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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-18491
CAPITAL MORTGAGE PLUS L.P.
(Exact name of registrant as specified in its charter)
Delaware 13-3502020
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
625 Madison Avenue, New York, New York 10022
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 421-5333
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Beneficial Assignment Certificates
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the reg-
istrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information state-
ments incorporated by reference in Part III of this Form 10-K or any amend-
ment to this Form 10-K. [X]
DOCUMENTS INCORPORATED BY REFERENCE
Registrant's prospectus dated May 10, 1989, as supplemented July 7, 1989,
January 8, 1990, February 9, 1990, May 18, 1990, and October 24, 1990, as
filed with the Commission pursuant to Rules 424(b) and 424(c) of the Securi-
ties Act of 1933, but only to the extent expressly incorporated by reference
in Parts I, II, III and IV.
Index to exhibits may be found on page 26
Page 1 of 82
PART I
Item 1. Business.
General
Capital Mortgage Plus L.P. (the "Registrant") is a limited partnership formed
under the laws of the State of Delaware on November 23, 1988. The sole gen-
eral partner of the Registrant is CIP Associates, Inc., a Delaware corpora-
tion (the "General Partner"). The General Partner manages and controls the
affairs of the Registrant. See Item 10, Directors and Executive Officers of
the Registrant, below.
Investment Objectives
The Registrant's principal investment objectives are to: (i) preserve and
protect the Registrant's capital; (ii) provide quarterly cash distributions
of adjusted cash from operations; and (iii) provide additional distributions
from additional interest arising from participations in the annual cash flow
of the developments and/or the sale or refinancing of a development. There
can be no assurance that all of the objectives can be achieved.
The Registrant originated federally insured and co-insured first mortgage
construction and permanent loans ("Mortgages") to finance multi-family resi-
dential rental properties ("Developments" and each a "Development") developed
by unaffiliated entities. All base interest and initially at least 90% in
the aggregate of the principal of the Mortgages in which the Registrant in-
vests are insured or coinsured by the Department of Housing and Urban Devel-
opment ("HUD") and Related Mortgage Corporation ("RMC"), an affiliate of the
General Partner. The remaining 10% of the Registrant's portfolio is com-
prised of uninsured non-interest bearing equity loans made directly to the
same developers as the Mortgages for, among other purposes, defrayal of cer-
tain specific cash requirements of the properties. The Registrant made five
mortgage loans in the aggregate amount of $26,158,190 and five non-interest
bearing equity loans in the aggregate amount of $3,062,135 in connection with
five multi-family projects. The mortgage and equity loan relating to the
Willow Trace Apartments ("Willow Trace"), was repaid in full on December 16,
1998.
The Registrant is engaged solely in the business of investing in Mortgages
and equity loans; therefore, presentation of industry segment information is
not applicable.
For detailed financial information pertaining to the Registrant see Item 8,
Financial Statements and Supplementary Data, below.
Investments
The following table lists the mortgage loans and equity loans as of February
29, 2000; it excludes the investment in Willow Trace which was repaid on De-
cember 16, 1998:
Original Interest
Date of Mortgage Rate on Equity Final
Invest- Loan Mortgage Loan Endorse-Term Occu-
Project Location ment Amount(2) Loan(1) Amount ment (7) pancy
Mortenson Manor Ames, 8/31/ 8.43%- 40
Apartments (3) Iowa 1990 $ 4,974,090 9.4% $ 577,885 2/92 years 100%
Windemere Wichita, 9/28/ 9.62%- 40
Apartments (4) Kansas 1990 8,110,300 10.7% 736,550 7/92 years 83%
Fieldcrest III Dothan, 8/27/ 8.75%- 40
Apartments (5) Alabama 1991 3,343,700 10.11% 383,300 11/92years 92%
Holly Ridge II Gresham, 3/16/ 9.25%- 40
Apartments (6) Oregon 1993 5,310,100 9.89% 684,400 6/95 years 91%
$21,738,190 $2,382,135
(1) The minimum interest rate shown above includes interest payable under
the first mortgage note plus additional interest payable pursuant to the
terms of a Limited Operating Guaranty agreement for Fieldcrest III Apartments
("Fieldcrest") and Holly Ridge II Apartments ("Holly Ridge") and the Addi-
tional Interest Guaranty agreements for Mortenson Manor Apartments ("Morten-
son") and Windemere Apartments ("Windemere").
(2) The Mortenson and Windemere mortgage loans are co-insured by HUD and
RMC. The Fieldcrest and Holly Ridge mortgage loans are fully insured by HUD.
As of February 29, 2000, all loan amounts have been disbursed.
(3) Default Interest payments in the aggregate amount of approximately
$648,000 for the years ended December 31, 1993 through 1999 have not been re-
ceived and, as a result, the Registrant established an allowance for uncol-
lectability which equals approximately $608,000 and $553,000 at December 31,
1999 and 1998, respectively.
(4) A Default Interest payment of $127,260 for the period January 1999 to
December 1999 is expected to be received during the second quarter of 2000.
The Default Interest payment of approximately $130,000 for the year ended De-
cember 31, 1996 has not been received and as a result, the Registrant estab-
lished an allowance for uncollectability which equals approximately $130,000
at December 31, 1999.
(5) A Contingent Interest payment of $47,201 for the period January 1999 to
December 1999 is expected to be received during the second quarter of 2000.
(6) A Default and Contingent Interest payment of $52,095 and $35,224, re-
spectively, for the period July 1999 to December 1999 is expected to be re-
ceived during the second quarter of 2000.
(7) All loans have call provisions effective ten years following final en-
dorsement and a grace period. The Registrant, in order to enforce such pro-
visions, would be required to terminate the mortgage insurance contract with
FHA (and/or the coinsurer) not later than the accelerated payment date.
Since the exercise of such option would be at the Registrant's discretion, it
is intended to be exercised only where the Registrant determines that the
value of the Development has increased by an amount which would justify ac-
celerating payment in full and assuming the risks of foreclosure if the mort-
gagor failed to make the accelerated payment. The Registrant presently ex-
pects to dispose of such loans within 10 to 15 years after acquisition.
The following is the interest income from mortgage loans as a percentage of
total revenues.
1999 1998 1997
Mortenson 19% 13% 16%
Windemere 37 24 31
Fieldcrest 16 13 13
Holly Ridge 25 17 21
Willow Trace 0 20 18
Repayment of Mortgage Loan
On December 16, 1998, Willow Partners, Ltd. (the "Owner"), the owner of Wil-
low Trace, prepaid the outstanding FHA Co-Insured Mortgage Loan (the "Mort-
gage Loan") and equity loan (the "Equity Loan") in full. The Mortgage Loan
and the Equity Loan were secured by a mortgage on the Willow Trace property
and partnership interests in the Owner. The outstanding debt repaid early to
the Partnership totaled $5,372,859, including the $4,275,984 outstanding bal-
ance of the Mortgage Loan, the $680,000 Equity Loan, a $213,799 prepayment
premium (which is included in other income on the Statements of Income), and
$203,076 of additional interest due pursuant to the loan documents.
On December 28, 1998, the Partnership used a portion of the repayment pro-
ceeds to pay then current payables, including $344,000 of accrued Partnership
management fees owed to the General Partner, and to replenish reserves. Of
the balance of the repayment proceeds, $4,499,817 ($2.45 per BAC, as that
term is defined below) was distributed to the BACs holders and $45,453 was
distributed to the General Partner.
Competition
The Registrant's business is affected by competition to the extent that the
underlying properties from which it is to derive interest and principal pay-
ments may be subject to competition from neighboring properties. In particu-
lar, the receipt of additional interest and the repayment of the equity
loans, neither of which is insured or guaranteed by government or quasi-
government agencies, is dependent upon the economic performance of the under-
lying properties which could be adversely affected by competitive conditions.
Employees
The Registrant does not directly employ anyone. All services are performed
for the Registrant by its General Partner and that entity's affiliates. The
General Partner receives compensation in connection with such activities as
set forth in Items 11 and 13. In addition, the Registrant reimburses the
General Partner and certain of its affiliates for expenses incurred in con-
nection with the performance by their employees of services for the Regis-
trant in accordance with the Partnership Agreement.
Item 2. Properties.
The Registrant does not own or lease any property.
Item 3. Legal Proceedings.
There are no material legal proceedings pending against or involving the Reg-
istrant.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders during the fiscal
year covered by this report through the solicitation of proxies or otherwise.
PART II
Item 5. Market for the Registrant's Common Equity and Related Security
Holder Matters.
As of December 31, 1999, the Registrant had issued and outstanding 1,836,660
limited partnership interests ("Limited Partnership Interests"). All of the
issued and outstanding Limited Partnership Interests are issued to Related FI
BUC$ Associates, Inc. (the "Assignor Limited Partner"), which has issued
Beneficial Assignment Certificates ("BACs"). Each BAC represents all of the
economic and virtually all of the material ownership rights attributable to a
Limited Partnership Interest held by the Assignor Limited Partner. BACs may
be converted into Limited Partnership Interests at no cost to the holder, but
Limited Partnership Interests are not convertible back into BACs. There is
currently no established public trading market for BACs and it is not antici-
pated that BACs will be listed for trading on any securities exchange or in-
cluded for quotation on the Nasdaq National Market.
All of the Registrant's general partnership interests, representing an aggre-
gate capital contribution of $1,000, are held by the General Partner.
