FORM 10-QSB.--QUARTERLY OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
QUARTERLY OR TRANSITIONAL REPORT
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1999
or
[ ] TRANSITION REPORT PURSUANT TO 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 (IRS Employer
incorporation or organization) Identification No.)
55 Beattie Place, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a)
WINTHROP GROWTH INVESTORS 1 LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEET
(in thousands, except unit data)
(Unaudited)
March 31, 1999
Assets
Cash and cash equivalents $ 1,495
Receivables and deposits 883
Restricted escrows 675
Other assets 1,238
Investment properties:
Land $ 4,015
Buildings and related personal property 41,020
45,035
Less accumulated depreciation (23,852) 21,183
$ 25,474
Liabilities and Partners' (Deficit) Capital
Liabilities
Accounts payable $ 136
Tenant security deposit liabilities 144
Accrued property taxes 426
Other liabilities 309
Mortgage notes payable 21,014
Partners' (Deficit) Capital
General Partners' $ (1,265)
Limited Partners' (23,139 units
issued and outstanding) 4,710 3,445
$ 25,474
See Accompanying Notes to Consolidated Statements
b)
WINTHROP GROWTH INVESTORS 1 LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except unit data)
(Unaudited)
Three Months Ended
March 31,
1999 1998
Revenues:
Rental income $1,812 $1,712
Other income 73 64
Total revenues 1,885 1,776
Expenses:
Operating 742 731
General and administrative 32 42
Depreciation 464 444
Interest 457 466
Property taxes 90 137
Total expenses 1,785 1,820
Net income (loss) $ 100 $ (44)
Net income (loss) allocated to general partners (10%) $ 10 $ (4)
Net income (loss) allocated to limited partners (90%) 90 (40)
$ 100 $ (44)
Net income (loss) per limited partnership unit $ 3.89 $(1.73)
See Accompanying Notes to Consolidated Statements
c)
WINTHROP GROWTH INVESTORS 1 LIMITED PARTNERSHIP
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(in thousands, except unit data)
(Unaudited)
Limited
Partnership General Limited
Units Partners' Partners' Total
Original capital contributions 23,149 $ 2,000 $23,149 $25,149
Partners' (deficit) capital at
December 31, 1998 23,139 $(1,275) $ 4,620 $ 3,345
Net income for the three months
ended March 31, 1999 -- 10 90 100
Partners' (deficit) capital at
March 31, 1999 23,139 $(1,265) $ 4,710 $ 3,445
See Accompanying Notes to Consolidated Statements
d)
WINTHROP GROWTH INVESTORS 1 LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Three Months Ended
March 31,
1999 1998
Cash flows from operating activities:
Net income (loss) $ 100 $ (44)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation 464 444
Amortization of loan costs and deferred costs 28 33
Casualty gain (82) --
Change in accounts:
Receivables and deposits (173) (65)
Other assets 10 34
Accounts payable (61) (26)
Tenant security deposit liabilities (1) 6
Accrued property taxes 133 12
Other liabilities 17 7
Net cash provided by operating activities 435 401
Cash flows from investing activities:
Property improvements and replacements (267) (68)
Net insurance proceeds from casualties 96 --
Net withdrawals from (deposits to)
restricted escrows 34 (72)
Net cash used in investing activities (137) (140)
Cash flows from financing activities:
Payments on mortgage notes payable (66) (61)
Distributions paid to limited partners (600) --
Net cash used in financing activities (666) (61)
Net (decrease) increase in cash and cash equivalents (368) 200
Cash and cash equivalents at beginning of period 1,863 1,508
Cash and cash equivalents at end of period $1,495 $1,708
Supplemental disclosure of cash flow information:
Cash paid for interest $ 440 $ 445
See Accompanying Notes to Consolidated Statements
e)
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") 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. In the opinion of Two Winthrop Properties, Inc. (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 month period ended March 31, 1999, are not
necessarily indicative of the results that may be expected for the fiscal year
ending December 31, 1999. 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, 1998.
