SABLE CHASE OF MCDONOUGH, L.P.
FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
CONTENTS
PAGE | ||
Independent Auditors’Report Letter | 2 | |
Financial Statements: | ||
Balance Sheets | 3 & 4 | |
Statements of Operations | 5 | |
Statements of Changes in Partners’ Equity (Deficit) | 6 | |
Statements of Cash Flows | 7 | |
Notes to the Financial Statements | 8-10 | |
Supplemental Information: | ||
Schedules of Expenses | 11 |
Tama, Budaj & Raab, P.C. | ||||
Certified Public Accountants | ||||
ELY TAMA, CPA* | 32783 MIDDLEBELT ROAD | |||
JEFFREY F. BUDAJ, CPA | FARMINGTON HILLS, MICHIGAN 48334-1726 | MEMBERS | ||
EMIL A. RAAB, CPA | ||||
(248) 626-380O | AMERICAN INSTITUTE OF | |||
BARTON A. LOWEN, CPA | FAX: (248) 626-2276 | CERTIFIED PUBLIC ACCOUNTANTS | ||
JOHN W. WEIPERT, CPA** SEAN M. DONOVAN, CPA THOMAS D. MADOUSE, CPA | WWW.TBRCPA.COM | MICHIGAN ASSOCIATION OF CERTIFIED PUBLIC ACCOUNTANTS | ||
*ALSO LICENSED IN FLORIDA AND SOUTH CAROLINA **ALSO LICENSED IN FLORIDA | FLORIDA INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS SOUTH CAROLINA ASSOCIATION OF CERTIFIED PUBLIC ACCOUNTANTS |
Independent Auditors’ Report
To the Partners of
SABLE CHASE OF MCDONOUGH, L.P.
We have audited the accompanying balance sheets of SABLE CHASE OF MCDONOUGH, L.P. as of December 31, 2006 and 2005, and the related statements of operations, changes in partners’ equity (deficit) and cash flows for the years then ended. These financial statements are the responsibility of the General Partner and management of the Partnership. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits 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 audits provide 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 SABLE CHASE OF MCDONOUGH, L.P., 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 audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information is presented for the purpose of additional analysis and is not a required part of the basic financial statements. This supplemental information is the responsibility of the Partnership’s management. Such information has been subjected to the auditing procedures applied in our audits of the basic financial statements and, in our opinion, is fairly stated in all material respects when considered in relation to the basic financial statements taken as a whole.
January 26, 2007
2
SABLE CHASE OF MCDONOUGH, L.P.
(A GEORGIA LIMITED PARTNERSHIP)
(A GEORGIA LIMITED PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31, 2006 AND 2005
DECEMBER 31, 2006 AND 2005
2006 | 2005 | |||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash and cash equivalents | $ | 58,908 | $ | 115,900 | ||||
Accounts receivable | 7,408 | 39,500 | ||||||
Management fee receivable | 7,105 | 6,010 | ||||||
Prepaid expenses and other current assets | 1,000 | 1,000 | ||||||
TOTAL CURRENT ASSETS | 74,421 | 162,410 | ||||||
RESTRICTED DEPOSITS AND FUNDED RESERVES | ||||||||
Tenants’ security deposits | 28,650 | 37,400 | ||||||
Real estate tax and insurance escrow | 17,187 | 25,366 | ||||||
Operating reserve | 225,244 | 274,472 | ||||||
Replacement reserve escrow | 351,244 | 566,686 | ||||||
Insurance escrow | -0- | 137,653 | ||||||
TOTAL RESTRICTED DEPOSITS AND FUNDED RESERVES | 622,325 | 1,041,577 | ||||||
RENTAL PROPERTY | ||||||||
Buildings and components | 11,675,165 | 11,611,611 | ||||||
Furniture and equipment | 762,190 | 767,221 | ||||||
12,437,355 | 12,378,832 | |||||||
Less accumulated depreciation | (5,727,070 | ) | (5,408,379 | ) | ||||
6,710,285 | 6,970,453 | |||||||
Land | 502,774 | 502,774 | ||||||
NET RENTAL PROPERTY | 7,213,059 | 7,473,227 | ||||||
OTHER ASSETS | ||||||||
Deferred loan costs (net of amortization) | 27,677 | 33,966 | ||||||
$ | 7,937,482 | $ | 8,711,180 | |||||
The accompanying notes are an integral part of these financial statements. | 3 |
SABLE CHASE OF MCDONOUGH, L.P.