There are no material legal restrictions upon the Registrant's present or fu-
ture ability to make distributions in accordance with the provisions of the
Registrant's Amended and Restated Agreement of Limited Partnership.
Distribution Information
Cash distributions per BAC made to the limited partners or BACs holders for
the following quarters in 1999, 1998 and 1997 were as follows:
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
1999 .2164 .2188 .2212 .2212
1998 .2466 .2493 .2521 2.7021
1997 .3452 .3490 .3529 .3529
Quarterly distributions are made 45 days following the close of the calendar
quarter.
A total of $10,761,726 was distributed to the limited partners or BACs hold-
ers during the years 1999, 1998 and 1997. The Registrant utilized the origi-
nal working capital reserve, in the aggregate amount of $477,532, for distri-
butions from 1989 through 1991, which is considered to be a return of capi-
tal. An additional working capital reserve of approximately $2,800,000 was
formed from uninvested offering proceeds, a portion of which was applied to
pay a part of the 1999, 1998 and 1997 distributions (which is considered to
be a return of capital). Approximately $4,686,000, $0 and $800,000 paid to
the limited partners or BACs holders in each of the years ended December 31,
1999, 1998 and 1997, respectively, represented a return of capital. A total
of $173,000 was distributed to the General Partner during 1999, 1998 and
1997.
The 1998 fourth quarter distribution was paid on February 14, 1999, and was
funded primarily by the Willow Trace repayment proceeds, $2.45 per BAC of
which is considered to be a return of capital. See Item 7, Management's Dis-
cussion and Analysis of Financial Condition and Results of Operations, for a
discussion of the effect of fee deferments and the expiration of the final
Guaranteed Rate Guaranty Period on the distributions.
Item 6. Selected Financial Data.
The information set forth below presents selected financial data of the Reg-
istrant. Additional financial information is set forth in the audited finan-
cial statements and footnotes thereto contained in Item 8 hereof.
Year ended December 31,
OPERATIONS 1999 1998 1997 1996 1995
Interest income
Mortgage
loans $ 1,987,628 $ 2,678,758 $ 2,471,273 $ 2,423,058 $ 2,448,891
Temporary
investments 61,369 32,135 14,658 39,064 64,534
Other income 6,517 393,785 2,252 2,202 1,952
Total
revenues 2,055,514 3,104,678 2,488,183 2,464,324 2,515,377
Operating
expenses 488,707 567,549 584,796 598,701 574,172
Provision
for bad
debts 54,549 144,977 96,079 157,138 0
Total
Expenses 543,256 712,526 680,875 755,839 574,172
Net
income $ 1,512,258 $ 2,392,152 $ 1,807,308 $ 1,708,485 $ 1,941,205
Net income
per BAC $ 0.81 $ 1.28 $ 0.96 $ 0.91 $ 1.04
December 31,
FINANCIAL
POSITION 1999 1998 1997 1996 1995
Total
assets $23,822,034 $28,561,927 $28,597,517 $29,292,812 $30,383,120
CASH
DISTRI-
BUTIONS
Distri-
butions
per BAC $ 0.88 $ 3.45 $ 1.40 $ 1.40 $ 1.40
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following discussion of financial condition includes forward-looking
statements, which reflect management's current views with respect to future
events and financial performance of the Partnership. These forward-looking
statements are subject to certain risks and uncertainties, which could cause
actual results to differ materially from historical results or those
anticipated. Readers are cautioned not to place reliance on these
forward-looking statements, which are based on facts and conditions as they
existed as of the date of this report. The Partnership undertakes no
obligation to publicly update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise.
Capital Resources and Liquidity
Sources of Registrant funds included interest earned on (1) investments in
mortgage loans (see also Item 1, Business) and (2) the working capital re-
serve.
During the year ended December 31, 1999, cash and cash equivalents of the
Registrant decreased by approximately $4,481,000 due to cash provided by op-
erating activities $1,632,000, collections of principal on mortgage loans of
approximately $134,000 and distributions paid to partners $6,248,000. In-
cluded in the adjustments to reconcile the net income to cash flow provided
by operating activities is amortization of approximately $218,000.
Subject to the future performance of the Registrant's investments and results
of operation, the General Partner anticipates that there will be sufficient
cash from operations generated to cover anticipated expenses in 2000 and to
fund future distributions.
A distribution of approximately $6,168,000 made to the limited partners or
BACs holders during the year ended December 31, 1999, was made from adjusted
cash flow from operations and the Willow Trace repayment proceeds, $2.45 per
BAC of which is considered to be a return of capital. A distribution of ap-
proximately $2,022,000 made to the limited partners or BACs holders during
the year ended December 31, 1998, was made from adjusted cash flow from op-
erations and, to a lesser extent, from working capital reserves, which is
considered to be a return of capital. Approximately $80,000 and $41,000 was
distributed to the General Partner for each of the years ended December 31,
1999 and 1998, respectively.
Management is not aware of any trends or events, commitments or uncertainties
that will impact liquidity in a material way. Management believes the only
impact would be from laws that have not yet been adopted. All base interest
and the principal of the Registrant's investments in mortgage loans are in-
sured or co-insured by HUD and a private mortgage lender (which is an affili-
ate of the General Partner). The Registrant's investments in uninsured non-
interest bearing equity loans (which represent approximately 10% of the Reg-
istrant's portfolio) are secured by a Registrant interest in properties which
are diversified by location so that if one area of the country is experienc-
ing downturns in the economy, the remaining properties may be experiencing
upswings. However, the geographic diversification of the portfolio may not
protect against a general downturn in the national economy.
Results of Operations
1999 vs. 1998
Results of operations for the years ended December 31, 1999 and 1998 con-
sisted primarily of interest income of $1,988,000 and $2,679,000, respec-
tively, earned from investments in mortgage loans.
Interest income from mortgage loans decreased approximately $691,000 for the
year ended December 31, 1999 as compared to 1998 primarily due to a decrease
in interest income received from the Willow Trace mortgage which was repaid
in December 1998.
Interest income from temporary investments increased approximately $29,000
for the year ended December 31, 1999 as compared to 1998 primarily due to
higher cash and cash equivalent balances from the cash received from the
repayment of the Willow Trace mortgage. The amount of cash received from the
repayment of the Willow Trace mortgage was used to provide the necessary
funds for the distribution on February 15, 1999.
Other income decreased approximately $387,000 for the year ended December 31,
1999 as compared to 1998 primarily due to the gain realized from the repay-
ment of the Willow Trace Mortgage Loan and Equity Loan in 1998.
General and administrative-related parties expenses decreased approximately
$22,000 for the year ended December 31, 1999 as compared to 1998 primarily
due to a decrease in partnership management fees in 1999 due to the repayment
of the Willow Trace Mortgage Loan.
Amortization expense decreased approximately $58,000 for the year ended De-
cember 31, 1999 as compared to 1998 primarily due to the repayment of the
Willow Trace Equity Loan in 1998.
A provision for bad debts of approximately $55,000 and $145,000 was charged
for the years ending December 31, 1999 and 1998, respectively, representing
the 1999 Guaranteed Interest due from Mortenson and the 1996 Guaranteed In-
terest due from Windemere.
1998 vs. 1997
Results of operations for the years ended December 31, 1998 and 1997 con-
sisted primarily of interest income of $2,679,000 and $2,471,000, respec-
tively, earned from investments in mortgage loans.
Interest income from mortgage loans increased approximately $207,000 for the
year ended December 31, 1998 as compared to 1997 primarily due to the receipt
of additional interest due to the repayment of Willow Trace in 1998.
Temporary investments increased approximately $17,000 for the year ended De-
cember 31, 1998 as compared to 1997 primarily due to higher cash and cash
equivalents balances in 1998.
Other income increased approximately $392,000 for the year ended December 31,
1998 as compared to 1997 primarily due to the gain realized from the repay-
ment of the Willow Trace Mortgage Loan and Equity Loan in 1998.
Total expenses, excluding general and administrative and provision for bad
debt, remained fairly consistent with an increase of approximately 2% for the
year ended December 31, 1998 as compared to 1997.
General and administrative expenses decreased approximately $26,000 for the
year ended December 31, 1998 as compared to 1997 primarily due to a decrease
in legal and insurance expenses.
A provision for bad debts of approximately $145,000 and $96,000 was charged
for the years ending December 31, 1998 and 1997, respectively, representing
the 1995-1998 Guaranteed Interest due from Mortenson and the 1996 Guaranteed
Interest due from Windemere.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk.
Not Applicable
Item 8. Financial Statements and Supplementary Data.
Page
(a) 1. Financial Statements
Independent Auditors' Report 11
Statements of Financial Condition as of December 31, 1999 and 1998 12
Statements of Income for the years ended December 31, 1999,
1998 and 1997 13
Statements of Changes in Partners' Capital (Deficit) for the
years ended December 31, 1999, 1998 and 1997 14
Statements of Cash Flows for the years ended December 31, 1999,
1998 and 1997 15
Notes to Financial Statements 16
INDEPENDENT AUDITORS' REPORT
To the General Partner of
Capital Mortgage Plus L.P.
We audited the accompanying statements of financial condition of Capital
Mortgage Plus L.P. (a Delaware limited partnership) as of December 31, 1999
and 1998 and the related statements of income, changes in partners' capital
(deficit) and cash flows for each of the three years in the period ended
December 31, 1999. These financial statements are the responsibility of the
General Partner. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of mate-
rial 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 esti-
mates made by the General Partner, as well as evaluating the overall finan-
cial 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 Capital Mortgage Plus L.P.
as of December 31, 1999 and 1998, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1999
in conformity with generally accepted accounting principles.
