UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended June 30, 2002
[] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from _________to _________
Commission file number 2-84760
WINTHROP GROWTH INVESTORS 1 LIMITED PARTNERSHIP (Exact name of
small business issuer as specified in its charter)
Massachusetts 04-2839837
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Beattie Place, PO Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(Issuer's telephone number)
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WINTHROP GROWTH INVESTORS 1 LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
June 30, 2002
Assets
Cash and cash equivalents $ 730
Receivables and deposits 545
Restricted escrows 223
Other assets 812
Investment properties:
Land $ 2,391
Buildings and related personal property 37,228
39,619
Less accumulated depreciation (23,704) 15,915
$ 18,225
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 38
Tenant security deposit liabilities 179
Accrued property taxes 98
Other liabilities 212
Mortgage notes payable 19,373
Partners' Deficit
General partners $ (1,016)
Limited partners (23,139 units
issued and outstanding) (659) (1,675)
$ 18,225
See Accompanying Notes to Consolidated Financial Statements
WINTHROP GROWTH INVESTORS 1 LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per unit data)
Three Months Six Months
Ended June 30, Ended June 30,
2002 2001 2002 2001
(Restated)
Revenues:
Rental income $ 1,728 $ 1,686 $ 3,429 $ 3,327
Other income 136 100 299 188
Casualty gain (Note D) -- -- 12 --
Total revenues 1,864 1,786 3,740 3,515
Expenses:
Operating 618 632 1,266 1,304
General and administrative 81 86 160 170
Depreciation 477 468 949 931
Interest 374 399 767 800
Property tax 97 99 194 197
Total expenses 1,647 1,684 3,336 3,402
Income from continuing operations 217 102 404 113
Income from discontinued
operations (Note A) -- -- -- 103
Net income $ 217 $ 102 $ 404 $ 216
Net income allocated to general
partners (10%) $ 22 $ 10 $ 40 $ 22
Net income allocated to limited
partners (90%) 195 92 364 194
$ 217 $ 102 $ 404 $ 216
Per limited partnership unit:
Income from continuing operations $ 8.43 $ 3.98 $ 15.73 $ 4.36
Income from discontinued
operations -- -- -- 4.02
Net income $ 8.43 $ 3.98 $ 15.73 $ 8.38
Distributions per limited
partnership unit $ 31.55 $ 6.40 $ 38.81 $136.48
See Accompanying Notes to Consolidated Financial Statements
WINTHROP GROWTH INVESTORS 1 LIMITED PARTNERSHIP
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partners Partners Total
Original capital contributions 23,149 $ 2 $23,149 $23,151
Partners' deficit at
December 31, 2001 23,139 $ (975) $ (125) $(1,100)
Distributions to partners -- (81) (898) (979)
Net income for the six months
ended June 30, 2002 -- 40 364 404
Partners' deficit
at June 30, 2002 23,139 $(1,016) $ (659) $(1,675)
See Accompanying Notes to Consolidated Financial Statements
WINTHROP GROWTH INVESTORS 1 LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
June 30,
2002 2001
Cash flows from operating activities:
Net income $ 404 $ 216
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 949 931
Amortization of loan costs and deferred costs 9 39
Bad debt expense, net -- 53
Casualty gain (12) --
Change in accounts:
Receivables and deposits (125) (60)
Other assets 102 60
Accounts payable (72) (173)
Tenant security deposit liabilities 17 (1)
Accrued property taxes 42 103
Other liabilities 36 (83)
Net cash provided by operating activities 1,350 1,085
Cash flows from investing activities:
Property improvements and replacements (227) (337)
Insurance proceeds received 37 --
Net (deposits to) withdrawals from restricted escrows (15) 100
Net cash used in investing activities (205) (237)
Cash flows from financing activities:
Advances from affiliates -- 130
Payments on mortgage notes payable (204) (168)
Distributions paid to partners (979) (3,251)
Net cash used in financing activities (1,183) (3,289)
Net decrease in cash and cash equivalents (38) (2,441)
Cash and cash equivalents at beginning of period 768 3,299
Cash and cash equivalents at end of period $ 730 $ 858
Supplemental disclosure of cash flow information:
Cash paid for interest $ 763 $ 741
See Accompanying Notes to Consolidated Financial Statements
WINTHROP GROWTH INVESTORS 1 LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited consolidated financial statements of Winthrop Growth
Investors 1 Limited Partnership (the "Partnership" or "Registrant") have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Item 310(b)
of Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. The general partner of the Partnership is Two Winthrop
Properties, Inc. (the "Managing General Partner"), an affiliate of Apartment
Investment and Management Company ("AIMCO"), a publicly traded real estate
investment trust. In the opinion of the Managing General Partner, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the three and six
month periods ended June 30, 2002 are not necessarily indicative of the results
that may be expected for the fiscal year ending December 31, 2002. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Partnership's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 2001.
