS LLC, AND HAMILTON 1025 LLC
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2006
NOTE 3. RELATED PARTY TRANSACTIONS
The Joint Ventures’ properties are managed by an entity that is owned by the majority shareholder of the General Partner. The management fee is equal to 4% of rental revenue and laundry income. Total fees paid were approximately $157,000, $142,000 and $66,000 in 2006, 2005 and 2004, respectively.
In 2006, the Management Company also received approximately $9,500 for construction costs, $9,000 for construction supervision and architectural fees, $103,000 for maintenance services and $8,000 for administrative services. The Hamilton Company legal department acts as closing attorney on certain condo sales receiving approximately $47,000 during the year ended December 31, 2006. An entity partially owned by the majority shareholder of the General Partner is the sales agent for certain condominium sales receiving approximately $213,000 of commissions in 2006.
In 2005, the Management Company also received approximately $324,000 for construction costs, $24,000 for construction supervision and architectural fees, $49,000 for maintenance services and $20,000 for administrative services. The Hamilton Company legal department acts as closing attorney on certain condo sales receiving approximately $29,000 during the year ended December 31, 2005. An entity partially owned by the majority shareholder of the General Partner is the sales agent for certain condominium sales receiving approximately $81,000 of commissions in 2005.
In 2004, the Management company also received approximately $88,000 from the Joint Ventures of which approximately $65,000 was management fee, $15,000 was for constyruction supervision and architectural fees, and $5,000 was for maintenance services.
Financing and leasing fees of approximately $134,000 and $163,000 are net of accumulated amortization of approximately $206,000 and $278,000 at December 31, 2006 and, 2005, respectively.
NOTE 5. MORTGAGE NOTES PAYABLE
At December 31, 2006 and 2005, the mortgages payable consisted of various loans, all of which were secured by first mortgages on properties referred to in Note 2. At December 31, 2006, the interest rates on these loans ranged from 5.18% to 7.48%, payable in monthly installments aggregating approximately $102,046, including interest, to various dates through 2016. The majority of the mortgages are subject to prepayment penalties. At December 31, 2006, the weighted average interest rate on the above mortgages was 6.63%.
The Joint Ventures have pledged tenant leases as additional collateral for certain of these loans.
10
HAMILTON ON MAIN LLC, HAMILTON ON MAIN APARTMENTS LLC, AND HAMILTON 1025 LLC
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2006
NOTE 5. MORTGAGE NOTES PAYABLE (Continued)
Approximate annual maturities at December 31, 2006 are as follows:
|
| Hamilton |
| Hamilton on |
| Hamilton on |
| Total |
| ||||||
2007—Current Maturities |
| $ | — |
|
| $ | — |
|
| $ | 2,380,745 |
| $ | 2,380,745 |
|
2008 |
| — |
|
| 179,039 |
|
| — |
| 179,039 |
| ||||
2009 |
| — |
|
| 249,776 |
|
| — |
| 249,776 |
| ||||
2010 |
| — |
|
| 263,026 |
|
| — |
| 263,026 |
| ||||
2011 |
| — |
|
| 276,979 |
|
| — |
| 276,979 |
| ||||
Thereafter |
| 5,000,000 |
|
| 15,856,180 |
|
| — |
| 20,856,180 |
| ||||
|
| $ | 5,000,000 |
|
| $ | 16,825,000 |
|
| $ | 2,380,745 |
| $ | 24,205,745 |
|
NOTE 6. ADVANCE RENTAL PAYMENTS AND SECURITY DEPOSITS
The Joint Ventures’ residential lease agreements may require tenants to maintain a one-month advance rental payment and/or a security deposit. At December 31, 2006, amounts received for prepaid rents of approximately $120,648 are included in cash and cash equivalents; security deposits of approximately $87,716 are included with other assets.
NOTE 7. COMMITMENTS AND CONTINGENCIES
From time to time, the Joint Ventures may be involved in various ordinary routine litigation incidental to their business. The Joint Ventures either have insurance coverage or have provided for any uninsured claims, which, in the aggregate, are not significant. The Joint Ventures are not involved in any material pending legal proceedings.
Substantially all rental income was related to residential apartments and condominium units with leases of one year of less.
Rents receivable are net of allowances for doubtful accounts of approximately $31,000, $23,000 and $12,000 at December 31, 2006, 2005 and 2004, respectively.
11
HAMILTON ON MAIN LLC, HAMILTON ON MAIN APARTMENTS LLC, AND HAMILTON 1025 LLC
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2006
During the years ended December 31, 2006, 2005 and 2004, cash paid for interest was approximately $1,800,000, $2,400,000 and $600,000 respectively.
| Year End December 31 |
| ||||||||
|
| 2006 |
| 2005 |
| 2004 |
| |||
Non-cash investing and financing activities: |
|
|
|
|
|
|
| |||
Purchase of rental property by direct payments from mortgage debt |
| $ | 5,000,000 |
| $ | 36,025,000 |
| $ | 40,211,506 |
|
Payment of mortgage debt directly from refinancing |
| $ | 4,818,886 |
| $ | 16,659,884 |
| $ | 0 |
|
Payment of mortgage debt directly from sales of condominiums |
| $ | 10,907,643 |
| $ | 31,019,316 |
| $ | 0 |
|
NOTE 10. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Joint Ventures in estimating the fair value of their financial instruments:
· For cash and cash equivalents, other assets, investment in partnerships, accounts payable, advance rents and security deposits: fair value approximates the carrying value of such assets and liabilities.
