LAUREL CREEK APARTMENTS
(A California Limited Partnership)
AUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2006
LAUREL CREEK APARTMENTS
AUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2006
TABLE OF CONTENTS
Page | |
| Independent Auditors' Report | 1 |
| Balance Sheet | 2 |
Statement of Income, Expenses and Changes in Partners' Capital | 3 |
| Statement of Cash Flows | 4 |
| Notes to Financial Statements | 5 |
| Supplementary Information: | |
| Analysis of Replacement Reserve Account | 10 |
| Return to Owner Calculation | 11 |
WALLACE ROWE & ASSOCIATES | Accounting Firm |
430 Verbena Court Pleasant Hill, CA 94523 | (925) 229-1950 Fax (925) 229-1952 wroweassoc@aol.com |
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Laurel Creek Apartments
San Luis Obispo, California
We have audited the accompanying balance sheets of Laurel Creek Apartments (A California Limited Partnership) as of December 31, 2006 and December 31, 2005 and the related statements of operations, and changes in partners' capital, and cash flows for the years then ended. These financial statements are the responsibility of the Partnerships' 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 Laurel Creek Apartments as of December 31, 2006 and December 31, 2005, and the results of its operations for the years then ended in conformity with accounting principles generally accepted in the United States of America.
Our audit was performed for the purpose of forming an opinion on the basic financial statements of the Laurel Creek Apartments, taken as a whole. The accompanying Analysis of Replacement Reserve Account and Calculation of Cash Distribution are presented for purposes of additional analysis as required by the Agreement of Limited Partnership and are 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/ Wallace E. Rowe
March 9, 2007
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LAUREL CREEK APARTMENTS
BALANCE SHEET
DECEMBER 31, 2006 AND 2005
| 2006 | 2005 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash (Note 2) | $ | 84,157 | $ | 61,416 | ||||
| Accounts receivable | 94 | 333 | ||||||
| Prepaid expenses | 2,908 | 3,070 | ||||||
| TOTAL CURRENT ASSETS | 87,159 | 64,819 | ||||||
| Restricted reserves (Note 3) | 65,304 | 60,805 | ||||||
| Land, structures and equipment, net of accumulated depreciation of $873,873 and $805,922 (Note 4) | 1,291,481 | 1,359,432 | ||||||
| Organizational costs, net of accumulated amortization of $22,333 and $20,665 (Note 5) | 4,585 | 6,253 | ||||||
| TOTAL ASSETS | $ | 1,448,529 | $ | 1,491,309 | ||||
| LIABILITIES AND PARTNERS' CAPITAL | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable - other | $ | 6,146 | $ | 7,961 | ||||
| Accounts payable - related party (Note 7) | 2,177 | 2,436 | ||||||
| Security deposits payable | 8,946 | 9,247 | ||||||
| Current portion of long-term debt (Note 6) | 44,619 | 39,804 | ||||||
| TOTAL CURRENT LIABILITIES | 61,888 | 59,448 | ||||||
| Long-term debt (Note 6) | 417,192 | 463,125 | ||||||
| TOTAL LIABILITIES | 479,080 | 522,573 | ||||||
| Partners' Capital: | ||||||||
| General partner | 99,195 | 137,014 | ||||||
| Limited partner | 870,254 | 831,722 | ||||||
| TOTAL PARTNERS' CAPITAL | 969,449 | 968,736 | ||||||
TOTAL LIABILITIES AND PARTNERS' CAPITAL | $ | 1,448,529 | $ | 1,491,309 | ||||
See accompanying notes.
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LAUREL CREEK APARTMENTS
STATEMENT OF INCOME, EXPENSES AND
CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
| 2006 | 2005 | |||||||
| OPERATING INCOME | ||||||||
| Rental income | $ | 232,802 | $ | 225,820 | ||||
| Tenant charges | 732 | 4,170 | ||||||
| Other | 1,899 | 2,100 | ||||||
| TOTAL OPERATING INCOME | 235,433 | 232,090 | ||||||
| OPERATING EXPENSES | ||||||||
| Administration | 23,626 | 22,736 | ||||||
| Insurance and taxes | 8,038 | 8,536 | ||||||
| Maintenance | 27,593 | 44,615 | ||||||
| Utilities | 22,746 | 24,981 | ||||||
| Depreciation and amortization | 69,618 | 69,618 | ||||||
| TOTAL EXPENSES | 151,621 | 170,486 | ||||||
| NET INCOME (LOSS) FROM OPERATIONS | 83,812 | 61,604 | ||||||
| OTHER INCOME AND EXPENSES | ||||||||
| Interest income | 3,464 | 1,850 | ||||||
| Interest expense | (35,447 | ) | (38,500 | ) | ||||
| NET OTHER INCOME UNDER EXPENSES | (31,983 | ) | (36,650 | ) | ||||
| NET INCOME (LOSS) | 51,829 | 24,954 | ||||||
| BEGINNING PARTNERS' CAPITAL | 968,736 | 997,545 | ||||||
| Partner withdrawals | (51,116 | ) | (53,763 | ) | ||||
| ENDING PARTNERS' CAPITAL | $ | 969,449 | $ | 968,736 | ||||
See accompanying notes.