Principles of Consolidation: The consolidated statements of the Partnership
include its 99%, 99.9% and 99.98% general partnership interests in DEK
Associates, Meadow Wood Associates and Stratford Place Investors Limited
Partnership, respectively. Additionally, the Partnership is the 100% beneficiary
of the Stratford Village Realty Trust. All significant interpartnership
balances have been eliminated. In addition, due to the cumulative minority
interest loss exceeding minority interest capital, the Partnership recorded 100%
of the losses of the properties in 1998.
Certain reclassifications have been made to the 1998 information to conform to
the 1999 presentation.
NOTE B - TRANSFER OF CONTROL
On February 6, 1997, LON-WGI Associates, L.L.C. ("LON-WGI"), an affiliate of
the Managing General Partner, commenced a tender offer to purchase up to 11,000
units of limited partnership interest in the Partnership, at $275 per unit.
Upon the completion of the offer, LON-WGI acquired 4,792.34 units (the "LON-WGI
units") or approximately 20.7% of the total limited partnership units of the
Partnership including five units previously held by WFC Realty. In April 1998,
LON-WGI sold its limited partnership units to an affiliate of Insignia Financial
Group, Inc. ("Insignia").
On October 28, 1997, Insignia acquired 100% of the Class B stock of First
Winthrop Corporation. Pursuant to this transaction, the by-laws of the Managing
General Partner were amended to provide for the creation of a Residential
Committee.
Pursuant to the amended and restated by-laws, Insignia had the right to elect
one director to the Managing General Partner's Board of Directors and to cause
the Managing General Partner to take such actions as it deemed necessary and
advisable in connection with the activities of the Partnership.
Pursuant to a series of transactions which closed on October 1, 1998 and
February 26, 1999, Insignia and Insignia Properties Trust merged into AIMCO, a
publicly traded real estate investment trust, with AIMCO being the surviving
corporation. As a result, AIMCO acquired all of the rights of Insignia in and
to the LON-WGI units and the rights granted to Insignia pursuant to the First
Winthrop Corporation transaction. The Managing General Partner does not believe
that this transaction will have a material effect on the affairs and operations
of the Partnership.
NOTE C - 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. The following payments were made to the
Managing General Partner and affiliates during the three months ended March 31:
1999 1998
(in thousands)
Property management fees (included in $ 93 $ 73
operating expenses)
Reimbursement for services of affiliates
(included in operating and general and
administrative expenses) 14 19
During the three months ended March 31, 1999 and 1998, affiliates of the
Managing General Partner were entitled to 5% of gross receipts from the
Partnership's investment properties as compensation for providing property
management services. The Partnership paid to such affiliates approximately
$93,000 and $73,000 during the three months ended March 31, 1999 and 1998,
respectively.
An affiliate of the Managing General Partner received reimbursements of
accountable administrative expenses amounting to approximately $14,000 and
$19,000 for the three months ended March 31, 1999 and 1998, respectively.
NOTE D - SUPPLEMENTARY INFORMATION REQUIRED PURSUANT TO SECTION 9.4
OF THE PARTNERSHIP AGREEMENT
Statement of Cash Available for Distribution for the three months ended March
31, 1999 (in thousands):
Net Income $ 100
Add: Amortization expense 28
Depreciation expense 464
Less: Cash to reserves (592)
Cash Available for
Distribution $ --
Distributions allocated to
Limited Partners $ --
General Partners' interest in
Cash Available for Distribution $ --
NOTE E - SEGMENT INFORMATION
Description of the types of products and services from which the reportable
segment derives its revenues:
The Partnership has one reportable segment: residential properties. The
Partnership's residential property segment consists of four apartment complexes
in four states in the United States: Alabama, Florida, Maryland and Texas. The
Partnership rents apartment units to tenants for terms that are typically twelve
months or less.
Measurement of segment profit or loss: The Partnership evaluates performance
based on net income. The accounting policies of the reportable segment are the
same as those described in the Partnership's annual report on Form 10-KSB for
the year ended December 31, 1998.