· For mortgage notes payable: fair value is generally based on estimated future cash flows, which are discounted using the quoted market rate from an independent source for similar obligations. Refer to the table below for the carrying amount and estimated fair value of such instruments.
|
| Carrying Amount |
| Estimated Fair Value |
| ||||||
Mortgage Notes Payable |
|
|
|
|
|
|
|
|
| ||
At December 31, 2006 |
|
| $ | 24,205,745 |
|
|
| $ | 24,752,938 |
|
|
At December 31, 2005 |
|
| $ | 34,932,274 |
|
|
| $ | 36,211,239 |
|
|
Disclosure about fair value of financial instruments is based on pertinent information available to management as of December 31, 2006 and 2005. Although management is not aware of any factors that would significantly affect the fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since December 31, 2006 and current estimates of fair value may differ significantly from the amounts presented herein.
NOTE 11. TAXABLE INCOME AND TAX BASIS
The Joint Ventures are not subject to income taxes as they file a partnership tax return whereby their income or loss is reportable by their owners.
Taxable income is different than financial statement income because of accelerated depreciation, different tax lives, and timing differences related to prepaid rents and allowances. Gains from sale of condominiums are taxable at ordinary rates. Taxable income is approximately $5,000 less than statement income for the year ended December 31, 2006. The cumulative tax basis of the Joint Ventures real estate at December 31, 2006 is approximately $750,000 less than the statement basis.
12
HAMILTON ON MAIN LLC, HAMILTON ON MAIN APARTMENTS LLC, AND HAMILTON 1025 LLC
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2006
NOTE 12. COMBINING FINANCIAL STATEMENT SCHEDULES
2006 Balance Sheet |
|
|
| Hamilton 1025 |
| Hamilton on |
| Hamilton on |
| Total |
| ||||||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Rental Properties |
|
| $ | 9,191,080 |
|
| $ | 26,957,758 |
|
| $ | 8,644,432 |
|
| $ | 44,793,270 |
| ||
Cash and Cash Equivalents |
|
| 284,520 |
|
| 6,689 |
|
| 33,520 |
|
| 324,729 |
| ||||||
Rents Receivable |
|
| 6,979 |
|
| — |
|
| — |
|
| 6,979 |
| ||||||
Real Estate Tax Escrows |
|
| 30,938 |
|
| 343,155 |
|
| — |
|
| 374,094 |
| ||||||
Prepaid Expenses and Other Assets |
|
| 100,898 |
|
| 322,950 |
|
| 32,427 |
|
| 456,275 |
| ||||||
Financing and Leasing Fees |
|
| 50,051 |
|
| 60,642 |
|
| 23,106 |
|
| 133,798 |
| ||||||
Total Assets |
|
| $ | 9,664,467 |
|
| $ | 27,691,193 |
|
| $ | 8,733,484 |
|
| $ | 46,089,145 |
| ||
LIABILITIES AND JOINT VENTURES’ CAPITAL |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Mortgage Notes Payable |
|
| $ | 5,000,000 |
|
| $ | 16,825,000 |
|
| $ | 2,380,745 |
|
| $ | 24,205,745 |
| ||
Accounts Payable and Accrued Expenses |
|
| 14,303 |
|
| 149,190 |
|
| 35,402 |
|
| 198,896 |
| ||||||
Advance Rental Payments and Security Deposits |
|
| 66,173 |
|
| 142,036 |
|
| 19,042 |
|
| 227,251 |
| ||||||
Total Liabilities |
|
| 5,080,476 |
|
| 17,116,226 |
|
| 2,435,190 |
|
| 24,631,892 |
| ||||||
Joint Ventures’ Capital |
|
| 4,583,992 |
|
| 10,574,967 |
|
| 6,298,294 |
|
| 21,457,253 |
| ||||||
Total Liabilities and Joint Ventures’ Capital |
|
| $ | 9,664,467 |
|
| $ | 27,691,193 |
|
| $ | 8,733,484 |
|
| $ | 46,089,145 |
| ||
Joint Ventures’ Capital—NERA 50% |
|
| $ | 2,291,996 |
|
| $ | 5,287,483 |
|
| $ | 3,149,147 |
|
| $ | 10,728,627 |
| ||
13
HAMILTON ON MAIN LLC, HAMILTON ON MAIN APARTMENTS LLC, AND HAMILTON 1025 LLC
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2006
NOTE 12. COMBINING FINANCIAL STATEMENT SCHEDULES (Continued)