Effective January 1, 2002, the Partnership adopted Statement of Financial
Accounting Standards No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets", which established standards for the way that public business
enterprises report information about long-lived assets that are either being
held for sale or have already been disposed of by sale or other means. The
standard requires that results of operations for a long-lived asset that is
being held for sale or has already been disposed of be reported as a
discontinued operation on the statement of operations. Sunflower Apartments was
sold to an unrelated third party in December 2000. As a result, the accompanying
consolidated statements of operations have been restated as of June 30, 2001 to
reflect the operations of Sunflower Apartments as income from discontinued
operations.
Certain reclassifications have been made to the 2001 balances to conform to the
2002 presentation.
Note B - Transactions with Affiliated Parties
The Partnership has no employees and is dependent on the Managing General
Partner and its affiliates for the management and administration of all
Partnership activities. The Partnership Agreement provides for certain payments
to affiliates for services and as reimbursement of certain expenses incurred by
affiliates on behalf of the Partnership.
Affiliates of the Managing General Partner are entitled to receive between 5%
and 7.87% of gross receipts from the Partnership's properties as compensation
for providing property management services. The Partnership paid to such
affiliates approximately $200,000 and $173,000 during the six months ended June
30, 2002 and 2001, respectively, which is included in operating expenses.
An affiliate of the Managing General Partner received reimbursements of
accountable administrative expenses amounting to approximately $123,000 and
$125,000 for the six months ended June 30, 2002 and 2001, respectively, which is
included in general and administrative expenses.
During the six months ended June 30, 2001, an affiliate of the Managing General
Partner loaned the Partnership approximately $130,000. The amount was repaid
during 2001. Interest was charged at prime plus 2% and amounted to approximately
$1,000 for the six months ended June 30, 2001.
Beginning in 2001, the Partnership began insuring its properties up to certain
limits through coverage provided by AIMCO which is generally self-insured for a
portion of losses and liabilities related to workers compensation, property
casualty and vehicle liability. The Partnership insures its properties above the
AIMCO limits through insurance policies obtained by AIMCO from insurers
unaffiliated with the General Partner. During the six months ended June 30, 2002
and 2001, the Partnership paid AIMCO and its affiliates approximately $83,000
and $105,000, respectively, for insurance coverage and fees associated with
policy claims administration.
Note C - Supplementary Information Required Pursuant to Section 9.4 of the
Partnership Agreement
Statement of cash available for distribution for the three and six months ended
June 30, 2002 (in thousands):
Three Months Six Months
Ended Ended
June 30, June 30,
2002 2002
Net Income $ 217 $ 404
Add: Amortization expense (6) 9
Depreciation expense 477 949
Less: Cash from (to) reserves 123 (383)
Cash available for distribution $ 811 $ 979
Distributions allocated to
Limited Partners $ 730 $ 898
General Partners' interest in
cash available for distribution $ 81 $ 81
Note D - Casualty Gain
During the six months ended June 30, 2002, a net casualty gain of approximately
$12,000 was recorded at Ashton Ridge Apartments. The casualty gain related to
wind damage in September 2001. The gain was the result of the receipt of
insurance proceeds of approximately $37,000, net of the write off of net fixed
assets of approximately $25,000.
Note E - Legal Proceedings
The Partnership is unaware of any pending or outstanding litigation that is not
of a routine nature arising in the ordinary course of business.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The matters discussed in this Form 10-QSB contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the
disclosures contained in this Form 10-QSB and the other filings with the
Securities and Exchange Commission made by the Partnership from time to time.
The discussion of the Partnership's business and results of operations,
including forward-looking statements pertaining to such matters, does not take
into account the effects of any changes to the Partnership's business and
results of operations. Accordingly, actual results could differ materially from
those projected in the forward-looking statements as a result of a number of
factors, including those identified herein.