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LAUREL CREEK APARTMENTS
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2006 AND 2005
| 2006 | 2005 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Rents received | $ | 233,044 | $ | 226,740 | ||||
| Other operating revenues | 2,625 | 6,266 | ||||||
| Cash payments for goods and services | (83,860 | ) | (104,136 | ) | ||||
| Net cash provided (used) by operating activities | 151,809 | 128,870 | ||||||
CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES: | ||||||||
| Increases (decreases) in security deposits | (300 | ) | ||||||
| Withdrawal from replacement reserves | ||||||||
| Additions to replacement reserves | (4,800 | ) | (4,800 | ) | ||||
| Net cash provided (used) by capital and financing activities | (4,800 | ) | (5,100 | ) | ||||
CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES: | ||||||||
| Capital withdrawals | (51,116 | ) | (53,763 | ) | ||||
| Interest paid on notes | (35,502 | ) | (38,500 | ) | ||||
| Payment of debt | (41,118 | ) | (38,238 | ) | ||||
| Net cash provided (used) by capital and related financing activities | (127,736 | ) | (130,501 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Interest income | 3,468 | 1,850 | ||||||
| Net cash provided (used) by investing activities | 3,468 | 1,850 | ||||||
| NET INCREASE (DECREASE) IN CASH | 22,741 | (4,881 | ) | |||||
| CASH - BEGINNING OF YEAR | 61,416 | 66,297 | ||||||
| CASH - END OF YEAR | $ | 84,157 | $ | 61,416 | ||||
RECONCILIATION OF OPERATING LOSS TO NET CASH PROVIDED BY OPERATING ACTIVITIES: | ||||||||
| Net income from operations | $ | 83,812 | $ | 61,604 | ||||
Adjustments to reconcile net loss to Net cash provided by operating activities | ||||||||
| Depreciation and amortization | 69,618 | 69,618 | ||||||
| Decrease (increase) in accounts receivable | 236 | 916 | ||||||
| Decrease (increase) in prepaid expenses | 162 | 265 | ||||||
| Increase (decrease) in accounts payable - other | (1,760 | ) | (2,507 | ) | ||||
| Increase (decrease) in accounts payable - related parties | (259 | ) | (1,026 | ) | ||||
NET CASH PROVIDED BY OPERATING ACTIVITIES | $ | 151,809 | $ | 128,870 | ||||
See accompanying notes.
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LAUREL CREEK APARTMENTS
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2006
Note 1 - DEFINITION OF REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Laurel Creek Apartments is a California Limited Partnership which was formed on May 17, 1994. The partnership was formed to construct, acquire, own, operate, maintain, manage, lease, sell, mortgage or otherwise dispose of a 24 unit apartment complex located in the City of San Luis Obispo, California.
As of the report date there are two partners in the partnership, consisting of one general and one limited partner.
Summary of Significant Accounting Policies
| a. | Basis of accounting |
The partnership is accounted for on the accrual basis of accounting. Under this method revenues are recognized when they are earned and expenses are recognized when they are incurred. |
| b. | Fixed assets and depreciation Fixed assets are carried at cost. Expenditures for the fixed assets are capitalized. Maintenance and repairs are charged to operations. Depreciation is calculated using the straight-line basis over the estimated useful lives. |
| c. | Income taxes Taxable income or expenses and related tax credits are not reflected as expenses or credits of the partnership. These items are the responsibilities of the individual partners. |
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LAUREL CREEK APARTMENTS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006
(Continued)
Note 2 - CASH
Cash consists of $83,254 deposited into money market accounts, and $903 on deposit with the State of California Local Agency Investment Fund. At December 31, 2006 the amount deposited into the money market accounts and the Local Agency Investment Fund earned interest at rates from 5.13% to 5.11% respectively.
Note 3 - RESTRICTED CASH
Restricted cash consists of $65,304 maintained in a money market account earning 5.13%. This cash consists of $56,358 reserved for the replacement of fixed assets and $8,946 for the repayment of tenants' security deposits.