2006 Income Statement |
|
|
| Hamilton 1025 |
| Hamilton on |
| Hamilton on |
| Total |
| ||||||
Revenues |
|
|
|
|
|
|
|
|
|
|
| ||||||
Rental Income |
|
| $ | 912,639 |
|
| $ | 2,323,773 |
| $ | 582,856 |
| $ | 3,819,267 |
| ||
Laundry and Sundry Income |
|
| 15,782 |
|
| 40,256 |
| — |
| 56,038 |
| ||||||
|
|
| 928,421 |
|
| 2,364,029 |
| 582,856 |
| 3,875,306 |
| ||||||
Expenses |
|
|
|
|
|
|
|
|
|
|
| ||||||
Administrative |
|
| 85,710 |
|
| 64,496 |
| 8,736 |
| 158,943 |
| ||||||
Depreciation and Amortization |
|
| 478,491 |
|
| 1,439,203 |
| 420,114 |
| 2,337,808 |
| ||||||
Interest |
|
| 473,355 |
|
| 887,425 |
| 419,270 |
| 1,780,049 |
| ||||||
Management Fees |
|
| 38,870 |
|
| 95,319 |
| 23,025 |
| 157,214 |
| ||||||
Operating |
|
| 21,190 |
|
| 301,164 |
| 11,657 |
| 334,011 |
| ||||||
Renting |
|
| 15,396 |
|
| 31,249 |
| 2,309 |
| 48,955 |
| ||||||
Repairs and Maintenance |
|
| 442,363 |
|
| 353,424 |
| 371,852 |
| 1,167,640 |
| ||||||
Taxes and Insurance |
|
| 209,530 |
|
| 340,074 |
| 168,121 |
| 717,725 |
| ||||||
|
|
| 1,764,906 |
|
| 3,512,354 |
| 1,425,085 |
| 6,702,345 |
| ||||||
(Loss) Before Other Income |
|
| (836,485 | ) |
| (1,148,325 | ) | (842,229 | ) | (2,827,039 | ) | ||||||
Other Income (Loss) |
|
|
|
|
|
|
|
|
|
|
| ||||||
Interest Income |
|
| 533 |
|
| (1,933 | ) | 2,240 |
| 840 |
| ||||||
Gain on Sale of Real Estate |
|
| 1,394,028 |
|
| — |
| 1,592,211 |
| 2,986,239 |
| ||||||
Other Income (Expenses) |
|
| 50 |
|
| — |
| — |
| 50 |
| ||||||
|
|
| $ | 1,394,611 |
|
| $ | (1,933 | ) | $ | 1,594,451 |
| $ | 2,987,128 |
| ||
Net Income (Loss) |
|
| $ | 558,126 |
|
| $ | (1,150,259 | ) | $ | 752,222 |
| $ | 160,089 |
| ||
NERA 50% |
|
| $ | 279,063 |
|
| $ | (575,129 | ) | $ | 376,111 |
| $ | 80,045 |
| ||
14
HAMILTON ON MAIN LLC, HAMILTON ON MAIN APARTMENTS LLC, AND HAMILTON 1025 LLC
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2006
NOTE 12. COMBINING FINANCIAL STATEMENT SCHEDULES (Continued)
2006 Cash Flow Statement |
|
|
| Hamilton 1025 |
| Hamilton on |
| Hamilton on |
| Total |
| ||||||
Cash Flows from Operating Activities |
|
|
|
|
|
|
|
|
|
|
| ||||||
Net income (loss) |
|
| $ | 558,126 |
|
| $ | (1,150,259 | ) | $ | 752,222 |
| $ | 160,089 |
| ||
Adjustments to reconcile net income to net cash provided (used) by operating activities: |
|
|
|
|
|
|
|
|
|
|
| ||||||
Gain on sale of condominiums |
|
| (1,394,028 | ) |
| — |
| (1,592,211 | ) | (2,986,239 | ) | ||||||
Depreciation and amortization |
|
| 478,491 |
|
| 1,439,203 |
| 420,114 |
| 2,337,808 |
| ||||||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
| ||||||
(Increase) Decrease in rents receivable |
|
| 6,933 |
|
| 11,185 |
| 26 |
| 18,144 |
| ||||||
(Decrease) increase in accounts payable and accrued expense |
|
| (28,490 | ) |
| (18,169 | ) | (6,037 | ) | (52,696 | ) | ||||||
(Increase) in real estate tax escrow |
|
| (30,938 | ) |
| (152,070 | ) | — |
| (183,008 | ) | ||||||
(Increase) decrease in financing and leasing fees |
|
| (50,513 | ) |
| (2,167 | ) | 10,475 |
| (42,205 | ) | ||||||
(Increase) Decrease in prepaid expenses and other assets |
|
| 107,796 |
|
| (148,940 | ) | 155,839 |
| 114,695 |
| ||||||
(Decrease) Increase in advance rental payments and security deposits |
|
| (10,388 | ) |
| 7,948 |
| (21,777 | ) | (24,217 | ) | ||||||
Total Adjustments |
|
| (921,138 | ) |
| 1,136,991 |
| (1,033,571 | ) | (817,718 | ) | ||||||
Net cash provided by (used in) operating activities |
|
| (363,012 | ) |
| (13,268 | ) | (281,349 | ) | (657,629 | ) | ||||||
Cash Flows Used in Investing Activities |
|
|
|
|
|
|
|
|
|
|
| ||||||
Proceeds from sales of condominiums |
|
| 4,265,047 |
|
| — |