(A GEORGIA LIMITED PARTNERSHIP)
(A GEORGIA LIMITED PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31, 2006 AND 2005
DECEMBER 31, 2006 AND 2005
2006 | 2005 | |||||||
LIABILITIES AND EQUITY (DEFICIT) | ||||||||
CURRENT LIABILITIES | ||||||||
Current maturities of long-term debt | $ | 131,890 | $ | 123,931 | ||||
Accounts payable | 50,036 | 13,158 | ||||||
Accrued interest | 26,027 | 26,027 | ||||||
TOTAL CURRENT LIABILITIES | 207,953 | 163,116 | ||||||
DEPOSITS AND PREPAYMENT LIABILITIES | ||||||||
Tenants, security deposits | 28,650 | '37,400 | ||||||
LONG-TERM LIABILITIES | ||||||||
Mortgages payable | 4,250,009 | 4,373,940 | ||||||
Less current maturities | (131,890 | ) | (123,931 | ) | ||||
TOTAL LONG-TERM LIABILITIES | 4,118,119 | 4,250,009 | ||||||
TOTAL LIABILITIES | 4,354,722 | 4,450,525 | ||||||
PARTNERS’ EQUITY (DEFICIT) | 3,582,760 | 4,260,655 | ||||||
$ | 7,937,482 | $ | 8,711,180 | |||||
The accompanying notes are an integral part of these financial statements. | 4 |
SABLE CHASE OF MCDONOUGH, L.P.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
2006 | 2005 | |||||||
Revenues: | ||||||||
Rental | $ | 1,049,986 | $ | 1,227,762 | ||||
Laundry | 6,661 | 7,103 | ||||||
Security deposits earned | 24,473 | 22,188 | ||||||
Other | 45,309 | 92,757 | ||||||
TOTAL REVENUES | 1,126,429 | 1,349,810 | ||||||
Expenses | ||||||||
Maintenance and operating | 248,616 | 221,791 | ||||||
Utilities | 178,062 | 167,474 | ||||||
Administrative | 258,844 | 248,302 | ||||||
Taxes and insurance | 192,887 | 151,123 | ||||||
Interest | 308,870 | 315,600 | ||||||
Depreciation and amortization | 435,558 | 441,114 | ||||||
TOTAL EXPENSES | 1,622,837 | 1,545,404 | ||||||
INCOME (LOSS) FROM RENTAL OPERATIONS | (496,408 | ) | (195,594 | ) | ||||
Other income and (expenses): | ||||||||
Interest income | 27,156 | 20,725 | ||||||
Gain (loss) on disposition of rental property | (151,793 | ) | -0- | |||||
Partnership management and reporting fees | (10,665 | ) | -0- | |||||
Gain (loss) from involuntary conversion | (46,185 | ) | 46,185 | |||||
TOTAL OTHER INCOME AND (EXPENSES) | (181,487 | ) | 66,910 | |||||
NET INCOME (LOSS) | $ | (677,895 | ) | $ | (128,684 | ) | ||
The accompanying notes are an integral part of these financial statements. | 5 |
SABLE CHASE OF MCDONOUGH, L.P.
STATEMENTS OF CHANGES IN PARTNERS’ EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
General | Limited | |||||||||||
Total | Partner(s) | Partner(s) | ||||||||||
Partners’ equity (deficit) -January 1, 2005 | $ | 4,389,339 | $ | 229,526 | $ | 4,159,813 | ||||||
Net income (loss) | (128,684 | ) | (1,287 | ) | (127,397 | ) | ||||||
Partners’ equity (deficit) -December 31, 2005 | 4,260,655 | 228,239 | 4,032,416 | |||||||||
Net income (loss) | (677,895 | ) | (6,779 | ) | (671,116 | ) | ||||||
Partners’ equity (deficit) - December 31, 2006 | $ | 3,582,760 | $ | 221,460 | $ | 3,361,300 | ||||||
The accompanying notes are an integral part of these financial statements. | 6 |
SABLE CHASE OF MCDONOUGH, L.P.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
2006 | 2005 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net income (loss) | $ | (677,895 | ) | $ | (128,684 | ) | ||
Adjustments to reconcile net income (loss) to net cash provided by (used by) operating activities: | ||||||||
Depreciation and amortization | 435,558 | 441,114 | ||||||
(Gain) loss on disposition of rental property | 151,793 | -0- | ||||||
(Gain) loss from involuntary conversion | 46,185 | (46,185 | ) | |||||
Changes in: | ||||||||
Accounts receivable | 32,092 | (23,758 | ) | |||||
Management fee receivable | (1,095 | ) | (6,010 | ) | ||||
Tenants’ security deposits | -0- | 3,150 | ||||||
Tax and insurance escrow | 8,179 | 2,131 | ||||||