Factors management used to identify the Partnership's reportable segment: The
Partnership's reportable segment consists of investment properties that offer
similar products and services. Although each of the investment properties is
managed separately, they have been aggregated into one segment as they provide
services with similar types of products and customers.
Segment information for the three months ended March 31, 1999 and 1998 is shown
in the tables below (in thousands). The "Other" column includes partnership
administration related items and income and expense not allocated to the
reportable segment.
1999
Residential Other Totals
Rental income $ 1,812 $ -- $ 1,812
Other income 65 8 73
Interest expense 457 -- 457
Depreciation 464 -- 464
General and administrative expense -- 32 32
Segment income (loss) 134 (34) 100
Total assets 24,593 881 25,474
Capital expenditures for investment
properties 267 -- 267
1998
Residential Other Totals
Rental income $ 1,712 $ -- $ 1,712
Other income 64 -- 64
Interest expense 466 -- 466
Depreciation 444 -- 444
General and administrative expense -- 42 42
Segment income (loss) 9 (53) (44)
Total assets 25,370 811 26,181
Capital expenditures for investment
properties 68 -- 68
NOTE F - CASUALTY GAIN
In January 1999, Sunflower Apartments had a fire that damaged six apartment
units. Total insurance proceeds received less the write-off of assets replaced
resulted in a net casualty gain of approximately $42,000. Additionally, the
Partnership received approximately $40,000 of insurance proceeds related to a
casualty claim made in 1996 on behalf of the Sunflower Apartments property.
NOTE G - SUBSEQUENT EVENT - TENDER OFFER
On April 27, 1999, AIMCO Properties, L.P., an affiliate of AIMCO, commenced a
tender offer to purchase up to 10,425 (45%) units of limited partnership
interest in the Partnership for a purchase price of $284.00 per unit. The offer
is scheduled to expire on May 24, 1999, unless extended.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
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 operation. 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 four apartment complexes. The
following table sets forth the average occupancy of the properties for the three
months ended March 31, 1999 and 1998:
Average Occupancy
1999 1998
Meadow Wood Apartments 85% 84%
Jacksonville, Florida
Stratford Place Apartments 98% 95%
Gaithersburg, Maryland
Stratford Village Apartments 95% 90%
Montgomery, Alabama
Sunflower Apartments 95% 98%
Dallas, Texas
Average occupancy at Stratford Place Apartments increased during the first
quarter of 1999 as compared to the first quarter of 1998 due to an aggressive
marketing program initiated in the last quarter of 1998. The average occupancy
rate at Stratford Village Apartments increased during the first quarter of 1999
due to the re-lease of corporate units and more tenants renewing their leases as
compared to the first quarter of 1998. The occupancy rate at Sunflower
Apartments decreased due to a fire that occurred in January 1999, which
temporarily rendered several units uninhabitable.
Results of Operations
The Partnership had net income of approximately $100,000 for the three months
ended March 31, 1999 as compared to a net loss of approximately $44,000 for the
corresponding period of 1998. The increase in net income is primarily
attributable to an increase in revenues and a decrease in expenses. Revenues
increased primarily due to an increase in rental income attributable to an
increase in the average rental rates at three of the Partnership's four
investment properties and, as described above, increases in the average
occupancy rates at all of the Partnership's investment properties with the
exception of Sunflower Apartments, which had a decrease in occupancy for the
three months ended March 31, 1999.
The decrease in overall expense is primarily attributable to a decrease in
property tax expense combined with smaller decreases in general and
administrative and interest expenses. These decreases were partially offset by
an increase in depreciation combined with a slight increase in operating
expenses. Property tax expense decreased primarily as a result of lower
assessed values at several of the Partnership's investment properties and a
refund received for the Stratford Place Apartments property. Depreciation
expense increased for the three months ended March 31, 1999 due to approximately
$1,600,000 of capital improvements and replacements over the last twelve months.