The Partnership's investment properties consist of three apartment complexes.
The following table sets forth the average occupancy of the properties for the
six months ended June 30, 2002 and 2001:
Average Occupancy
2002 2001
Ashton Ridge Apartments
Jacksonville, Florida 97% 96%
Stratford Place Apartments
Gaithersburg, Maryland 97% 97%
Stratford Village Apartments
Montgomery, Alabama 92% 91%
Results of Operations
The Partnership reported net income of approximately $404,000 for the six months
ended June 30, 2002 as compared to net income of approximately $216,000 for the
six months ended June 30, 2001. The Partnership reported net income of
approximately $217,000 for the three months ended June 30, 2002 as compared to
approximately $102,000 for the three months ended June 30, 2001. Effective
January 1, 2002, the Partnership adopted Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets", which established standards for the way that public business
enterprises report information about long-lived assets that are either being
held for sale or have already been disposed of by sale or other means. The
standard requires that results of operations for a long-lived asset that is
being held for sale or has already been disposed of be reported as a
discontinued operation on the statement of operations. Sunflower Apartments was
sold to an unrelated third party in December 2000. As a result, the accompanying
consolidated statements of operations have been restated as of June 30, 2001 to
reflect the operations of Sunflower Apartments as income from discontinued
operations.
The Partnership recognized income from continuing operations for the three and
six month periods ended June 30, 2002 of approximately $217,000 and $404,000
compared to income from continuing operations of approximately $102,000 and
$113,000 for the three and six month periods ended June 30, 2001. The increase
in income from continuing operations is primarily attributable to an increase in
total revenues and a slight decrease in total expenses. The increase in total
revenues for the three and six month period ended June 30, 2002 was primarily
due to increases in rental and other income. Rental income increased as a result
of an increase in average rental rates at Ashton Ridge and Stratford Place
Apartments and an increase in occupancy at Stratford Village and Ashton Ridge
Apartments. Other income increased primarily due to an increase in utility
reimbursements at Ashton Ridge Apartments and Stratford Place Apartments,
partially offset by a decrease in interest income as a result of lower cash
balances available for investment in interest bearing accounts. The decrease in
total expenses for the three and six month periods ended June 30, 2002 is
primarily due to a decrease in operating expenses and interest expense partially
offset by an increase in depreciation expense. Operating expense decreased as a
result of a decrease in property expenses primarily at Ashton Ridge and
Stratford Place Apartments partially offset by an increase in insurance expense.
Property expenses decreased as a result of a decrease in utility charges and
employee salaries and related benefits at Ashton Ridge and Stratford Place
Apartments. The increase in insurance expense is the result of an increase in
insurance premiums at all the Partnership's investment properties. Interest
expense decreased primarily due to principal payments made against outstanding
loans at the Partnership's properties. Depreciation expense increased due to
property improvements and replacements placed into service during the past
twelve months which are now being depreciated primarily at Stratford Village and
Ashton Ridge Apartments.
Included in general and administrative expenses for the six months ended June
30, 2002 and 2001 are management reimbursements to the Managing General Partner
allowed under the Partnership Agreement. In addition, costs associated with the
quarterly and annual communications with investors and regulatory agencies and
the annual audit required by the Partnership Agreement are also included.
As part of the ongoing business plan of the Partnership, the Managing General
Partner monitors the rental market environment of its investment properties to
assess the feasibility of increasing rents, maintaining or increasing occupancy
levels and protecting the Partnership from increases in expense. As part of this
plan, the Managing General Partner attempts to protect the Partnership from the
burden of inflation-related increases in expenses by increasing rents and
maintaining a high overall occupancy level. However, due to changing market
conditions, which can result in the use of rental concessions and rental
reductions to offset softening market conditions, there is no guarantee that the
Managing General Partner will be able to sustain such a plan.
Liquidity and Capital Resources
At June 30, 2002, the Partnership had cash and cash equivalents of approximately
$730,000 compared to approximately $858,000 at June 30, 2001. Cash and cash
equivalents decreased approximately $38,000 since December 31, 2001 due to
approximately $1,183,000 and $205,000 of cash used in financing activities and
investing activities, respectively partially offset by approximately $1,350,000
of cash provided by operating activities. Cash used in investing activities
consisted of property improvements and replacements and net deposits to
restricted escrows maintained by the mortgage lenders partially offset by the
receipt of insurance proceeds. Cash used in financing activities consisted of
distributions paid to the partners and principal payments made on the mortgages
encumbering the Partnership's investment properties. The Partnership invests its
working capital reserves in interest bearing accounts.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the properties to adequately maintain the physical
assets and other operating needs of the Partnership and to comply with Federal,
state and local legal and regulatory requirements. Capital improvements planned
for each of the Partnership's properties are detailed below.