Bethesda, Maryland REZNICK, FEDDER & SILVERMAN
February 29, 2000
CAPITAL MORTGAGE PLUS L.P.
(a limited partnership)
STATEMENTS OF FINANCIAL CONDITION
ASSETS
December 31,
1999 1998
Investments in mortgage loans (Note 3) $21,698,812 $22,031,917
Cash and cash equivalents 1,010,890 5,491,915
Accrued interest receivable (net of allowance
of $737,619 and $683,194, respectively) 437,183 344,034
Loan origination costs (net of accumulated
amortization of $158,800 and $139,888,
respectively) 675,149 694,061
Total Assets $23,822,034 $28,561,927
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and other liabilities $ 20,744 $ 20,674
Due to general partner and affiliates
(Note 4) 57,264 61,592
Total liabilities 78,008 82,266
Partners' capital (deficit):
Limited Partners (1,836,660 BACs issued
and outstanding) (Note 1) 23,892,289 28,578,664
General Partner (148,263) (99,003)
Total partners' capital 23,744,026 28,479,661
Total Liabilities and Partners' Capital $23,822,034 $28,561,927
See accompanying notes to financial statements.
CAPITAL MORTGAGE PLUS L.P.
(a limited partnership)
STATEMENTS OF INCOME
Years Ended December 31,
1999 1998 1997
Revenues:
Interest income:
Mortgage loans (Note 3) $1,987,628 $2,678,758 $2,471,273
Temporary investments 61,369 32,135 14,658
Other income 6,517 393,785 2,252
Total revenues 2,055,514 3,104,678 2,488,183
Expenses:
General and administrative 63,458 61,918 88,408
General and administrative-
related parties (Note 4) 206,207 228,185 216,208
Provision for bad debts 54,549 144,977 96,079
Amortization 219,042 277,446 280,180
Total expenses 543,256 712,526 680,875
Net income $1,512,258 $2,392,152 $1,807,308
Net income per BAC $ 0.81 $ 1.28 $ 0.96
See accompanying notes to financial statements.
CAPITAL MORTGAGE PLUS L.P.
(a limited partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 and 1997
Limited General
Total Partners Partner
Partners' capital
(deficit) -
January 1, 1997 $28,967,280 $29,056,531 $ (89,251)
Net income 1,807,308 1,771,162 36,146
Distributions (2,623,815) (2,571,339) (52,476)
Partners' capital
(deficit) -
December 31, 1997 28,150,773 28,256,354 (105,581)
Net income 2,392,152 2,344,309 47,843
Distributions (2,063,264) (2,021,999) (41,265)
Partners' capital
(deficit) -
December 31, 1998 28,479,661 28,578,664 (99,003)
Net income 1,512,258 1,482,013 30,245
Distributions (6,247,893) (6,168,388) (79,505)
Partners' capital
(deficit) -
December 31, 1999 $23,744,026 $23,892,289 $(148,263)
See accompanying notes to financial statements.
CAPITAL MORTGAGE PLUS L.P.
(a limited partnership)
STATEMENTS OF CASH FLOWS
Years Ended December 31,
1999 1998 1997
Cash flows from operating
activities:
Net income $ 1,512,258 $ 2,392,152 $ 1,807,308
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Provision for bad debts 54,549 144,977 96,079
Gain on recovery of
amortized portion
of Willow
Trace Equity Loan 0 (311,742) 0
Writeoff of unamortized
portion of Willow Trace
Loan costs 0 133,859 0
Amortization 219,042 277,446 280,180
Amortization of interest
rate buydown (1,452) (1,452) (1,452)
Changes in operating assets
and liabilities:
Increase in other assets (147,698) (45,744) (173,683)
Increase (decrease) in
accounts payable
and other liabilities 70 (25,772) 18,743
(Decrease) increase in
due to general partner
and affiliates (4,328) (338,706) 102,470
Total adjustments 120,183 (167,134) 322,337
Net cash provided by
operating activities 1,632,441 2,225,018 2,129,645
Cash flows from investing
activities:
Receipt of principal
on mortgage loans 134,427 4,432,259 144,612
Receipt of principal
on equity loan 0 680,000 0
Net cash provided by
investing activities 134,427 5,112,259 144,612
Cash flows from
financing activities:
Distributions to partners (6,247,893) (2,063,264) (2,623,815)
Net cash used in financing
activities (6,247,893) (2,063,264) (2,623,815)
Net (decrease) increase
in cash and cash
equivalents (4,481,025) 5,274,013 (349,558)
Cash and cash equivalents at
beginning of year 5,491,915 217,902 567,460
Cash and cash equivalents at
end of year $ 1,010,890 $ 5,491,915 $ 217,902
See Accompanying Notes to Financial Statements.
CAPITAL MORTGAGE PLUS L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 and 1997
NOTE 1 - General
Capital Mortgage Plus L.P., a Delaware limited partnership (the "Partner-
ship") commenced a public offering (the "Offering") on May 10, 1989 of
5,000,000 ($100,000,000) Beneficial Assignment Certificates ("BACs") repre-
senting assignments of limited partnership interests. The BACs represent an
assignment of all of the economic and all of the material ownership rights
attributable to the limited partnership interests in the Partnership. The
BACs holders have virtually the same rights and, for all practical purposes,
are limited partners of the Partnership.
Pursuant to the Offering, the Partnership received $36,733,200 of gross pro-
ceeds from the BACs holders representing 1,836,660 BACs. The final close of
the Offering occurred on May 23, 1991 and no further issuance of BACs is an-
ticipated.
The Partnership was organized on November 23, 1988 and will continue until
December 31, 2041 unless terminated sooner under the provisions of its part-
nership agreement.
The general partner of the Partnership is CIP Associates, Inc., a Delaware
corporation (the "General Partner"). Related FI BUC$ Associates, Inc. is the
Assignor Limited Partner of the Partnership. CIP Associates, Inc. and Re-
lated FI BUC$ Associates, Inc. are under substantially common ownership.
The Partnership was formed to invest in insured or guaranteed mortgage in-
vestments. The Partnership has invested in first mortgage construction and
permanent loans ("Mortgages") to finance multifamily residential rental prop-
erties ("Developments") developed by unaffiliated entities. After an initial
period, a substantial portion of the Mortgages are expected to provide for
additional interest based on the annual cash flow from the Developments and
the proceeds of prepayments, sales or other dispositions. All base interest
and initially at least 90% of the principal of the Mortgages is insured or
coinsured by the Department of Housing and Urban Development ("HUD") and a
private mortgage lender (which is an affiliate of the General Partner). The
Partnership has also invested in uninsured equity loans made directly to de-
velopers of developments on which the Partnership holds a first mortgage.
Net income and distributions from operations of the Partnership are allocated
2% to the General Partner and 98% to the limited partners, until the limited
partners have received an 11% per annum non-cumulative non-compounded return
on their adjusted contributions as defined in the Amended and Restated Agree-
ment of Limited Partnership. Thereafter, net income and distributions will
be allocated 90% to the limited partners and 10% to the General Partner.
Distributions of disposition proceeds are allocated 1% to the General Partner
and 99% to the limited partners until each limited partner has received an
amount equal to his original contribution plus an amount which, when added to
all prior distributions equals a 7% per annum cumulative non-compounded re-
turn on his adjusted contribution; then 2% and 98% of disposition proceeds,
until each limited partner has received an amount which, when added to all
prior distributions equals an 11% per annum cumulative non-compounded return
on his adjusted contribution; and thereafter 10% to the General Partner and
90% to the limited partners.
The distributions per BAC were approximately $.88, $3.45 and $1.40 for 1999,
1998 and 1997. The 1999, 1998 and 1997 distributions were made from adjusted
cash flow from operations (and, in particular the fourth quarter 1998 distri-
bution which was paid on February 14, 1999 from the repayment of Willow Trace
Mortgage Loan and Equity Loan, $2.45 per BAC of which is considered to be a
return of capital) and to a lesser extent were supplemented from working
capital reserves, which was considered to be a return of capital.
NOTE 2 - Accounting Policies
a) Basis of Accounting
The books and records of the Partnership are maintained on the accrual basis
of accounting in accordance with generally accepted accounting principles
("GAAP").
The preparation of financial statements in conformity with GAAP requires the
General Partner to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements as well as the reported
amounts of revenues and expenses during the reporting period. Significant
estimates are made when accounting for the allowance for the interest receiv-
able. Actual results could differ from those estimates.
Acquisition expenses incurred for the investment of mortgage loans have been
capitalized and are included in loan origination costs, which are amortized
over the average expected lives of the respective mortgages when acquired and
written off when the loan is repaid.
The equity loans are considered to be premiums paid to obtain the mortgage
loans and are amortized over the average expected lives of the respective
mortgages.
Interest rate buydowns are amortized as an adjustment to the effective inter-
est rate over the average expected lives of the respective mortgages.
b) Cash and Cash Equivalents
Cash and cash equivalents include temporary investments with original matur-
ity dates of less than 3 months when acquired and are carried at cost plus
accrued interest, which approximates market.
c) Income Taxes
The Partnership is not required to provide for, or pay, any federal income
taxes. Income tax attributes that arise from its operation are passed di-
rectly to the individual partners. The Partnership may be subject to state
and local taxes in jurisdictions in which it operates.