Included in general and administrative expenses are reimbursements to the
Managing General Partner allowed under the Partnership Agreement associated with
its management of the Partnership. 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 each of its investment
properties to assess the feasibility of increasing rents, maintaining or
increasing occupancy levels and protecting the Partnership from increases in
expenses. 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 March 31, 1999, the Partnership had cash and cash equivalents of
approximately $1,495,000 as compared to approximately $1,708,000 at March 31,
1998. The decrease in cash and cash equivalents of approximately $368,000 from
the Partnership's year ended December 31, 1998 is due to approximately $137,000
and $666,000 of cash used in investing and financing activities, respectively,
partially offset by cash provided by operating activities of approximately
$435,000. Cash used in investing activities consisted of property improvements
and replacements partially offset by net insurance proceeds and net withdrawals
from restricted escrows. Cash used in financing activities consisted of payments
of principal made on the mortgages encumbering the Partnership's properties and
distributions paid to the limited partners. The Partnership invests its working
capital reserves in money market 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.
Sunflower Apartments
During the three months ended March 31, 1999, the Partnership expended
approximately $10,000 for capital improvements at Sunflower Apartments
consisting primarily of floor covering replacement. These improvements were
funded from operating cash flow. Based on a report received from an independent
third party consultant analyzing necessary exterior improvements and estimates
made by the Managing General Partner on interior improvements, it is estimated
that the property requires approximately $277,000 of capital improvements over
the near term. Capital improvements budgeted for 1999 consist of, but are not
limited to, appliances, carpeting, building improvements, condensing units, and
sewer replacements. These improvements are expected to cost approximately
$307,000.
Meadow Wood Apartments
During the three months ended March 31, 1999, the Partnership expended
approximately $71,000 for capital improvements at Meadow Wood Apartments
consisting primarily of floor covering, roof replacement, and interior building
improvements. These improvements were funded from operating cash flow. Based
on a report received from an independent third party consultant analyzing
necessary exterior improvements and estimates made by the Managing General
Partner on interior improvements, it is estimated that the property requires
approximately $933,000 of capital improvements over the near term. Capital
improvements budgeted for 1999 consist of, but are not limited to, air
conditioning repairs, cabinet replacement, carpet replacement, fencing and
landscaping upgrades, parking lot repairs, appliances and roof repairs. These
improvements are expected to cost approximately $900,000.
Stratford Place Apartments
During the three months ended March 31, 1999, the Partnership expended
approximately $128,000 for capital improvements at Stratford Place Apartments
consisting primarily of plumbing and structural upgrades. These capital
improvements were funded from operating cash flow. Based on a report received
from an independent third party consultant analyzing necessary exterior
improvements and estimates made by the Managing General Partner on interior
improvements, it is estimated that the property requires approximately
$1,067,000 of capital improvements over the near term. Capital improvements
budgeted for 1999 consist of, but are not limited to, air conditioning repairs,
carpet replacement, parking lot repairs, and plumbing and building improvements.
These improvements are expected to cost approximately $665,000.
Stratford Village
During the three months ended March 31, 1999, the Partnership expended
approximately $58,000 for capital improvements at Stratford Village consisting
primarily of building improvements and floor covering. These improvements were
funded from the Partnership's replacement reserve for this property. Based on a
report received from an independent third party consultant analyzing necessary
exterior improvements and estimates made by the Managing General Partner on
interior improvements, it is estimated that the property requires approximately
$123,000 of capital improvements over the near term. Capital improvements
budgeted for 1999 consist of, but are not limited to, carpet replacement,
building improvements and parking lot repairs. These improvements are expected
to cost approximately $154,000.
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 $21,014,000 is amortized over varying periods with
balloon payments of approximately $4,071,000 in 2000 and $8,000,000 in 2006.
The Managing General Partner will attempt to refinance such indebtedness and/or
sell the properties prior to such maturity dates. If the properties cannot be
refinanced or sold for a sufficient amount, the Partnership will risk losing
such properties through foreclosure.