Ashton Ridge Apartments
During the six months ended June 30, 2002, the Partnership spent approximately
$96,000 for capital improvements consisting primarily of building improvements
related to repairs from the casualty, floor covering and appliance replacements
and structural improvements. These improvements were funded from operating cash
flow and insurance proceeds. Approximately $195,000 has been budgeted for
capital improvements during the year 2002 at Ashton Ridge Apartments consisting
primarily of floor covering and appliance replacements, major landscaping and
air conditioning unit replacements. Additional improvements may be considered
and will depend on the physical condition of the property as well as the
anticipated cash flow generated by the property.
Stratford Place Apartments
During the six months ended June 30, 2002, the Partnership spent approximately
$81,000 for capital improvements consisting primarily of floor covering and
appliance replacement and structural improvements. These improvements were
funded from operating cash flow and replacement reserves. Approximately $108,000
has been budgeted for capital improvements during the year 2002 at Stratford
Place Apartments consisting primarily of floor covering replacements, structural
improvements, air conditioning unit replacements, interior painting of common
area and major landscaping. Additional improvements may be considered and will
depend on the physical condition of the property as well as replacement reserves
and anticipated cash flow generated by the property.
Stratford Village Apartments
During the six months ended June 30, 2002, the Partnership spent approximately
$50,000 for capital improvements consisting primarily of floor covering
replacements, major landscaping and plumbing enhancements. These improvements
were funded from operating cash flow. Approximately $84,000 has been budgeted
for capital improvements during the year 2002 at Stratford Village Apartments
consisting primarily of air conditioning unit, floor covering, appliance and
water heater replacements. Additional improvements may be considered and will
depend on the physical condition of the property as well as replacement reserves
and anticipated cash flow generated by the property.
The additional capital expenditures will be incurred only if cash is available
from operations or from Partnership reserves. To the extent that such budgeted
capital improvements are completed, the Partnership's distributable cash flow,
if any, may be adversely affected at least in the short term.
The Partnership's current assets are thought to be sufficient for any near-term
needs (exclusive of capital improvements) of the Partnership. The mortgage
indebtedness of approximately $19,373,000 is amortized over varying periods. The
mortgage encumbering Stratford Place Apartments requires a balloon payment of
approximately $7,739,000 due in July 2006. The Managing General Partner will
attempt to refinance such indebtedness and/or sell Stratford Place Apartments
prior to such maturity date. If the property cannot be refinanced or sold for a
sufficient amount, the Partnership will risk losing such property through
foreclosure.
Pursuant to the Partnership Agreement, the term of the Partnership is scheduled
to expire on December 31, 2003. Accordingly, prior to such date the Partnership
will need to either sell its investment properties or extend the term of the
Partnership. If the Partnership is unable to extend its term, the ultimate sale
price of the investment properties may be adversely affected.
The Partnership distributed the following amounts during the six months ended
June 30, 2002 and 2001 (in thousands except per unit data):
Six Months Per Limited Six Months Per Limited
Ended Partnership Ended Partnership
June 30, 2002 Unit June 30, 2001 Unit
Operations $ 979 $ 38.81 $ 1,261 $ 50.49
Refinancing (1) -- -- 1,893 81.81
Sale (2) -- -- 97 4.18
$ 979 $ 38.81 $ 3,251 $136.48
(1) From the refinancing of Ashton Ridge Apartments during 2000.
(2) From the remaining undistributed sale proceeds of Sunflower Apartments.
The Partnership's cash available for distribution is reviewed on a monthly
basis. Future cash distributions will depend on the levels of net cash generated
from operations, the availability of cash reserves, and the timing of debt
maturities, refinancings and/or property sales. There can be no assurance,
however, that the Partnership will generate sufficient funds from operations,
after required capital expenditures, to permit further distributions to its
partners during the remainder of 2002 or subsequent periods.