| 7,265,599 |
| 11,530,646 |
| ||||||
Transfers between affiliates |
|
| — |
|
| 107,833 |
| (107,833 | ) | — |
| ||||||
Purchase and improvement of rental properties |
|
| (259,699 | ) |
| (223,090 | ) | (284,603 | ) | (767,392 | ) | ||||||
Net cash provided by (used in) investing activities |
|
| 4,005,348 |
|
| (115,257 | ) | 6,873,163 |
| 10,763,254 |
| ||||||
Cash Flows Used in Financing Activities |
|
|
|
|
|
|
|
|
|
|
| ||||||
Proceeds of mortgage notes payable |
|
| 5,000,000 |
|
| — |
| — |
| 5,000,000 |
| ||||||
Principal payments of mortgage notes payable |
|
| (4,818,886 | ) |
| — |
| — |
| (4,818,886 | ) | ||||||
Principal payments from sales proceeds |
|
| (4,432,114 | ) |
| — |
| (6,475,529 | ) | (10,907,643 | ) | ||||||
Transfers between affiliates |
|
| — |
|
| 823,071 |
| (823,071 | ) | — |
| ||||||
Distributions to/investment by investors |
|
| (100,000 | ) |
| 600,000 |
| — |
| 500,000 |
| ||||||
Net cash provided by (used in) financing activities |
|
| (4,351,000 | ) |
| 1,423,071 |
| (7,298,600 | ) | (10,226,529 | ) | ||||||
Net Increase (Decrease in) Cash and Cash Equivalents |
|
| (708,664 | ) |
| 1,294,546 |
| (706,786 | ) | (120,904 | ) | ||||||
Cash and Cash Equivalents, at beginning of year |
|
| 993,185 |
|
| (1,287,856 | ) | 740,305 |
| 445,634 |
| ||||||
Cash and Cash Equivalents, at end of year |
|
| $ | 284,521 |
|
| $ | 6,690 |
| $ | 33,518 |
| $ | 324,730 |
| ||
15
HAMILTON ON MAIN LLC, HAMILTON ON MAIN APARTMENTS LLC, AND HAMILTON 1025 LLC
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2006
NOTE 12. COMBINING FINANCIAL STATEMENT SCHEDULES (Continued)
2005 Balance Sheet |
|
|
| Hamilton 1025 |
| Hamilton on |
| Hamilton on |
| Total |
| ||||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
| ||||||
Rental Properties |
|
| $ | 12,232,851 |
|
| $ | 28,270,841 |
| $ | 14,332,670 |
| $ | 54,836,362 |
| ||
Cash and Cash Equivalents |
|
| 993,185 |
|
| (1,287,856 | ) | 740,305 |
| 445,634 |
| ||||||
Rents Receivable |
|
| 13,912 |
|
| 11,185 |
| 26 |
| 25,123 |
| ||||||
Real Estate Tax Escrows |
|
| — |
|
| 191,085 |
| — |
| 191,085 |
| ||||||
Prepaid Expenses and Other Assets |
|
| 208,694 |
|
| 174,010 |
| 188,266 |
| 570,969 |
| ||||||
Financing and Leasing Fees |
|
| 47,578 |
|
| 69,338 |
| 46,409 |
| 163,325 |
| ||||||
Total Assets |
|
| $ | 13,496,220 |
|
| $ | 27,428,602 |
| $ | 15,307,676 |
| $ | 56,232,497 |
| ||
LIABILITIES AND JOINT VENTURES’ CAPITAL |
|
|
|
|
|
|
|
|
|
|
| ||||||
Mortgage Notes Payable |
|
| $ | 9,251,000 |
|
| $ | 16,825,000 |
| $ | 8,856,275 |
| $ | 34,932,274 |
| ||
Accounts Payable and Accrued Expense |
|
| 42,793 |
|
| 167,359 |
| 41,439 |
| 251,591 |
| ||||||
Advance Rental Payments and Security Deposits |
|
| 76,561 |
|
| 134,088 |
| 40,819 |
| 251,468 |
| ||||||
Total Liabilities |
|
| 9,370,354 |
|
| 17,126,447 |
| 8,938,533 |
| 35,435,333 |
| ||||||
Joint Ventures’ Capital |
|
| 4,125,866 |
|
| 10,302,154 |
| 6,369,143 |
| 20,797,164 |
| ||||||
Total Liabilities and Joint Ventures’ Capital |
|
| $ | 13,496,220 |
|
| $ | 27,428,601 |
| $ | 15,307,676 |
| $ | 56,232,497 |
| ||
Joint Ventures’ Capital - NERA 50% |
|
| $ | 2,062,933 |
|
| $ | 5,151,077 |
| $ | 3,184,572 |
| $ | 10,398,582 |
| ||
16
HAMILTON ON MAIN LLC, HAMILTON ON MAIN APARTMENTS LLC, AND HAMILTON 1025 LLC
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2006
NOTE 12. COMBINING FINANCIAL STATEMENT SCHEDULES (Continued)
|
|
| Hamilton 1025 |
| Hamilton on |
| Hamilton on |
| Total |
| |||||||
Revenues |
|
|
|
|
|
|
|
|
|
|
| ||||||
Rental Income |
|
| $ | 1,309,804 |
|
| $ | 2,277,266 |
| $ | 1,198,451 |
| $ | 4,785,521 |
| ||
Laundry and Sundry Income |