CAPITAL MORTGAGE PLUS L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
(Unaudited)
Note 3 - Investments in Loans
The Partnership originally funded five mortgage loans and originated five
noninterest bearing equity loans in the aggregate amount of $29,220,325. One
loan with a mortgage and equity loan in the aggregate amount of $5,100,000
was repaid on December 16, 1998. (F)
Information relating to investments in mortgage loans and equity loans as of
December 31, 1999 and 1998 is as follows:
No. of
Apart Date of Final
Property/ -ment Invest- Maturity
Location Units ment Date
Mortenson 104 8/1990 8/2030
Manor
Apts./
Ames, IA
Windemere 204 9/1990 9/2030
Apts./
Wichita, KS
Fieldcrest III 112 8/1991 8/2031
Apts./
Dothan, AL
Holly Ridge II 144 3/1993 3/2033
Apts./
Gresham, OR
Amounts Advanced
Total Investments Investments
Property/ Mortgage Equity Amounts in Loans at in Loans at
Location Loans Loans Advanced 12/31/1999(E) 12/31/1998(E)
Mortenson $ 4,974,090 $ 577,885 $5,551,975 $4,827,911 $ 4,919,828
Manor
Apts./
Ames, IA
Windemere 8,110,300 736,550 8,846,850 8,006,301 8,116,356
Apts./
Wichita, KS
Fieldcrest III 3,343,700 383,300 3,727,000 3,370,691 3,419,612
Apts./
Dothan, AL
Holly Ridge II 5,310,100 684,400 5,994,500 5,493,909 5,576,121
Apts./
Gresham, OR
Total $21,738,190 $2,382,135 $24,120,325 $21,698,812 $22,031,917
Interest earned by the Partnership during 1999
Non-contingent Contingent
Cash Flow
Default Annual Partici-
Base Interest Interest Yield pation Total
Property/ Amount/ Amount/ Amount/ Amount/ Interest
Location Rate (A) Rate (B) Rate (C) Rate (D) Earned
Mortenson $ 300,098 $ 94,425 $0 $0 $ 394,523
Manor 6.45% 1.98% .97% 30.00%
Apts./
Ames, IA
Windemere 623,671 127,260 0 0 750,931
Apts./ 7.95% 1.60% 1.08% 30.00%
Wichita, KS
Fieldcrest III 282,589 0 47,201 1,868 331,658
Apts./ 8.68% 0% 1.36% 30.00%
Dothan, AL
Holly Ridge II 423,197 52,095 35,224 0 510,516
Apts./ 8.125% 1.00% .64% 30.00%
Gresham, OR
Total $1,629,555 $273,780 $82,425 $1,868 $1,987,628
(A) Base interest on the Mortgages is that amount that is insured/co-insured
by HUD and is being shown net of service fee.
(B) Default Interest is the minimum amount due over the base rate, and is
not contingent upon cash flow. This interest is secured by Partnership in-
terests.
(C) Annual Yield is the amount over the default rate and is contingent upon
property cash flow.
(D) Cash Flow Participation is the percent of cash flow due to the Partner-
ship after payment of the Annual Yield and is contingent upon property cash
flow. Fieldcrest, Willow Trace and Holly Ridge provided sufficient cash flow
in 1996 to pay the Partnership a participation during 1997. Willow Trace pro-
vided sufficient cash flow in 1997 and 1998 to pay the Partnership a partici-
pation in 1998. Fieldcrest provided sufficient cash flow in 1997 and 1998 to
pay the Partnership a participation during 1998.
(E) The Investments in Loans amount reflects the unpaid balance of the Mort-
gages and the unamortized balance of the equity loans in the amounts of
$20,950,388 and $748,424 at December 31, 1999 and $21,078,025 and $953,892,
respectively, at December 31, 1998.
(F) On December 16, 1998, Willow Partners, Ltd. (the "Owner"), the owner of
Willow Trace, prepaid the outstanding FHA Co-Insured Mortgage Loan (the
"Mortgage Loan") and equity loan (the "Equity Loan") in full. The Mortgage
Loan and the Equity Loan were secured by a mortgage on the Willow Trace prop-
erty and partnership interests in the Owner. The outstanding debt repaid
early to the Partnership totaled $5,372,859, including the $4,275,984 out-
standing balance of the Mortgage Loan, the $680,000 Equity Loan, a $213,799
prepayment premium and $203,076 of additional interest due pursuant to the
loan documents.
Total interest earned on the schedule of investment in loans does not include
the gain on the recovery of the amortized portion of the Willow Trace Equity
Loan of $311,742, the writeoff of the unamortized portion of the Willow Trace
Loan costs of $133,859 and the $213,799 prepayment premium, all of which are
included in other income on the Statements of Income.
1999 1998
Investment in loans January 1, $22,031,917 $27,085,493
Additions:
Fieldcrest discount amortization 1,452 1,452
1,452 1,452
Deductions:
Amortization of equity loans (200,130) (254,511)
Collection of principal-Mortgages
-Mortenson (43,761) (41,034)
-Windemere (48,676) (44,937)
-Fieldcrest (16,813) (15,410)
-Holly Ridge (25,177) (23,190)
-Willow Trace 0 (4,307,688)
Collection of principal-Equity loan
-Willow Trace* 0 (368,258)
(334,557) (5,055,028)
Investment in loans December 31, $21,698,812 $22,031,917
*This is the unamortized portion of the equity loan and the balance of the
$680,000 repaid is included in other income on the Statements of Income.
The Mortenson Manor and Windemere Mortgages are co-insured by HUD and Related
Mortgage Corporation ("RMC"), an affiliate of the General Partner. The
Fieldcrest III and Holly Ridge Mortgages are insured by HUD. Willow Trace
was insured by HUD.
In addition to the interest rate during the post-construction periods, the
Partnership will be entitled to payment of 30% of cash flow remaining after
payment of the permanent loan interest and accrued interest, if any, and cer-
tain amounts from sale or refinancing proceeds.
The equity loans are non-interest bearing and are secured by the assignment
of the owner/developers' interests in the projects. The equity loans are
not insured by HUD or any other party and, for financial statement reporting
purposes, are considered to be premiums paid to obtain the Mortgages. These
premiums are amortized over the average expected lives of the respective
Mortgages.
At December 31, 1999, all of the loans due to the Partnership are current
with respect to their FHA mortgage obligations. Mortenson has not paid its
default interest of approximately $94,000, $151,000 and $96,000 for the years
ended December 31, 1999, 1998 and 1997, respectively. During the fourth
quarter of 1999 and the first quarter of 1998 and 1997, the Partnership re-
ceived default interest of approximately $40,000, $40,000 and $25,000 repre-
senting partial payment for 1998, 1997 and 1996. Windmere has not paid its
default interest of approximately $130,000 for the year ended December 31,
1996. As a result, an allowance for uncollectability relating to the default
interest amounted to approximately $737,619 and $683,194 at December 31, 1999
and 1998, respectively.
The operations of Mortenson have not been able to support the payment of the
required interest. Accordingly, effective January 1, 1995 the Partnership
entered into a modification agreement whereby the annual yield was modified
to a cumulative yield of 9.4% per annum from the Permanent Loan Date and the
Default Rate was redefined as 8.43% per annum. The modification agreement
also provided that pre-1995 accrued interest not accrue further interest on
and after January 1, 1995, and shall be paid solely out of Capital Proceeds
prior to the calculation of participation percentages. Mortenson also agreed
to defer the management fee payable up to the Default Rate. Pursuant to this
modification agreement, default interest for 1999, 1998 and 1997 of approxi-
mately $94,000, $96,000 and $96,000, has been accrued and approximately
$54,000, $55,000 and $56,000 for 1999, 1998 and 1997 has been reserved.
NOTE 4 - Related Parties
The costs incurred to related parties for the years ended December 31, 1999,
1998 and 1997 were as follows:
1999 1998 1997
Partnership management fees (a) $126,368 $146,391 $153,065
Expense reimbursement (b) 79,839 81,794 63,143
Total general and administrative-
related parties $206,207 $228,185 $216,208
(a) A Partnership management fee for managing the affairs of the Partnership
equal to .5% per annum of invested assets is payable out of cash flow to the
General Partner. The fourth quarter 1998 and the 1999 partnership management
fee was calculated on the reduced asset base due to the repayment of the Wil-
low Trace Mortgage Loan and Equity Loan on December 16, 1998. During the
years ended December 31, 1999, 1998 and 1997, payments of approximately
$126,000, $344,000 and $115,000 were made, respectively. At both December
31, 1999 and 1998, a balance of approximately $32,000 was due to the General
Partner for these fees.
(b) The General Partner and its affiliates perform services for the Partner-
ship which include, but are not limited to: accounting and financial manage-
ment, register, transfer and assignment functions, asset management, investor
communications, printing services and other administrative services. The
amount of reimbursement from the Partnership is limited by the provisions of
the Partnership Agreement. An affiliate of the General Partner performs as-
sets monitoring for the Partnership. These services include site visits and
evaluations of the performance of the properties securing the loans. During
the years ended December 31, 1999, 1998 and 1997, payments of approximately
$84,000, $146,000 and $1,000 were made, respectively, relating to these
costs. As of December 31, 1999 and 1998, the General Partner and its affili-
ates were due approximately $26,000 and $30,000, respectively.