Other
In addition to its indirect ownership of the general partner interests in the
Partnership, AIMCO and its affiliates owned 9,855.25 limited partnership units
(the "Units") in the Partnership representing 42.59% of the outstanding Units at
June 30, 2002. A number of these Units were acquired pursuant to tender offers
made by AIMCO or its affiliates. It is possible that AIMCO or its affiliates
will acquire additional units of limited partnership interest in the Partnership
in exchange for cash or a combination of cash and units in the operating
partnership of AIMCO either through private purchases or tender offers. Under
the Partnership Agreement, unitholders holding a majority of the Units are
entitled to take action with respect to a variety of matters which would include
voting on certain amendments to the Partnership Agreement and voting to remove
the Managing General Partner. As a result of its ownership of 42.59% of the
outstanding Units, AIMCO is in a position to control all voting decisions with
respect to the Registrant. Although the Managing General Partner owes fiduciary
duties to the limited partners of the Partnership, the Managing General Partner
also owed fiduciary duties to AIMCO as its sole Stockholder. As a result, the
duties of the Managing General Partner, as managing general partner, to the
Partnerships and its limited partners may come into conflict with the duties of
the Managing General Partner to AIMCO, as it sole stockholder.
Critical Accounting Policies and Estimates
The consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States which require the Partnership
to make estimates and assumptions. The Partnership believes that of its
significant accounting policies, the following may involve a higher degree of
judgment and complexity.
Impairment of Long-Lived Assets
Investment properties are recorded at cost, less accumulated depreciation,
unless considered impaired. If events or circumstances indicate that the
carrying amount of a property may be impaired, the Partnership will make an
assessment of its recoverability by estimating the undiscounted future cash
flows, excluding interest charges, of the property. If the carrying amount
exceeds the aggregate future cash flows, the Partnership would recognize an
impairment loss to the extent the carrying amount exceeds the fair value of the
property.
Real property investments are subject to varying degrees of risk. Several
factors may adversely affect the economic performance and value of the
Partnership's investment properties. These factors include changes in the
national, regional and local economic climate; local conditions, such as an
oversupply of multifamily properties; competition from other available
multifamily property owners and changes in market rental rates. Any adverse
changes in these factors could cause an impairment in the Partnership's assets.
Revenue Recognition
The Partnership generally leases apartment units for twelve-month terms or less.
Rental income attributable to leases is recognized monthly as it is earned. The
Partnership will offer rental concessions during particularly slow months or in
response to heavy competition from other similar complexes in the area.
Concessions are charged to income as incurred.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibit 3.1, Amended and Restated Agreement of Limited
Partnership of Winthrop Growth Investors I Limited Partnership
dated May 11, 1984 (included as an exhibit to the
Partnership's Registration Statement on Form 2-11, File No.
2-84760 and incorporated herein be reference).
Exhibit 3.2, Amendment to Amended and Restated Agreement of
Limited Partnership dated August 23, 1985 (Exhibit 3(a) to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995 is incorporated herein by reference).
Exhibit 99, Certification of Chief Executive Officer and Chief
Financial Officer
b) Reports on Form 8-K filed during the quarter ended June 30, 2002:
None.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
WINTHROP GROWTH INVESTORS 1 LIMITED PARTNERSHIP
By: Two Winthrop Properties, Inc.
Managing General Partner
By: /s/Patrick J. Foye
Patrick J. Foye
Vice President - Residential
By: /s/Thomas C. Novosel
Thomas C. Novosel
Vice President and
Chief Accounting Officer - Residential
Date: August 14, 2002
Exhibit 99
Certification of CEO and CFO
Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report on Form 10-QSB of Winthrop Growth
Investors I Limited Partnership (the "Partnership"), for the quarterly period
ended June 30, 2002 as filed with the Securities and Exchange Commission on the
date hereof (the "Report"), Patrick J. Foye, as the equivalent of the Chief
Executive Officer of the Partnership, and Paul J. McAuliffe, as the equivalent
of the Chief Financial Officer of the Partnership, each hereby certifies,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Partnership.
/s/Patrick J. Foye
Name: Patrick J. Foye
Date: August 14, 2002
/s/Paul J. McAuliffe
Name: Paul J. McAuliffe
Date: August 14, 2002
This certification accompanies the Report pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the
Sarbanes-Oxley Act of 2002, be deemed filed by the Partnership for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended.