LAUREL CREEK APARTMENTS
(A California Limited Partnership)
AUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2004
LAUREL CREEK APARTMENTS
AUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2004
TABLE OF CONTENTS
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Page
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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
WALLACE ROWE & Associates Accounting Firm
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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 sheet of Laurel Creek Apartments (A
California Limited Partnership) as of December 31, 2004 and December 31, 2003
and the related statements of income, expenses, 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 generally accepted auditing standards.
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, 2004 and December 31, 2003, and the results of its operations for
the years then ended in conformity with generally accepted accounting
principles.
/s/Wallace Rowe & Associates
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February 8, 2005
LAUREL CREEK APARTMENTS
BALANCE SHEET
DECEMBER 31, 2004 AND 2003
2004 2003
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ASSETS
CURRENT ASSETS
Cash (Note 2) $ 66,297 $ 59,914
Accounts receivable 1,249 215
Prepaid expenses 3,335 2,652
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TOTAL CURRENT ASSETS 70,881 62,781
Restricted reserves (Note 3) 55,350 52,611
Land, structures and equipment, net of
accumulated depreciation of $737,972
and $699,947 (Note 4) 1,427,382 1,495,371
Organizational costs, net of accumulated
amortization of $18,997 and
$17,329 (Note 5) 7,921 9,589
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TOTAL ASSETS $ 1,561,534 $ 1,620,352
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LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES
Accounts payable - other $ 10,468 $ 8,564
Accounts payable - related party (Note 7) 3,462 2,007
Security deposits payable 8,892 8,592
Current portion of long-term debt (Note 6) 38,536 31,336
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TOTAL CURRENT LIABILITIES 61,358 50,499
Long-term debt (Note 6) 502,631 544,925
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TOTAL LIABILITIES 563,989 595,424
Partners' capital 997,545 1,024,928
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TOTAL LIABILITIES AND
PARTNERS' CAPITAL $ 1,561,534 $ 1,620,352
================== ===================
See accompanying notes.
2
LAUREL CREEK APARTMENTS
STATEMENT OF INCOME, EXPENSES AND
CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
2004 2003
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OPERATING INCOME
Rental income $ 220,203 $ 205,982
Tenant charges 3,111 1,043
Other 1,900 2,034
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TOTAL OPERATING INCOME 225,214 209,059
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OPERATING EXPENSES
Administration 22,732 20,953
Insurance and taxes 8,233 5,660
Maintenance 40,838 28,676
Utilities 20,289 22,674
Depreciation and amortization 69,657 69,704
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TOTAL EXPENSES 161,749 147,667
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NET INCOME (LOSS) FROM OPERATIONS 63,465 61,392
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OTHER INCOME AND EXPENSES
Interest income 1,635 1,614
Interest expense (41,100) (43,596)
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NET OTHER INCOME UNDER EXPENSES (39,465) (41,982)
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24,000 19,410
NET INCOME (LOSS)
BEGINNING PARTNERS' CAPITAL 1,024,928 1,048,211
Partner withdrawals (51,383) (42,693)
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ENDING PARTNERS' CAPITAL $ 997,545 $ 1,024,928
================== ===================
See accompanying notes.
3
LAUREL CREEK APARTMENTS
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2004 AND 2003
2004 2003
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CASH FLOWS FROM OPERATING ACTIVITIES:
Rents received $ 219,169 $ 206,590
Other operating revenues 5,011 3,077
Cash payments for goods and services (89,416) (74,188)
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Net cash provided (used) by operating activities 134,764 135,479
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CASH FLOWS FROM NONCAPITAL
FINANCING ACTIVITIES:
Increases in security deposits 300 154
Withdrawal from replacement reserves 2,061 -
Additions (uses) of replacement reserves (4,800) (4,800)
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Net cash provided (used) by noncapital
financing activities (2,439) (4,646)
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CASH FLOWS FROM CAPITAL AND
RELATED FINANCING ACTIVITIES:
Capital withdrawals (51,383) (42,693)
Payment of debt (35,094) (32,931)
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Net cash provided (used) by capital and
related financing activities (86,477) (75,624)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Interest income 1,635 1,224
Interest paid on notes (41,100) (43,596)
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Net cash provided (used) by investing activities (39,465) (42,372)
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NET INCREASE (DECREASE) IN CASH 6,383 (12,837)
CASH - BEGINNING OF YEAR 59,914 47,077
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CASH - END OF YEAR $ 66,297 $ 59,914
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RECONCILIATION OF OPERATING LOS TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
Net income from operations $ 63,465 $ 61,392
Adjustments to reconcile net loss to
Net cash provided by operating activities:
Depreciation and amortization 69,657 69,704
Decrease (increase)in accounts receivable (1,034) 680
Increase in prepaid expenses (683) (892)
Increase in accounts payable - other 1,904 5,411
Increase(decrease)in accounts payable - related parties 1,455 (744)
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NET CASH PROVIDED BY
OPERATING ACTIVITIES $ 134,764 $ 135,479
=================== ====================
See accompanying notes.
4
LAUREL CREEK APARTMENTS
NOTES TO THE FINANCIAL
STATEMENTS DECEMBER 31, 2004
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, 2004
(Continued)
Note 2- CASH
Cash consists of $64,453 deposited into savings or checking accounts, and
$844 is on deposit with the State of California Local Agency Investment
Fund. At December 31, 2004 the amount deposited into the savings accounts
and the Local Agency Investment Fund earned interest at rates from 2.02%
to 2.19% respectively.
Note 3- RESTRICTED CASH
Restricted cash consists of $55,350 maintained in a money market account
earning 2.02%. This cash is reserved for the replacement of fixed assets
and the repayment of tenants' security deposits.
Note 4- LAND, STRUCTURES AND EQUIPMENT
Property and equipment and accumulated depreciation consist of the
following:
Accumulated
Cost Depreciation
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Land $ 275,000 $ -
Building 1,868,634 716,252
Equipment 21,720 21,720
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$ 2,165,354 $ 737,972
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Note 5- ORGANIZATION COSTS
Organization costs and accumulated amortization consist of the following:
Accumulated
Cost Amortization
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Organization costs $ 26,918 $ 18,997
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LAUREL CREEK APARTMENTS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004
(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
2005 $ 76,620
2006 76,620
2007 76,620
2008 76,620
2009 379,405
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Total 685,885
Less amounts representing
interest 144,718
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$ 541,167
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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, 2004 the partnership owed the Authority $3,462. During the
year ended December 31, 2004, the partnership paid the Authority $31,386 in
maintenance expenses and management fees.
7
LAUREL CREEK APARTMENTS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004
(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 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.
8
LAUREL CREEK APARTMENTS
Calculation of Cash Distribution
Net Profit @ 12-31-04 23,999.65
Add back depreciation expense 67,989.00
Add back amortization expense 1,668.00
Deposits to replacement reserve account (4,800.00)
Debt service (mortgage loan) (35,094.16)
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Adjusted cash available from operations through 12-31-04 $ 53,762.49
Net cash available for disbursement $ 53,762.49
General Partner distribution=75%=$40,321.87
Limited Partner distribution=25%=$13,440.62
9
LAUREL CREEK APARTMENTS
Replacement Reserve Summary
Beginning Balance as of: 1/1/2004 44,019.14
Deposits to account for year $400 per mo 4,800.00
Withdrawals during year (20,061.46) carpet in 2 units
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Ending Balance as of: 12/31/04 46,7557.68
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Note: Replacement Reserve is fully funded as of FYE 12-31-04
10