There were no cash distributions declared during either of the three-month
periods ended March 31, 1999 and 1998. In January 1999, the Partnership paid a
distribution to the limited partners of approximately $600,000 ($25.93 per
limited partnership unit), which had been declared at the end of 1998. The
Partnership's distribution policy is reviewed on a quarterly 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 in 1999 or
subsequent periods.
Tender Offer
On April 27, 1999, AIMCO Properties, L.P., an affiliate of AIMCO, commenced a
tender offer to purchase up to 10,425 (45%) units of limited partnership
interest in the Partnership for a purchase price of $284.00 per unit. The offer
is scheduled to expire on May 24, 1999, unless extended.
Year 2000 Compliance
General Description of the Year 2000 Issue and the Nature and Effects of the
Year 2000 on Information Technology (IT) and Non-IT Systems
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four digits to define the applicable year. The Partnership
is dependent upon the Managing General Partner and its affiliates for management
and administrative services ("Managing Agent"). Any of the computer programs or
hardware that have date-sensitive software or embedded chips may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
Over the past two years, the Managing Agent has determined that it will be
required to modify or replace significant portions of its software and certain
hardware so that those systems will properly utilize dates beyond December 31,
1999. The Managing Agent presently believes that with modifications or
replacements of existing software and certain hardware, the Year 2000 Issue can
be mitigated. However, if such modifications and replacements are not made or
not completed in time, the Year 2000 issue could have a material impact on the
operations of the Partnership.
The Managing Agent's plan to resolve Year 2000 Issues involves four phases:
assessment, remediation, testing, and implementation. To date, the Managing
Agent has fully completed its assessment of all the information systems that
could be significantly affected by the Year 2000, and has begun the remediation,
testing and implementation phases on both hardware and software systems.
Assessments are continuing in regards to embedded systems. The status of each
is detailed below.
Status of Progress in Becoming Year 2000 Compliant, Including Timetable for
Completion of Each Remaining Phase
Computer Hardware:
During 1997 and 1998, the Managing Agent identified all of the computer systems
at risk and formulated a plan to repair or replace each of the affected systems.
In August 1998, the mainframe system used by the Managing Agent became fully
functional. In addition to the mainframe, PC-based network servers, routers and
desktop PCs were analyzed for compliance. The Managing Agent has begun to
replace each of the non-compliant network connections and desktop PCs and, as of
March 31, 1999, had completed approximately 75% of this effort.
The total cost to the Managing Agent to replace the PC-based network servers,
routers and desktop PCs is expected to be approximately $1.5 million of which
$1.3 million has been incurred to date. The remaining network connections and
desktop PCs are expected to be upgraded to Year 2000 compliant systems by July
31, 1999.
Computer Software:
The Managing Agent utilizes a combination of off-the-shelf, commercially
available software programs as well as custom-written programs that are designed
to fit specific needs. Both of these types of programs were studied, and
implementation plans written and executed with the intent of repairing or
replacing any non-compliant software programs.
During 1998, the Managing Agent began converting the existing property
management and rent collection systems to its management properties Year 2000
compliant systems. The estimated additional costs to convert such systems at
all properties, is $200,000, and the implementation and the testing process is
expected to be completed by July 31, 1999.
The final software area is the office software and server operating systems.
The Managing Agent has upgraded all non-compliant office software systems on
each PC and has upgraded 80% of the server operating systems. The remaining
server operating systems are planned to be upgraded to be Year 2000 compliant by
July 31, 1999.
Operating Equipment:
The Managing Agent has operating equipment, primarily at the property sites,
which needed to be evaluated for Year 2000 compliance. In September 1997, the
Managing Agent began taking a census and inventory of embedded systems
(including those devices that use time to control systems and machines at
specific properties, for example elevators, heating, ventilating, and air
conditioning systems, security and alarm systems, etc.).
The Managing Agent has chosen to focus its attention mainly upon security
systems, elevators, heating, ventilating and air conditioning systems, telephone
systems and switches, and sprinkler systems. While this area is the most
difficult to fully research adequately, management has not yet found any major
non-compliance issues that put the Managing Agent at risk financially or
operationally. The Managing Agent intends to have a third-party conduct an
audit of these systems and report their findings by July 31, 1999.