Operating reserve | 49,228 | (4,329 | ) | |||||
Accounts payable | 36,878 | (26,218 | ) | |||||
Accrued expenses | -0- | (587 | ) | |||||
TOTAL ADJUSTMENTS | 758,818 | 339,308 | ||||||
NET CASH PROVIDED BY (USED BY) OPERATING ACTIVITIES | 80,923 | 210,624 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Deposits to reserve for replacements | 215,442 | (61,192 | ) | |||||
Purchase of rental property | (320,894 | ) | (2,053 | ) | ||||
Gain (loss) from involuntary conversion | (46,185 | ) | 46,185 | |||||
NET CASH PROVIDED BY (USED BY) INVESTING ACTIVITIES | (151,637 | ) | (17,060 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Principal payments on mortgage loans | (123,931 | ) | (116,614 | ) | ||||
Insurance escrow from hurricane | 137,653 | (137,653 | ) | |||||
NET CASH PROVIDED BY (USED BY) FINANCING ACTIVITIES | 13,722 | (254,267 | ) | |||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | (56,992 | ) | (60,703 | ) | ||||
CASH AND CASH EQUIVALENTS — BEGINNING OF YEAR | 115,900 | 176,603 | ||||||
CASH AND CASH EQUIVALENTS — END OF YEAR | $ | 58,908 | $ | 115,900 | ||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
Cash paid during the year for interest | $ | 308,870 | $ | 316,187 | ||||
The accompanying notes are an integral part of these financial statements. | 7 |
SABLE CHASE OF MCDONOUGH, L.P.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
A. | ORGANIZATION | |
The Partnership was formed as a Limited Partnership under the laws of the State of Georgia on May 1, 1992, for the purpose of acquiring land, owning, constructing and operating a 225 unit multi-family rental housing project. | ||
B. | SIGNIFICANT ACCOUNTING POLICIES |
Accounting Method
The accompanying financial statements have been prepared on the accrual basis of accounting.
Rental Income
Rental income is recognized as rentals become due. Rental payments received in advance are deferred until earned. All leases between the Partnership and the tenants of the property are operating leases.
Property and Equipment
Buildings improvements and equipment are being depreciated on various methods over 5 to 27.5 years for both financial statement and income tax accounting purposes. Expenditures for maintenance and repairs are charged to expense as incurred.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure ofcontingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
For the purposes of the statement of cash flows, the Partnership considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents.
C. | INCOME TAXES | |
No income tax provision has been included in the financial statements because income or loss of the Partnership is required to be reported by the respective partners on their income tax returns. |
8
SABLE CHASE OF MCDONOUGH, L.P.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
D. | MORTGAGES PAYABLE | |
The first mortgage payable to Mass Mutual Life Insurance Company is nonrecourse and is collateralized by a first mortgage on the rental property. This mortgage bears interest at 8.45% per annum. The proceeds were used to refinance the First Union National Bank of Florida loan. |
$33,289 payable monthly until the principal and interest are fully paid except that the final installment shall be due and payable on December 1, 2020.
The second mortgage payable to Georgia Housing and Finance Authority, under the HOME Program, provided non-interest bearing construction financing of $1,000,000. The construction loan was converted to permanent financing in 1995. The note is collateralized by a deed to secure debt on the partnership rental property, subordinate to Mass Mutual Life Insurance Company’s lien on the property.
$2,778 is payable monthly until 2035, when unpaid principal becomes due.