RMC is a co-insurer on the Mortenson and Windemere Mortgages in which the
Partnership has invested. RMC is entitled to a mortgage insurance premium
which is paid by the mortgagors.
NOTE 5 - Concentration of Credit Risk
The Partnership maintains its cash in several banks which are insured by the
Federal Deposit Insurance Corporation (FDIC) for a balance up to $100,000.
At times during 1997, 1998 and 1999, the account balance exceeded the FDIC
limit.
NOTE 6 - Fair Value of Financial Instruments
Financial Accounting Standards Board SFAS No. 107, "Disclosures about Fair
Value of Financial Instruments" requires that the estimated fair value of fi-
nancial instruments, as defined by SFAS No. 107, be disclosed. Financial in-
struments are defined as cash, evidence of an ownership interest in an entity
or a contract which creates obligations and rights to exchange cash and/or
other financial instruments. SFAS No. 107 also requires disclosures of the
methods and significant assumptions used to estimate the fair value of finan-
cial instruments.
Considerable judgment is required in interpreting data to develop the esti-
mates of fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts that the Partnership could realize in a
current market exchange. The use of different market assumptions and/or es-
timation methodologies may have a material effect on the estimated fair value
amounts.
The following methods/assumptions were used to estimate the fair value of
each class of financial instrument:
Cash and Cash Equivalents
Fair value is determined to be the carrying value because they mature in
three months or less and do not represent unanticipated credit concerns.
Investments in Loans
At December 31, 1999, the estimated carrying value of the mortgage loans ap-
proximated fair value. The estimated fair values at December 31, 1999 were
based on internal valuations of the four properties collateralizing these
loans. Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument
which sets forth the terms of a loan. This estimate is subjective in nature
and involves uncertainties and matters of significant judgment. Changes in
assumptions could significantly affect estimates. Due to the property-
specific nature of the loans and the lack of a ready market for such invest-
ments, this fair value estimate does not necessarily represent the amount
which the Partnership could realize upon a current sale of its investments.
NOTE 7 - Subsequent Event
On February 14, 2000, a distribution of $406,268 and $8,291 was paid to BAC
holders and the General Partner, respectively, representing the 1999 fourth
quarter distributions.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The Registrant has no directors or executive officers. The Registrant's af-
fairs are managed and controlled by the General Partner. The General Partner
was organized in Delaware in November 1988. The executive officers and di-
rector of the General Partner have held their positions as indicated below.
Certain information concerning the director and executive officers of the
General Partner is set forth below.
The Registrant, the General Partner and its director and executive officers,
and any BACs holder holding more than ten percent of the Registrant's BACs
are required to report their initial ownership of such BACs and any subse-
quent changes in that ownership to the Securities and Exchange Commission on
Forms 3, 4 and 5. Such executive officers, directors (and ten percent hold-
ers) are required by Securities and Exchange Commission regulators to furnish
the Registrant with copies of all Forms 3, 4 or 5 they file. The Registrant
is not aware of any BACs holders who own more than ten percent of the BACs.
All of these filing requirements were satisfied by the officers and director
of the General Partner on a timely basis. In making these disclosures, the
Registrant has relied solely on written representations of the General Part-
ner's director and executive officers or copies of the reports they have
filed with the Securities and Exchange Commission during and with respect to
its most recent fiscal year.
CIP Associates Inc.
Name Position Position Held Since
Stephen M. Ross Director 1988
Stuart J. Boesky Senior Vice President 1988
Alan P. Hirmes Senior Vice President 1988
Glenn F. Hopps Treasurer 1998
Teresa Wicelinski Secretary 1998
STEPHEN M. ROSS, 59, is a Director of the General Partner. Mr. Ross is
President of The Related Companies, L.P. He graduated from The University of
Michigan with a Bachelor of Business Administration degree and from Wayne
State School of Law. Mr. Ross then received a Master of Law degree in taxa-
tion from New York University School of Law. He joined the accounting firm
of Coopers & Lybrand in Detroit as a tax specialist and later moved to New
York, where he worked for two large Wall Street investment banking firms in
their real estate and corporate finance departments. Mr. Ross formed The Re-
lated Companies, Inc. ("Related") in 1972, to develop, manage, finance and
acquire subsidized and conventional apartment developments. To date, Related
has developed multi-family properties totaling in excess of 25,000 units, all
of which it manages.
STUART J. BOESKY, 43, is a Vice President of the General Partner. Mr. Boesky
practiced real estate and tax law in New York City with the law firm of Ship-
ley & Rothstein from 1984 until February 1986 when he joined Capital where he
presently serves as Managing Director. From 1983 to 1984 Mr. Boesky prac-
ticed law with the Boston law firm of Kaye, Fialkow Richard & Rothstein
(which subsequently merged with Strook & Strook & Lavan) and from 1978 to
1980 was a consultant specializing in real estate at the accounting firm of
Laventhol & Horwath. Mr. Boesky graduated from Michigan State University
with a Bachelor of Arts degree and from Wayne State School of Law with a Ju-
ris Doctor degree. He then received a Master of Law degree in Taxation from
Boston University School of Law.
ALAN P. HIRMES, 45, is a Vice President of the General Partner. Mr. Hirmes
has been a Certified Public Accountant in New York since 1978. Prior to
joining Capital in October 1983, Mr. Hirmes was employed by Weiner & Co.,
certified public accountants. Mr. Hirmes is also a Managing Director of
Capital. Mr. Hirmes graduated from Hofstra University with a Bachelor of
Arts degree.
GLENN F. HOPPS, 36, joined Related in December, 1990, and prior to that date
was employed by Marks Shron & Company and Weissbarth, Altman and Michaelson,
certified public accountants. Mr. Hopps graduated from New York State Uni-
versity at Albany with a Bachelor of Science Degree in Accounting.
TERESA WICELINSKI, 34, joined Related in June 1992, and prior to that date
was employed by Friedman, Alprin & Green, certified public accountants. Ms.
Wicelinski graduated from Pace University with a Bachelor of Arts Degree in
Accounting.
There are no family relationships between the foregoing director or executive
officers.
Item 11. Executive Compensation.
The Registrant has no officers or directors. The Registrant does not pay or
accrue any fees, salaries or other forms of compensation to directors or of-
ficers of the General Partner for their services. The director and certain
officers of the General Partner receive compensation from the General Partner
and its affiliates for services performed for various affiliated entities
which may include services performed for the Registrant. Such compensation
may be based in part on the performance of the Registrant; however, the Gen-
eral Partner believes that any compensation attributable to services per-
formed for the Registrant is immaterial. See also Note 4-Related Parties, in
Notes to the Financial Statements, included in Item 8 above.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
As of March 3, 2000, no person was known by the Registrant to be the benefi-
cial owner of more than five percent of the Limited Partnership Interests
and/or BACs; and neither the General Partner nor any director or officer of
the General Partner owns any Limited Partnership Interests or BACs.
As of March 3, 2000, the director and officers of the General Partner as a
group own, in the aggregate, 95.2% of the common stock of CIP Associates Inc.
Item 13. Certain Relationships and Related Transactions.
The Registrant has and will continue to have certain relationships with the
General Partner and its affiliates, as discussed in Item 11 Executive Compen-
sation. However, there have been no direct financial transactions between
the Registrant and the director and officers of the General Partner. See
Note 4-Related Parties, in Notes to the Financial Statements, included in
Item 8 above.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
Sequential
Page
(a) 1. Financial Statements
Independent Auditors' Report 11
Statements of Financial Condition as of December 31, 1999 and 1998 12
Statements of Income for the years ended December 31, 1999,
1998 and 1997 13
Statements of Changes in Partners' Capital (Deficit) for the
years ended December 31, 1999, 1998 and 1997 14
Statements of Cash Flows for the years ended December 31, 1999,
1998 and 1997 15
Notes to Financial Statements 16
(a) 2. Financial Statement Schedules
All schedules have been omitted because they are not required
or because the required information is contained in the finan-
cial statements or notes hereto.
(a) 3. Exhibits
(3A) The Registrant's Amended and Restated Agreement of Limited
Partnership, incorporated by reference to Exhibit A to the Reg-
istrant's Prospectus, dated May 10, 1989 (the "Prospectus"),
filed pursuant to Rule 424(b) under the Securities Act of 1933,
File No. 33-26690.