Note 4 - LAND, STRUCTURES AND EQUIPMENT
Property and equipment and accumulated depreciation consist of the following:
| Cost | Accumulated Depreciation | |||||||
| Land | $ | 275,000 | $ | - | ||||
| Building | 1,868,634 | 852,152 | ||||||
| Equipment | 21,720 | 21,721 | ||||||
| $ | 2,165,354 | $ | 873,873 | |||||
Note 5 - ORGANIZATION COSTS
Organization costs and accumulated amortization consist of the following:
| Cost | Accumulated Amortization | |||||||
| Organization costs | $ | 26,918 | $ | 22,333 | ||||
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LAUREL CREEK APARTMENTS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006
(Continued)
Note 6 - NOTE PAYABLE
The Agency has a mortgage note payable to the First Bank of San Luis Obispo. The note requires principal and interest payments totaling $6,385 each month until 5/18/2009. The note bears interest at 7.25% per annum. The following is a schedule of the debt payment requirements to maturity:
Year ending December 31 | |||||
| 2007 | $ | 76,620 | |||
| 2008 | 76,620 | ||||
| 2009 | 379,405 | ||||
| Total | 532,645 | ||||
| Less amounts representing interest | 70,834 | ||||
| $ | 461,811 | ||||
Note 7 - RELATED PARTIES
The accounting and administrative functions of the partnership are performed by employees of the Housing Authority of the City of San Luis Obispo (the Authority). Two members of the general partner's (San Luis Obispo Nonprofit Housing Corporation) board of directors are also members of the board of commissioner's of the Housing Authority of the City of San Luis Obispo.
At December 31, 2006 the partnership owed the Authority $2,177. During the year ended December 31, 2006, the partnership paid the Authority $33,896 in administrative costs, maintenance expenses and management fees.
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LAUREL CREEK APARTMENTS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006
(Continued)
Note 8 - LAND DONATION AND LEASE
The land upon which the Laurel Creek Apartments were built was originally leased from the City of San Luis Obispo (the City) by the Housing Authority of the City of San Luis Obispo (the Authority). This lease agreement was later assigned from the Authority to the San Luis Obispo Nonprofit Housing Corporation (the Corporation). The lease was later assigned to the Laurel Creek Apartments Partnership. Each of the above mentioned agencies have common board members or in some other manner have oversight responsibilities over the other organizations; which would qualify them as related parties.
The lease expires on April 29, 2046. The provisions for extending or renewing the lease term are not specified and are contingent upon the continuation of the project being used to provide affordable housing to lower income families. The annual lease payments are $1 per year.
The land was recorded on the Agency's books of accounts at the appraised value on the date the land lease was assigned to the Agency. This appraised value was $275,000. The value of the land was also recorded as a capital contribution from the general partner on that date.
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SUPPLEMENTARY INFORMATION
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LAUREL CREEK APARTMENTS
ANALYSIS OF REPLACEMENT RESERVE ACCOUNT
DECEMBER 31, 2006
| Balance of replacement reserve account - beginning of year | $ | 51,558 | ||
| Contributions to account during the fiscal year ended December 31, 2006 | 4,800 | |||
| Balance of replacement reserve account - end of year | $ | 56,358 |
Note - the replacement reserve account appears to have been fully funded during the fiscal year ended December 31, 2006.
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LAUREL CREEK APARTMENTS
CALCULATION OF CASH DISTRIBUTION
YEAR ENDED DECEMBER 31, 2006
| Net Income - for the year ended December 31, 2006 | $ | 51,829 | ||
| Add back depreciation expense | 67,950 | |||
| Add back amortization expense | 1,669 | |||
| Deposits to replacement reserve account | (4,800 | ) | ||
| Debt service (mortgage loan) | (41.,118 | ) | ||
| Adjusted cash available from operations through December 31, 2006 | $ | 75,530 | ||
| Net cash available for disbursement | $ | 75,530 | ||
| Limited partner distribution = 75% | $ | 56,647 | ||
| General partner distribution = 25% | 18,883 | |||
| Total partner distributions for the fiscal year ended December 31, 2006 | $ | 75,530 |
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| HASLO | 487 Leff Street Post Office Box 1289 San Luis Obispo CA 93406-1289 (805) 543-4478 fax (805) 543-4992 |
Housing Authority of the City of San Luis Obispo | Executive Director-Secretary Carol Hatley |
March 26, 2007
WNC Portfolio Management
Attn: Stacy Maakestad
17782 Sky Park Circle
Irvine, CA 92614-6404
Re: 2006 Audited Financial Statements — Laurel Creek
Dear Stacy,
Please find enclosed a copy of the 2006 Audited Financial Statements for Laurel Creek Apartments.
If you need anything else, please give me a call at (805) 594-5304. Or you can e-mail me at: hwright@haslo.org.
Best regards,
/s/ Harold L. Wright
Harold L. Wright, IV
Director of Finance
Enclosures
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