|
| 13,975 |
|
| 21,634 |
| — |
| 35,609 |
| ||||||
|
|
| 1,323,778 |
|
| 2,298,901 |
| 1,198,451 |
| 4,821,130 |
| ||||||
Expenses |
|
|
|
|
|
|
|
|
|
|
| ||||||
Administrative |
|
| 114,029 |
|
| 71,181 |
| 2,157 |
| 187,367 |
| ||||||
Depreciation and Amortization |
|
| 683,066 |
|
| 1,460,370 |
| 598,084 |
| 2,741,521 |
| ||||||
Interest |
|
| 638,370 |
|
| 1,041,315 |
| 691,245 |
| 2,370,930 |
| ||||||
Management Fees |
|
| 30,331 |
|
| 94,480 |
| 17,525 |
| 142,337 |
| ||||||
Operating |
|
| 34,988 |
|
| 342,926 |
| 14,938 |
| 392,852 |
| ||||||
Renting |
|
| 62,845 |
|
| 33,708 |
| 19,004 |
| 115,556 |
| ||||||
Repairs and Maintenance |
|
| 615,581 |
|
| 567,038 |
| 608,265 |
| 1,790,884 |
| ||||||
Taxes and Insurance |
|
| 224,248 |
|
| 352,033 |
| 210,924 |
| 787,205 |
| ||||||
|
|
| 2,403,459 |
|
| 3,963,051 |
| 2,162,143 |
| 8,528,652 |
| ||||||
(Loss) Before Other Income |
|
| (1,079,680 | ) |
| (1,664,150 | ) | (963,692 | ) | (3,707,522 | ) | ||||||
Other Income (Loss) |
|
|
|
|
|
|
|
|
|
|
| ||||||
Interest Income |
|
| 357 |
|
| — |
| — |
| 357 |
| ||||||
Gain on Sale of Real Estate |
|
| 4,525,190 |
|
| — |
| 3,959,173 |
| 8,484,363 |
| ||||||
Other Income (Expenses) |
|
| — |
|
| (404,881 | ) | — |
| (404,881 | ) | ||||||
|
|
| $ | 4,525,546 |
|
| $ | (404,881 | ) | $ | 3,959,173 |
| $ | 8,079,839 |
| ||
Net Income (Loss) |
|
| $ | 3,445,866 |
|
| $ | (2,069,031 | ) | $ | 2,995,481 |
| $ | 4,372,316 |
| ||
NERA 50% |
|
| $ | 1,722,933 |
|
| $ | (1,034,515 | ) | $ | 1,497,741 |
| $ | 2,186,158 |
| ||
17
HAMILTON ON MAIN LLC, HAMILTON ON MAIN APARTMENTS LLC, AND HAMILTON 1025 LLC
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2006
NOTE 12. COMBINING FINANCIAL STATEMENT SHCHEDULES (Continued)
2005 Cash Flow Statement |
|
|
| Hamilton 1025 |
| Hamilton on |
| Hamilton on |
| Total |
| ||||
Cash Flows from Operating Activities |
|
|
|
|
|
|
|
|
| ||||||
Net income (loss) |
| $ | 3,445,866 |
| $ | (2,069,031 | ) | $ | 2,995,481 |
| $ | 4,372,316 |
| ||
Adjustments to reconcile net income to net cash provided (used) by operating activities: |
|
|
|
|
|
|
|
|
| ||||||
Gain on sale of condominiums |
| (4,525,190 | ) | — |
| (3,959,173 | ) | (8,484,363 | ) | ||||||
Depreciation and amortization |
| 683,066 |
| 1,460,370 |
| 598,084 |
| 2,741,521 |
| ||||||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
| ||||||
(Increase) Decrease in rents receivable |
| (13,912 | ) | 1,798 |
| (26 | ) | (12,140 | ) | ||||||
(Decrease) increase in accounts payable and accrued expense |
| 42,793 |
| (156,545 | ) | 41,439 |
| (72,313 | ) | ||||||
(Increase) in real estate tax escrow |
| — |
| (191,085 | ) | — |
| (191,085 | ) | ||||||
(Increase) decrease in financing and leasing fees |
| (240,979 | ) | 75,127 |
| (165,157 | ) | (331,009 | ) | ||||||
(Increase) Decrease in prepaid expenses and other assets |
| (208,694 | ) | (10,974 | ) | (188,266 | ) | (407,934 | ) | ||||||
(Decrease) Increase in advance rental payments and security deposits |
| 76,561 |
| (35,091 | ) | 40,819 |
| 82,289 |
| ||||||
Total Adjustments |
| (4,186,355 | ) | 1,143,600 |
| (3,632,280 | ) | (6,675,034 | ) | ||||||
Net cash provided by (used in) operating activities |
| (740,489 | ) | (925,431 | ) | (636,798 | ) | (2,302,718 | ) | ||||||
Cash Flows Used in Investing Activities |
|
|
|
|
|
|
|
|
| ||||||
Proceeds from sales of condominiums |
| 16,177,557 |
| — |
| 16,860,032 |
| 33,037,589 |
| ||||||
Transfers between affiliates |
| — |
| 27,259,994 |
| (27,259,994 | ) | — |
| ||||||
Purchase and improvement of rental properties |
| (24,374,883 | ) | (833,263 | ) | (452,871 | ) | (25,661,017 | ) | ||||||