(3B) The Registrant's Certificate of Limited Partnership, as
amended, incorporated by reference to Exhibits 3B and 3C to the
Registrant's Registration Statement on Form S-11, File No. 33-
26690, dated January 24, 1989 and to Exhibit 3D to Amendment
No. 1 to such Registration Statement dated April 28, 1989
(3C) Amendment No. 1, dated July 7, 1989, to the Registrant's
Amended and Restated Agreement of Limited Partnership
(10A) Mortgage Note, dated August 31, 1990, with respect to Mortenson
Manor Apartments in Ames, Iowa, in the principal amount of
$4,974,900 (incorporated by reference to Exhibit 10(a) in the
Registrant's Current Report on Form 8-K dated August 31, 1990)
(10B) Equity Loan Note dated August 31, 1990, with respect to Morten-
son Manor Apartments in Ames, Iowa, in the principal amount of
$577,885 (incorporated by reference to Exhibit 10(b) in the
Registrant's Current Report on Form 8-K dated August 31, 1990)
(10C) Subordinated Promissory Note, dated August 31, 1990 with re-
spect to Mortenson Manor Partnership (incorporated by reference
to Exhibit 10(c) in the Registrant's Current Report on Form 8-K
dated August 31, 1990)
(10D) Mortgage Note, dated September 27, 1990, with respect to Winde-
mere Apartments in Wichita, Kansas, in the principal amount of
$8,110,300 (incorporated by reference to Exhibit 10(a) in the
Registrant's Form 8 Amendment dated October 30, 1990 to Current
Report on Form 8-K dated September 28, 1990)
(10E) Equity Loan Note, dated September 27, 1990, with respect to
Windemere Apartments in Wichita, Kansas, in the principal
amount of $736,500 (incorporated by reference in Exhibit 10(b)
in the Registrant's Form 8 Amendment dated October 30, 1990 to
Current Report on Form 8-K dated September 28, 1990)
(10F) Subordinated Promissory Note, dated September 27, 1990 with re-
spect to Windemere Development, Inc. (incorporated by reference
to Exhibit 10(c) in the Registrant's Form 8 Amendment dated Oc-
tober 30, 1990 to Current Report on Form 8-K dated September
28, 1990)
(10G) Mortgage Note, dated August 23, 1991, with respect to Field-
crest III Apartments in Dothan, Alabama, in the principal
amount of $3,450,200 (incorporated by reference to Exhibit
10(a) in the Registrant's Current Report on Form 8-K dated
August 27, 1991)
(10H) Equity Loan Note, dated August 27, 1991, with respect to Field-
crest III Apartments in Dothan, Alabama, in the principal
amount of $383,300 (incorporated by reference to Exhibit 10(b)
in the Registrant's Current Report on Form 8-K dated August 27,
1991)
(10I) Subordinated Promissory Note, dated August 27, 1991 with re-
spect to Fieldcrest III Apartments (incorporated by reference
to Exhibit 10(c) in the Registrant's Current Report on Form 8-K
dated August 27, 1991)
(10J) Mortgage Note, dated March 1, 1993, with respect to Holly Ridge
Apartments in Gresham, Oregon, in the principal amount of
$5,310,000 (incorporated by reference to Exhibit 10(a) in the
Registrant's Current Report on Form 8-K dated March 16, 1993)
(10K) Equity Loan dated March 16, 1993, with respect to Holly Ridge
Apartments in Gresham, Oregon, in the principal amount of
$684,000 (incorporated by reference to Exhibit 10(b) in the
Registrant's Current Report on Form 8-K dated March 16, 1993)
(10L) Subordinated Promissory Note, dated March 16, 1993, with re-
spect to Holly Ridge Apartments in Gresham, Oregon (incorpo-
rated by reference to Exhibit 10(c) in the Registrant's Current
Report on Form 8-K dated March 16, 1993)
(10M) Mortgage Note, dated June 18, 1993, with respect to Willow
Trace Apartments in Tuscaloosa, Alabama, in the principal
amount of $4,420,000 (incorporated by reference to Exhibit
(10M) in the Registrant's Form 10-K for the fiscal year ended
December 31, 1993)
(10N) Equity Loan dated June 18, 1993, with respect to Willow Trace
Apartments in Tuscaloosa, Alabama, in the principal amount of
$680,000 (incorporated by reference to Exhibit (10N) in the
Registrant's Form 10-K for the fiscal year ended December 31,
1993)
(10O) Subordinated Promissory Note, dated June 18, 1993, with re-
spect to Willow Trace Apartments in Tuscaloosa, Alabama (incor-
porated by reference to Exhibit (10O) in the Registrant's Form
10-K for the fiscal year ended December 31, 1993)
(10P) Modification Agreement, dated January 1, 1995, with respect to
Mortenson Manor Apartments in Ames, Iowa (incorporated by ref-
erence to Exhibit (10P) in the Registrant's Form 10-K for the
fiscal year ended December 31, 1995)
(10Q) Guaranty made for the benefit of the Registrant, dated January
1, 1995, with respect to the Modification Agreement regarding
Mortenson Manor Apartments (incorporated by reference to Ex-
hibit (10Q) in the Registrant's Form 10-K for the fiscal year
ended December 31, 1995)
27 Financial Data Schedule (filed herewith) 82
99. Additional Exhibits
(99A) The Financial Statements of Windemere Development, Inc., which
owns and operates an apartment complex known as Windemere at
Tallgrass located in Wichita, Kansas, as required by Staff Ac-
counting Bulletin No. 71 33
(99B) The Financial Statements of Mortenson II, which owns and oper-
ates an apartment complex known as Mortenson Manor Apartments
located in Ames, Iowa, as required by Staff Accounting Bulletin
No 71. 46
(99C) The Financial statements of HR II Associates, which owns and
operates an apartment complex known as Holly Ridge II located
in Gresham, Oregon, as required by Staff Accounting Bulletin No 71. 72
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of
the period covered by this report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Ex-
change Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
CAPITAL MORTGAGE PLUS L.P.
(Registrant)
By: CIP ASSOCIATES, INC.
General Partner
Date: April 13, 2000
By: /s/ Alan P. Hirmes
Alan P. Hirmes
Senior Vice President
(Principal Executive and
Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated:
Signature Title Date
Senior Vice President (principal
executive and financial officer)
/s/ Alan P. Hirmes of CIP Associates, Inc.
Alan P. Hirmes (the General Partner of the Registrant) April 13, 2000
Treasurer (principal accounting
/s/ Glenn F. Hopps officer) of CIP Associates, Inc.
Glenn F. Hopps (the General Partner of the Registrant) April 13, 2000
/s/ Stephen M. Ross Director of CIP Associates, Inc.
Stephen M. Ross (the General Partner of the Registrant) April 13, 2000
WINDEMERE DEVELOPMENT, INC.
Wichita, Kansas
Financial Statements
December 31, 1999 and 1998
with
INDEPENDENT AUDITOR'S REPORT
INDEPENDENT AUDITORS' REPORT
Board of Directors
Windemere Development, Inc.
Wichita, Kansas
We have audited the accompanying balance sheets of
Windemere Development, Inc. (a subchapter S
corporation), as of December 31, 1999 and 1998, and the
related statements of income, changes in stockholders'
deficit and cash flows for the years then ended. These
financial statements are the responsibility of the
Company's 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 Windemere Development, Inc. as of
December 31, 1999 and 1998, and the results of its
operations, changes in stockholders deficit and cash
flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ Peterson, Peterson & Goss, L.C.
February 18, 2000
WINDEMERE DEVELOPMENT, INC.
Balance Sheet
December 31, 1999 and 1998
Assets
1999 1998
Current assets:
Petty cash (1110) $ 100 $ 100
Cash in bank and
interest-bearing deposits (1120) 54,756 23,261
Rent receivable (1130) 9,153 1,640
Accounts receivable,
related party (1140) 4,348 4,348
Total current assets 68,357 29,349
Deposits held in trust - funded:
Tenant security deposits -
Note 3 (1191) 39,024 43,313
Restricted deposits and funded reserves:
Mortgagee escrow deposits -
Note 2 (1310) 67,129 68,388
Reserve for replacements -
Note 4 (1320) 32,929 49,191
Total deposits 100,058 117,579
Fixed assets - Note 5:
Land and special assessments (1410) 746,418 736,721
Buildings and improvements (1420) 7,808,748 7,788,022
Furniture and equipment (1450) 110,114 72,824
8,665,280 8,597,567
Less accumulated depreciation 1,559,036 1,349,425
Total fixed assets 7,106,244 7,248,142
Other assets:
Loan costs, net of amortization of $128,934
and $112,415 531,828 548,347
Total $7,845,511 $7,986,730
WINDEMERE DEVELOPMENT, INC.
Balance Sheet
December 31, 1999 and 1998
Liabilities and Stockholders' Equity
1999 1998
Current liabilities:
Accounts payable, trade - Note 8 (2110) $ 111,677 $ 8,856
Accrued management fee (2190) 89,130 27,741
Accrued interest payable - Note 5 (2130) 306,808 246,058
Accrued real estate taxes -
Note 6 (2150) 55,054 52,600
Accrued mortgage insurance (2190) 29,341 29,523
Mortgage payable, current portion (2320) 52,727 48,676
Rent deferred credits (2210) 12,531 15,980
Other current liabilities 0 25
Total current liabilities 657,268 429,459
Deposit liabilities:
Tenant security deposits -
Note 3 (2191) 36,789 37,358
Long-term liabilities - Note 5:
Mortgage payable (2320) 7,822,282 7,870,958
Less current portion 52,727 48,676
Total long-term liabilities 7,769,555 7,822,282
Stockholders' equity (deficit):
Common stock, authorized 1,000 shares;
issued - 1,000 shares 1,000 1,000
Additional paid-in capital 736,650 736,650
Total stockholders' equity
(deficit) (3130) (618,101) (302,369)
Total $7,845,511 $7,986,730
See notes to financial statements.
WINDEMERE DEVELOPMENT, INC.