Any of the above operating equipment that has been found to be non-compliant to
date has been replaced or repaired. To date, these have consisted only of
security systems and phone systems. As of March 31, 1999 the Managing Agent has
evaluated approximately 86% of the operating equipment for the Year 2000
compliance.
The total cost incurred for all properties managed by the Managing Agent as of
March 31, 1999 to replace or repair the operating equipment was approximately
$400,000. The Managing Agent estimates the cost to replace or repair any
remaining operating equipment is approximately $325,000, which is expected to be
completed by August 30, 1999.
The Managing Agent continues to have "awareness campaigns" throughout the
organization designed to raise awareness and report any possible compliance
issues regarding operating equipment within its enterprise.
Nature and Level of Importance of Third Parties and Their Exposure to the Year
2000
The Managing Agent continues to conduct surveys of its banking and other vendor
relationships to assess risks regarding their Year 2000 readiness. The Managing
Agent has banking relationships with three major financial institutions, all of
which have indicated their compliance efforts will be complete before May 1999.
The Managing Agent has updated data transmission standards with two of the three
financial institutions. The Managing Agent's contingency plan in this regard is
to move accounts from any institution that cannot be certified Year 2000
compliant by June 1, 1999.
The Partnership does not rely heavily on any single vendor for goods and
services, and does not have significant suppliers and subcontractors who share
information systems (external agent). To date the Partnership is not aware of
any external agent with a Year 2000 compliance issue that would materially
impact the Partnership's results of operations, liquidity, or capital resources.
However, the Partnership has no means of ensuring that external agents will be
Year 2000 compliant.
The Managing Agent does not believe that the inability of external agents to
complete their Year 2000 remediation process in a timely manner will have a
material impact on the financial position or results of operations of the
Partnership. However, the effect of non-compliance by external agents is not
readily determinable.
Costs to Address Year 2000
The total cost of the Year 2000 project to the Managing Agent is estimated at
$3.5 million and is being funded from operating cash flows. To date, the
Managing Agent has incurred approximately $2.8 million ($0.6 million expensed
and $2.2 million capitalized for new systems and equipment) related to all
phases of the Year 2000 project. Of the total remaining project costs,
approximately $0.5 million is attributable to the purchase of new software and
operating equipment, which will be capitalized. The remaining $0.2 million
relates to repair of hardware and software and will be expensed as incurred.
The Partnership's portion of these costs are not material.
Risks Associated with the Year 2000
The Managing Agent believes it has an effective program in place to resolve the
Year 2000 Issue in a timely manner. As noted above, the Managing Agent has not
yet completed all necessary phases of the Year 2000 program. In the event that
the Managing Agent does not complete any additional phases, certain worst case
scenarios could occur. The worst case scenarios could include elevators,
security and heating, ventilating and air conditioning systems that read
incorrect dates and operate with incorrect schedules (e.g., elevators will
operate on Monday as if it were Sunday). Although such a change would be
annoying to residents, it is not business critical.
In addition, disruptions in the economy generally resulting from Year 2000
Issues could also adversely affect the Partnership. The Partnership could be
subject to litigation for, among other things, computer system failures,
equipment shutdowns or failure to properly date business records. The amount of
potential liability and lost revenue cannot be reasonably estimated at this
time.
Contingency Plans Associated with the Year 2000
The Managing Agent has contingency plans for certain critical applications and
is working on such plans for others. These contingency plans involve, among
other actions, manual workarounds and selecting new relationships for such
activities as banking relationships and elevator operating systems.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 27, Financial Data Schedule, is filed as an exhibit to this report.
(b) Reports on Form 8-K:
None filed during the quarter ended March 31, 1999.
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
Executive Vice President
By: /s/ Timothy R. Garrick
Timothy R. Garrick
Vice President - Residential Accounting
Date: May 4, 1999