Net cash provided by (used in) investing activities |
| (8,197,326 | ) | 26,426,731 |
| (10,852,833 | ) | 7,376,572 |
| ||||||
Cash Flows Used in Financing Activities |
|
|
|
|
|
|
|
|
| ||||||
Proceeds of mortgage notes payable |
| 24,200,000 |
| 578,183 |
| 961,902 |
| 25,740,085 |
| ||||||
Principal payments of mortgage notes payable |
| — |
| (26,057 | ) | — |
| (26,057 | ) | ||||||
Principal payments from sales proceeds |
| (14,949,000 | ) | (3,012,400 | ) | (13,057,916 | ) | (31,019,316 | ) | ||||||
Transfers between affiliates |
| — |
| (24,325,952 | ) | 24,325,952 |
| — |
| ||||||
Distributions to/investment by investors |
| 680,000 |
| (50,000 | ) | — |
| 630,000 |
| ||||||
Net cash provided by (used in) financing activities |
| 9,931,000 |
| (26,836,226 | ) | 12,229,938 |
| (4,675,288 | ) | ||||||
Net Increase (Decrease in) Cash and Cash Equivalents |
| 993,185 |
| (1,334,926 | ) | 740,307 |
| 398,566 |
| ||||||
Cash and Cash Equivalents, at beginning of year |
| — |
| 47,070 |
| — |
| 47,070 |
| ||||||
Cash and Cash Equivalents, at end of year |
| $ | 993,185 |
| $ | (1,287,856 | ) | $ | 740,307 |
| $ | 445,636 |
| ||
18
HAMILTON ON MAIN LLC, HAMILTON ON MAIN APARTMENTS LLC, AND HAMILTON 1025 LLC
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2006
NOTE 12. COMBINING FINANCIAL STATEMENT SHCHEDULES (Continued)
2004 Balance Sheet |
|
|
| Hamilton 1025 |
| Hamilton on |
| Hamilton on |
| Total |
| ||||
ASSETS |
|
|
|
|
|
|
|
|
| ||||||
Rental Properties |
| $ | — |
| $ | 56,145,469 |
| $ | — |
| $ | 56,145,469 |
| ||
Cash and Cash Equivalents |
| — |
| 47,070 |
| — |
| 47,070 |
| ||||||
Rents Receivable |
| — |
| 12,983 |
| — |
| 12,983 |
| ||||||
Prepaid Expenses and Other Assets |
| — |
| 163,036 |
| — |
| 163,036 |
| ||||||
Total Assets |
| $ | — |
| $ | 56,525,495 |
| $ | — |
| $ | 56,525,495 |
| ||
LIABILITIES AND JOINT VENTURES’ CAPITAL |
|
|
|
|
|
|
|
|
| ||||||
Mortgage Notes Payable |
| $ | — |
| $ | 40,237,563 |
| $ | — |
| $ | 40,237,563 |
| ||
Accounts Payable and Accrued Expenses |
| — |
| 323,904 |
| — |
| 323,904 |
| ||||||
Advance Rental Payment and Security Deposits |
| — |
| 169,179 |
| — |
| 169,179 |
| ||||||
Total Liabilities |
| — |
| 40,730,646 |
| — |
| 40,730,646 |
| ||||||
Joint Ventures’ Capital |
| — |
| 15,794,849 |
| — |
| 15,794,849 |
| ||||||
Total Liabilities and Joint Ventures’ Capital |
| $ | — |
| $ | 56,525,495 |
| $ | — |
| $ | 56,525,495 |
| ||
Joint Ventures’ Capital - NERA 50% |
| $ | — |
| $ | 7,897,425 |
| $ | — |
| $ | 7,897,425 |
| ||
19
HAMILTON ON MAIN LLC, HAMILTON ON MAIN APARTMENTS LLC, AND HAMILTON 1025 LLC
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2006
NOTE 12. COMBINING FINANCIAL STATEMENT SHCHEDULES (Continued)
2004 Income Statement |
|
|
| Hamilton 1025 |
| Hamilton on |
| Hamilton on |
| Total |
| ||||
Revenues |
|
|
|
|
|
|
|
|
| ||||||
Rental Income |
| $ | — |
| $ | 1,475,223 |
| $ | — |
| $ | 1,475,223 |
| ||
Laundry and Sundry Income |
| — |
| 18,335 |
| — |
| 18,335 |
| ||||||
|
| — |
| 1,493,558 |
| — |
| 1,493,558 |
| ||||||
Expenses |
|
|
|
|
|
|
|
|
| ||||||
Administrative |
| — |
| 42,520 |
| — |
| 42,520 |
| ||||||
Depreciation and Amortization |
| — |
| 384,465 |
| — |
| 384,465 |
| ||||||
Interest |
| — |
| 598,589 |
| — |
| 598,589 |
| ||||||
Management Fees |
| — |
| 66,177 |
| — |
| 66,177 |
| ||||||
Operating |
| — |
| 213,472 |
| — |
| 213,472 |
| ||||||
Renting |
| — |
| 28,795 |
| — |
| 28,795 |
| ||||||
Repairs and Maintenance |
| — |
| 224,871 |
| — |
| 224,871 |
| ||||||
Taxes and Insurance |
| — |
| 171,318 |
| — |
| 171,318 |
| ||||||
|
| — |
| 1,730,206 |
| — |
| 1,730,206 |
| ||||||
(Loss) Before Other Income |