Statement of Income
Years Ended December 31, 1999 and 1998
1999 1998
Operating income:
Rental $1,371,335 $1,422,984
Operating expenses:
Interest 764,683 760,952
Mortgage insurance 58,499 58,878
Bank charges 0 132
Property taxes 96,600 94,698
Insurance 30,387 33,469
Equipment leasing - Note 7 18,457 10,608
Management fees 80,224 84,767
Salaries and wages 119,144 126,366
Contract labor 0 7,500
Payroll taxes 7,718 9,513
Utilities 97,427 67,360
Professional fees 21,931 10,974
Repairs and maintenance 144,700 126,913
Advertising 15,762 22,780
Office supplies and postage 2,936 3,380
Donation 300 600
Miscellaneous 3,993 11,826
Meals and entertainment 0 1,502
Depreciation and amortization 226,130 222,417
Total operating expenses 1,688,891 1,654,635
Loss from operations (317,556) (231,651)
Other income (expense):
Interest and dividends 3,328 4,383
Gain on sale of assets 2,432 1,482
Unrealized loss on securities (3,936) (4,550)
Total other income 1,824 1,315
Net Loss $ (315,732) $ (230,336)
See notes to financial statements.
WINDEMERE DEVELOPMENT, INC.
Statement of Changes in Stockholders' Equity
Years Ended December 31, 1999 and 1998
Additional
Common Paid-In Retained
Stock Capital Earnings Total
Balance at
January 1, 1998 $ 1,000 $736,650 $ (791,283) $ (53,633)
Net loss 0 0 (230,336) (230,336)
Distributions 0 0 (18,400) (18,400)
Balance at
December 31, 1998 1,000 736,650 (1,040,019) (302,369)
Net loss 0 0 (315,732) (315,732)
Distributions 0 0 0 0
Balance of
December 31, 1999 $ 1,000 $736,650 $(1,355,751) $(618,101)
See notes to financial statements.
WINDEMERE DEVELOPMENT, INC.
Statement of Cash Flows
Years Ended December 31, 1999 and 1998
1999 1998
Cash flows from operating activities:
Rental receipts 1,343,063 1,420,705
Interest and dividend receipts 3,328 4,383
Capital gain dividends 2,432 2,770
1,348,823 1,427,858
Administrative (65,539) (51,395)
Management fees (18,835) (78,550)
Utilities (98,910) (67,746)
Salaries and wages (975) (116,166)
Operating and maintenance (146,837) (140,629)
Real estate taxes and
escrow deposits (92,887) (95,002)
Property insurance (30,387) (33,469)
Miscellaneous taxes and insurance 0 (9,801)
Tenant security and other deposits (216) (10,087)
Interest on mortgage (703,933) (761,610)
Mortgage insurance premium (58,682) (59,046)
(1,217,201) (1,423,501)
Net cash provided by operating activities 131,622 4,357
Cash flows from investing activities:
Purchase of furnishings and equipment (67,713) (26,907)
Deposits into reserve for replacement (30,877) (32,145)
Transfer to cash escrow 47,139 30,438
Proceeds from sale of investments 0 43,879
Purchases of investments 0 (45,167)
Net cash used in investing activities (51,451) (29,902)
Cash flows from financing activities:
Mortgage principal payments (48,676) (44,937)
Distribution to stockholder 0 (18,400)
Net cash used in financing activities (48,676) (63,337)
Net increase (decrease) in cash and
cash equivalents 31,495 (88,882)
Cash and cash equivalents,
beginning of year 23,361 112,243
Cash and cash equivalents,
end of year $ 54,856 $ 23,361
WINDEMERE DEVELOPMENT, INC.
Statement of Cash Flows
Years Ended December 31, 1999 and 1998
1999 1998
Cash flows from operating activities:
Net loss $(315,732) $(230,336)
Adjustments to reconcile
net income to net cash
provided by operating activities:
Depreciation and amortization 226,130 222,417
Loss on sale of securities 0 1,288
Unrealized loss on securities 3,936 4,550
(Increase) decrease in rent
receivable (7,513) (1,640)
Increase in accounts receivable,
related party 0 0
(Increase) decrease in
cash restricted for tenant
security deposits 353 (3,168)
Increase in mortgagee escrow
deposits 1,259 (2,366)
Increase (decrease) in
accounts payable 102,821 3,805
Increase in accrued liabilities 124,386 7,191
Increase (decrease) in tenant
security deposits (569) (6,919)
Increase in deferred revenue (3,449) 9,535
Net cash provided by operating activities $ 131,622 $ 4,357
See notes to financial statements.
WINDEMERE DEVELOPMENT, INC.
Notes to Financial Statements
December 31, 1999 and 1998
1. Summary of Significant Accounting Policies
Method of Accounting
The Company maintains its books and records on the basis
of accounting used for income tax purposes. This basis
includes the use of cash basis accounting and Internal
Revenue Service (IRS) depreciation lives and methods.
The Company uses this basis because it is the most
meaningful for the use of management in maintaining its
operations. The Company has made the adjustments
necessary to present these financial statements in
accordance with generally accepted accounting
principles.
History and Business Activity
Windemere Development, Inc. was founded in 1991 to
develop and operate a 206-unit apartment complex in
Wichita, Kansas, known as Windemere at Tallgrass.
The apartments are located at 8220 East Oxford Circle,
Wichita, Kansas 67226 and consist of one and two
bedroom units.
Property and Equipment
Depreciation is computed by using the straight-line
method over the following estimated useful lives:
Buildings - 40 years
Landscape improvements - 20 years
Furniture and equipment - 10 years
Expenditures for maintenance and repairs are charged to
income as incurred. Expenditures which materially
extended the useful lives of assets or increase their
productivity are capitalized.
Income Taxes
An income tax provision has not been included in the
financial statements since the income or loss of the
Company is required to be reported by the shareholder on
his respective income tax return.
Cash and Cash Equivalents
The Company considers all highly liquid investments with
original maturities of three months or less to be cash
equivalents.
Use of Estimates
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect
certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
Advertising
The Company follows the policy of charging the costs of
advertising to expense as incurred. Advertising expense
was $15,762 and $22,780 for the years ended December 31,
1999 and 1998, respectively.
2. Restricted Deposits and Funded Reserves
The Company has deposited with the lender the following amounts:
Mortgagee escrow deposits 1999 1998
Mortgage and Property Insurance,
Real estate taxes and special assessments $ 67,129 $ 68,388
An evaluation of the adequacy of certain escrow's is as follows:
Estimated amount required as of December 31, 1999 for future payment of:
1999 1998
Property insurance $ 22,500 $ 20,547
Mortgage insurance 29,250 29,523
51,750 50,070
Total confirmed by mortgagee 67,129 68,388
Amount on deposit in excess of
estimated requirements $ 15,379 $ 18,318
3. Tenant Security Deposits and Funded Reserves
Tenant security deposits are held in a separate account
in the name of the project. The total held in the
account is $2,235 in excess of the deposits held for
tenants. The account consists of two mutual funds and
has been adjusted to market value at December 31, 1999.
The cost basis of the investments at December 31, 1999
was $47,511.
4. Reserve for Replacements
In accordance with the provisions of the Regulatory
Agreement restricted cash is held by the mortgagee to be
used for replacement of property with the approval of
HUD as follows:
1999 1998
Balance at beginning of year $ 49,191 $ 47,484
Monthly deposits 30,031 30,031
Transfer (47,139) (30,438)
32,083 47,077
Interest earned 846 2,114
Balance confirmed by mortgagee $ 32,929 $ 49,191
5. Long-Term Liabilities
Long-term debt at December 31, 1999 and 1998 consisted
of the following obligations:
1999 1998
Mortgage loan payable in monthly install-
ments of $56,514 including interest at
8.02% and principal. The loan is due May
1, 2032 and is secured by a first mortgage
on the land and buildings. The debt also
includes a subordinated promissory note
which provides that additional interest
shall be payable semiannually in an amount
that will provide a maximum cumulative yield
(uncompounded) of 10.70% on the principal
amount of the mortgage loan outstanding.
The amounts for the years ending December 31,
1998 and 1997 were $125,517 and 128,022
respectively (at 1.60%) and are included in
accrued interest payable.
The subordinated promissory note is
secured by a second mortgage on the
land and buildings. $7,822,282 $7,870,958
Less current portion 52,727 48,676
$7,769,555 $7,822,282
Maturities of debt are as follows:
1999 1998
1999 $ 0 $ 48,676
2000 52,727 52,727
2001 57,114 57,114
2002 61,867 61,867
2003 67,015 67,015
2004 72,592 0
Later years 7,510,967 7,583,559
$7,822,282 $7,870,958
6. Accrued Real Estate Taxes
Accrued real estate taxes at December 31, 1999 consist of the following:
Description Basis for Period Amount
of Tax Accrual Covered Due Date Accrued
Real estate Second-half January 1 June 20, $55,054
taxes and due for 1999 to December 2000
special 31, 1999
assessments
7. Related Party Transactions
The Apartments are managed by Gaddis Properties, Inc., a
related entity controlled by Jerry A. Gaddis. Under the
terms of the management agreement with Gaddis
Properties, Inc., a management fee not in excess of 6%
of cash basis rental revenue, is payable monthly for
management services. The total management fees earned
in 1999 were $80,224.