Maturities of the notes payable are as follows for the years ended December 31:
First Mortgage | Second Mortgage | |||||||
2007 | $ | 98,557 | $ | 33,333 | ||||
2008 | 107,215 | 33,333 | ||||||
2009 | 116,634 | 33,333 | ||||||
2010 | 126,880 | 33,333 | ||||||
2011 | 138,027 | 33,333 | ||||||
Thereafter | 3,018,251 | 477,780 | ||||||
$ | 3,605,564 | $ | 644,445 | |||||
The liability of the Partnership is limited to the underlying value of the real estate collateral. | ||
E. | TRANSACTIONS WITH RELATED PARTIES | |
An affiliate performs rental, administrative and accounting services for SABLE CHASE OF MCDONOUGH, L.P. in its capacity as managing agent of the Project for which the affiliate received $72,693 in 2006 and $79,204 in 2005. | ||
The Partnership is committed to pay a non-cumulative annual fee of $28,125 to its General Partner for management services and a non-cumulative annual fee of $10,665 to an affiliate of the Limited Partner for reporting services if and when sufficient cash flow, as defined in the partnership agreement is available. The Partnership paid management and reporting fees of $0 to the General Partner in the year 2006 and $0 in the year 2005. The Partnership paid reporting fees of $10,665 for the year 2006 and $0 for 2005 to an affiliate of the Limited Partner. | ||
The General Partner is obligated through the terms of the Partnership, to advance funds to the Partnership to cover deficits that may arise, as defined in the partnership agreement. |
9
SABLE CHASE OF MCDONOUGH, L.P.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
F. | CONCENTRATION OF CREDIT RISK | |
The Partnership has funds exceeding $100,000 in a single financial institution, which exceeds the FDIC insurable limits. | ||
G. | VULNERABILITY DUE TO CERTAIN CONCENTRATIONS | |
The Partnership’s operations are concentrated in the multi-family 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, state and local regulatory agencies. Such administrative directives rules and regulations are subject to change by acts of or administrative changes mandated by these regulatory agencies. Such changes occur with little notice or inadequate funding to pay for the related cost, including the additional administrative burden, to comply with a change. | ||
H. | GAIN FROM INVOLUNTARY CONVERSION | |
The Project sustained tornado damage in 2004 and carries commercial insurance to cover the damages. Funds were being held in escrow by the mortgage company, Mass Mutual Life Insurance Company, and were disbursed in 2006. During 2006 and 2005, the Project received proceeds from the insurance company of $0 and $137,653, respectively. In 2006 the Project spent $286,438, of which $240,253 was capitalized for roof replacement. In 2005, $91,488 was spent for other repairs relating to the damage. The net amount of ($46,185) for 2006 and $46,185 for 2005 is reported in the Statement of Operations under the caption Gain (loss) from involuntary conversion. As of December 31, 2006, the Project has completed all the repairs. | ||
I. | TAXABLE INCOME (LOSS) | |
A reconciliation of financial statement net income (loss) to taxable income (loss) of the Partnership for the years ended December 31, 2006 and 2005 is as follows: |
2006 | 2005 | |||||||
Financial statement net income (loss) | $ | (677,895 | ) | $ | (128,684 | ) | ||
Adjustments: | ||||||||
Gain from involuntary conversion | 46,185 | (46,185 | ) | |||||
Taxable income (loss) | $ | (631,710 | ) | $ | (174,869 | ) | ||
10
SABLE CHASE OF MCDONOUGH, L.P.
SCHEDULES OF EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
2006 | 2005 | |||||||
MAINTENANCE AND OPERATING | ||||||||
Repairs - payroll | $ | 62,544 | $ | 81,440 | ||||
- supply | 50,311 | 25,505 | ||||||
- contract | 9,625 | 14,262 | ||||||
Painting and decorating | 14,759 | 13,924 | ||||||
Grounds | 45,283 | 22,464 | ||||||
Services | 54,921 | 49,381 | ||||||
Furniture and furnishing replacement | 11,173 | 14,817 | ||||||
$ | 248,616 | $ | 221,791 | |||||
UTILITIES | ||||||||
Electricity | $ | 34,807 | $ | 25,570 | ||||
Internet service | 995 | 1,327 | ||||||
Water | 61,270 | 59,571 | ||||||
Sewer | 52,526 | 51,854 | ||||||
Fuel | 1,784 | 1,695 | ||||||
Garbage and trash removal | 26,680 | 27,458 | ||||||
$ | 178,062 | $ | 167,474 | |||||
ADMINISTRATIVE | ||||||||
Site management payroll | $ | 65,501 | $ | 64,775 | ||||
Management fee | 72,693 | 79,204 | ||||||
Auditing | 7,612 | 5,092 | ||||||
Legal | 22,985 | 3,851 | ||||||
Advertising | 22,984 | 24,839 | ||||||
Telephone | 5,476 | 6,142 | ||||||
Office supplies | 25,965 | 24,425 | ||||||
Health insurance | 14,078 | �� | 14,682 | |||||
Payroll taxes | 14,512 | 13,807 | ||||||
Homeowner incentive | 1,650 | 4,310 | ||||||
Workmen’s compensation | 5,388 | 7,175 | ||||||
$ | 258,844 | $ | 248,302 | |||||
TAXES AND INSURANCE | ||||||||
Real estate taxes | $ | 113,264 | $ | 108,385 | ||||
Other taxes, licenses and permits | 1,197 | 1,495 | ||||||
Property and liability insurance | 78,426 | 41,243 | ||||||
$ | 192,887 | $ | 151,123 | |||||
The accompanying notes are an integral part of these financial statements. | 11 |