| — |
| (236,648 | ) | — |
| (236,648 | ) | ||||||
Other Income (Loss) |
|
|
|
|
|
|
|
|
| ||||||
Interest Income |
| — |
| — |
| — |
| — |
| ||||||
Gain on Sale of Real Estate |
| — |
| — |
| — |
| — |
| ||||||
Other Income (Expenses) |
| — |
| — |
| — |
| — |
| ||||||
|
| — |
| — |
| — |
| — |
| ||||||
Net Income (Loss) |
| $ | — |
| $ | (236,648 | ) | $ | — |
| $ | (236,648 | ) | ||
NERA 50% |
| $ | — |
| $ | (118,324 | ) | $ | — |
| $ | (118,324 | ) | ||
20
HAMILTON ON MAIN LLC, HAMILTON ON MAIN APARTMENTS LLC, AND HAMILTON 1025 LLC
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2006
NOTE 12. COMBINING FINANCIAL STATEMENT SHCHEDULES (Continued)
2004 Cash Flow Statement |
|
|
| Hamilton 1025 |
| Hamilton on |
| Hamilton on |
| Total |
| ||||
Cash Flows from Operating Activities |
|
|
|
|
|
|
|
|
| ||||||
Net income (loss) |
| $ | — |
| $ | (236,648 | ) | $ | — |
| $ | (236,648 | ) | ||
Adjustments to reconcile net income to net cash provided (used) by operating activities: |
|
|
|
|
|
|
|
|
| ||||||
Depreciation and amortization |
| — |
| 384,465 |
| — |
| 384,465 |
| ||||||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
| ||||||
(Increase) Decrease in rents receivable |
| — |
| (12,983 | ) | — |
| (12,983 | ) | ||||||
(Decrease) increase in accounts payable and accrued expense |
| — |
| 323,904 |
| — |
| 323,904 |
| ||||||
(Increase) decrease in financing and leasing fees |
| — |
| (176,094 | ) | — |
| (176,094 | ) | ||||||
(Increase) Decrease in prepaid expenses and other assets |
| — |
| (163,036 | ) | — |
| (163,036 | ) | ||||||
(Decrease) Increase in advance rental payments and security deposits |
| — |
| 169,177 |
| — |
| 169,177 |
| ||||||
Total Adjustments |
| — |
| 525,433 |
| — |
| 525,433 |
| ||||||
Net cash provided by (used in) operating activities |
| — |
| 288,785 |
| — |
| 288,785 |
| ||||||
Cash Flows Used in Investing Activities |
|
|
|
|
|
|
|
|
| ||||||
Purchase and improvement of rental properties |
| — |
| (56,510,778 | ) | — |
| (56,510,778 | ) | ||||||
Net cash provided by (used in) investing activities |
| — |
| (56,510,778 | ) | — |
| (56,510,778 | ) | ||||||
Cash Flows Used in Financing Activities |
|
|
|
|
|
|
|
|
| ||||||
Proceeds of mortgage notes payable |
| — |
| 40,237,563 |
| — |
| 40,237,563 |
| ||||||
Distributions to/investment by investors |
| — |
| 16,031,500 |
| — |
| 16,031,500 |
| ||||||
Net cash provided by (used in) financing activities |
| — |
| 56,269,063 |
| — |
| 56,269,063 |
| ||||||
Net Increase (Decrease in) Cash and Cash Equivalents |
| — |
| 47,070 |
| — |
| 47,070 |
| ||||||
Cash and Cash Equivalents, at beginning of year |
| — |
| — |
| — |
| — |
| ||||||
Cash and Cash Equivalents, at end of year |
| $ | — |
| $ | 47,070 |
| $ | — |
| $ | 47,070 |
| ||
21
HAMILTON ON MAIN LLC, HAMILTON ON MAIN APARTMENTS LLC, AND HAMILTON 1025 LLC
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2006
NOTE 13. NEW ACCOUNTING PRONOUNCEMENT
Recent Accounting Pronouncements
In May 2005, the FASB issued FASB Statement No. 154, “Accounting Changes and Error Corrections,” a replacement of APB Opinion No. 20, “Accounting Changes”, and FASB Statement No. 3, “Reporting Accounting Changes in Interim Financial Statements.” FASB Statement No. 154 changes the requirement for the accounting for and reporting of a change in accounting principle. This Statement applies to all voluntary changes in accounting principle. It also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. When a pronouncement includes specific transition provisions, those provisions should be followed. FASB Statement No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005.
In March 2005, the Financial Accounting Standards Board (FASB or the “Board”) issued final guidance that clarifies how companies should account for “conditional” asset retirement obligations (“AROs”). FASB Interpretation No. 47 “Accounting for Conditional Asset Retirement Obligations” (FIN 47 or the “Interpretation”), deals with obligations to perform asset retirement activities in which the timing and (or) method of settlement are conditional on a future event (e.g., legal requirements surrounding asbestos handling and disposal that are triggered by demolishing or renovating a facility). The new guidance will likely require many companies to recognize liabilities for these obligations. In implementing the new guidance, which must be adopted by calendar year enterprises by December 31, 2005, a company will need to identify its conditional AROs and determine whether it can reasonably estimate the fair value of each obligation. If the company can reasonably estimate the fair value of an obligation, it will need to recognize a liability for that obligation based on its current present value. This liability would then accrete to the ultimate liability over the service period (adjusted periodically for changes in estimates). We have reviewed tangible long-lived assets and other agreements for associated AROs in accordance with this Interpretation and have concluded that we do not have any material AROs that would require recognition as a liability or disclosure in our financial statements at December 31, 2006.
In June 2005, the FASB ratified the consensus reached by the Emerging Issues Task Force (“EITF”) regarding EITF 04-05, “Investor’s Accounting for an Investment in a Limited Partnership When the Investor is the Sole General Partner and the Limited Partners Have Certain Rights.” The conclusion provides a framework for addressing the question of when a sole general partner, as defined in EITF 04-05, should consolidate a limited partnership. The EITF has concluded that the general partner of a limited partnership should consolidate a limited partnership, unless the limited partners have either (a) the substantive ability to dissolve the limited partnership or otherwise remove the general partner without cause, or (b) substantive participating rights. In addition, the EITF concluded that the guidance should be expanded to include all limited partnerships, including those with multiple general partners. We adopted EITF 04-05 as of January 1, 2006. We have assessed our investments in unconsolidated real estate joint ventures and have determined that EITF 04-05 did not have an impact on our financial condition or results of operations.
In September 2006, the FASB issued Statement No. 157, Fair Value Measurements (“SFAS No. 157”). SFAS No. 157 provides guidance for using fair value to measure assets and liabilities. This statement clarifies the principle that fair value should be based on the assumptions that market participants would use when pricing the asset or liability. SFAS No. 157 establishes a fair value hierarchy, giving the highest
22
HAMILTON ON MAIN LLC, HAMILTON ON MAIN APARTMENTS LLC, AND HAMILTON 1025 LLC
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2006
NOTE 13. NEW ACCOUNTING PRONOUNCEMENT (Continued)
priority to quoted prices in active markets and the lowest priority to unobservable data. SFAS No. 157 applies whenever other standards require assets or liabilities to be measured at fair value. This statement is effective in fiscal years beginning after November 15, 2007. We believe that the adoption of this standard on January 1, 2008 will not have a material effect on our consolidated financial statements.
In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 108 (“SAB 108”), which becomes effective for the first fiscal period ending after November 15, 2006. SAB 108 provides guidance on the consideration of the effects of prior period misstatements in quantifying current year misstatements for the purpose of a materiality assessment. SAB 108 provides for the quantification of the impact of correcting all misstatements, including both the carryover and reversing effects of prior year misstatements, on the current year financial statements. The adoption of SAB 108 on December 21, 2006 did not have a material effect on our consolidated financial statements.
In February 2007, the FASB issued statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS No. 159”). SFAS No. 159 expands opportunities to use fair value measurement in financial reporting and permits entities to choose to measure many financial instruments and certain other items at fair value. This Statement is effective for fiscal years beginning after November 15, 2007. We have not decided if we will early adopt SFAS No. 159 or if we will choose to measure any eligible financial assets and liabilities at fair value.
23