The following summarizes other related party transactions for 1999:
Related Party Classification Amount
C.G. Interiors, Inc. Equipment lease $ 4,486
Carolyn Gaddis Salaries and wages 13,114
Jerry Gaddis Salaries and wages 30,600
Brian Gaddis Salaries and wages 4,371
Doug Gaddis Salaries and wages 5,100
Total $ 57,671
8. Accounts Payable, Trade
The balance in accounts payable, trade at December 31,
1999 represents amounts due to a related entity as
follows:
Salaries and wages $100,884
Payroll taxes 7,718
Professional fees 3,075
$111,677
FINANCIAL STATEMENTS AND
INDEPENDENT AUDITORS' REPORT
MORTENSON II
HUD PROJECT NO.: 074-36605
DECEMBER 31, 1999
Mortenson II
HUD Project No.: 074-36605
TABLE OF CONTENTS
PAGE
MORTGAGOR'S CERTIFICATION 4
MANAGING AGENT'S CERTIFICATION 5
INDEPENDENT AUDITORS' REPORT 6
FINANCIAL STATEMENTS
BALANCE SHEET 8
STATEMENT OF OPERATIONS 10
STATEMENT OF PARTNERS' EQUITY (DEFICIT) 13
STATEMENT OF CASH FLOWS 14
NOTES TO FINANCIAL STATEMENTS 16
SUPPLEMENTAL INFORMATION
RESERVE FOR REPLACEMENTS 21
COMPUTATION OF SURPLUS CASH, DISTRIBUTIONS
AND RESIDUAL RECEIPTS 22
CHANGES IN FIXED ASSET ACCOUNTS 23
DETAIL OF ACCOUNTS - STATEMENT OF OPERATIONS 24
OTHER INFORMATION 25
INDEPENDENT AUDITORS' REPORT ON INTERNAL CONTROL 26
INDEPENDENT AUDITORS' REPORT ON COMPLIANCE WITH
SPECIFIC REQUIREMENTS APPLICABLE TO MAJOR HUD PROGRAMS 28
INDEPENDENT AUDITORS' REPORT ON COMPLIANCE WITH
SPECIFIC REQUIREMENTS APPLICABLE TO FAIR HOUSING
AND NON-DISCRIMINATION 29
Mortenson II
HUD Project No.: 074-36605
December 31, 1999
MORTGAGOR'S CERTIFICATION
I hereby certify that I have examined the accompanying
financial statements and supplemental data of Mortenson
II and, to the best of my knowledge and belief, the same
is complete and accurate.
GENERAL PARTNER
/s/ Ev Cochrane
Ev Cochrane Date
Mortenson II
HUD Project No.: 074-36605
December 31, 1999
MANAGING AGENT'S CERTIFICATION
We hereby certify that we have examined the accompanying
financial statements and supplemental data of Mortenson
II and, to the best of our knowledge and belief, the
same is complete and accurate.
MANAGING AGENT
Ev Cochrane and Associates
/s/ Ev Cochrane
Signature Date
Ev Cochrane Managing Agent Taxpayer
Property Manager Identification Number: 42-1050493
INDEPENDENT AUDITORS' REPORT
To the Partners
Mortenson II
We have audited the accompanying balance sheet of
Mortenson II, as of December 31, 1999, and the related
statements of operations, partners' equity (deficit) and
cash flows for the year then ended. These financial
statements are the responsibility of the partnership's
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 and Government Auditing
Standards, issued by the Comptroller General of the
United States. 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 Mortenson II as of December 31,
1999, and the results of its operations, changes in
partners' equity (deficit) and cash flows for the year
then ended, in conformity with generally accepted
accounting principles.
Our audit was made for the purpose of forming an opinion
on the basic financial statements taken as a whole. The
supplemental information on pages 21 through 25 is
presented for purposes of additional analysis and is not
a required part of the basic financial statemen
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.
In accordance with Government Auditing Standards and the
"Consolidated Audit Guide for Audits of HUD Programs,"
we have also issued reports dated January 18, 2000 on
our consideration of Mortenson II's internal control and
on its compliance with specific requirements applicable
to major HUD programs and fair housing and non-
discrimination.
/s/ Reznick Fedder & Silverman
Charlotte, North Carolina Federal Employer
January 18, 2000 Identification Number: 52-1088612
Audit Principal: Ronald G. Vance
Mortenson II
HUD Project No.: 074-36605
BALANCE SHEET
December 31,1999
ASSETS
CURRENT ASSETS
1120 Cash - operations $ 10,888
1130 Tenant accounts receivable 16,355
1200 Miscellaneous prepaid expenses 28,524
Total current assets 55,767
DEPOSITS HELD IN TRUST - FUNDED
1191 Tenant deposits 73,741
RESTRICTED DEPOSITS AND FUNDED RESERVES
1310 Escrow deposits $ 70,865
1320 Reserve for replacements 100,906
1330 Other reserves 1,897
173,668
RENTAL PROPERTY
1410 Land 42,101
1420 Buildings 5,007,451
1440 Building equipment - portable 159,623
5,209,175
1495 Less accumulated depreciation (1,662,907)
3,546,268
OTHER ASSETS
1520 Intangible assets, net of accumulated
amortization of $127,874 473,871 473,871
$4,323,315
Mortenson II
HUD Project No.: 074-36605
BALANCE SHEET - CONTINUED
December 31, 1999
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
2110 Accounts payable - operations $ 1,051
2123 Accrued management fee payable 122,325
2131 Accrued interest payable - first mortgage 25,629
2150 Accrued property taxes payable 157,301
2170 Mortgage payable - first mortgage,
current maturities 46,668
2210 Prepaid revenue 3,593
Total current liabilities 356,567
DEPOSITS LIABILITY
2191 Tenant deposits held in trust (contra) 62,496
LONG-TERM LIABILITIES
2133 Accrued interest payable - other
loans/notes (surplus cash) $ 649,289
2320 Mortgage payable - first mortgage,
net of current maturities 4,636,711
2323 Other loans/notes payable - surplus cash,
net of current maturities 577,885
5,863,885
3130 PARTNERS' EQUITY (DEFICIT) (1,959,633)
$4,323,315
Mortenson II
HUD Project No.: 074-36605
STATEMENT OF OPERATIONS
Year ended December 31, 1999
RENTAL REVENUE
5120 Rent revenue - gross potential $ 864,574
5170 Garage and parking spaces 7,272
Total rental revenue 871,846
VACANCIES
5220 Apartments (17,294)
Total vacancies (17,294)
Net rental revenue 854,552
FINANCIAL REVENUE
5410 Financial revenue - project operations 2,790
5440 Revenue from investments -
replacement reserve 4,187
Total financial revenue 6,977
OTHER REVENUE
5910 Laundry and vending 7,550
5920 Tenant charges 180
Total other revenue 7,730
Total revenue 869,259
Mortenson II
HUD Project No.: 074-36605
STATEMENT OF OPERATIONS - CONTINUED
Year ended December 31, 1999
ADMINISTRATIVE EXPENSES
6210 Advertising and marketing 5,389
6311 Office expenses 23,119
6320 Management fee 41,767
6330 Manager or superintendent salaries 30,297
6331 Administrative rent free unit 18,740
6340 Legal expense - project 692
6350 Auditing expense 7,175
6351 Bookkeeping fees/accounting services 8,000
6390 Miscellaneous administrative expenses 24,000
Total administrative expenses 159,179
UTILITIES EXPENSE
6450 Electricity 9,246
6451 Water 2,311
6452 Gas 5,392
6453 Sewer 1,926
Total utilities expense 18,875
OPERATING AND MAINTENANCE EXPENSES
6510 Payroll 14,860
6515 Supplies 54,243
6520 Contracts 30,099
6525 Garbage and trash removal 11,279
6570 Vehicle and maintenance equipment
operation and repairs 10,696
Total operating and maintenance expenses 121,177
Mortenson II
HUD Project No.: 074-36605
STATEMENT OF OPERATIONS - CONTINUED
Year ended December 31, 1999
TAXES AND INSURANCE
6710 Real estate taxes 158,998
6711 Payroll taxes 6,813
6720 Property and liability insurance 7,816
6721 Fidelity bond insurance 243
6722 Workmen's compensation 1,903
6723 Health insurance and other
employee benefits 5,879
6790 Miscellaneous taxes, licenses,
permits and insurance 1,110
Total taxes and insurance 182,762
FINANCIAL EXPENSES
6820 Interest on mortgage payable 303,566
6850 Mortgage insurance premium/
service charge 35,265
Total financial expenses 338,831
DEPRECIATION AND AMORTIZATION
6600 Depreciation expense 185,807
6610 Amortization expense 15,044
Total depreciation and amortization 200,851
CORPORATE OR MORTGAGOR ENTITY REVENUE AND EXPENSES
7190 Other expenses 94,425
Total corporate or mortgagor entity
revenue and expenses 94,425
Total expenses 1,116,100
Net income (loss) $ (246,841)
Mortenson II
HUD Project No.: 074-36605
STATEMENT OF PARTNERS' EQUITY (DEFICIT)
Year ended December 31, 1999
Total
Partners' equity (deficit)
December 31, 1998 $(1,712,792)
Net income (loss) (246,841)
Partners' equity (deficit)
December 31, 1999 $(1,959,633)
Mortenson II
HUD Project No.: 074-36605
STATEMENT OF CASH FLOWS
Year ended December 31, 1999
Cash flows from operating activities
Rental receipts $ 827,608
Interest receipts 6,977
Other operating receipts 7,730
Administrative expenses paid (70,673)
Utilities paid (20,860)
Salaries and wages paid (45,157)
Operating and maintenance paid (112,469)
Real estate taxes paid (155,760)
Property insurance paid (1,746)
Miscellaneous taxes and insurance paid (1,110)
Net tenant security deposits received (paid) 5,096
Other operating expenses paid (14,838)
Interest paid on mortgages (303,345)
Mortgage insurance premium paid (35,043)
Entity/construction expenses paid (include detail)
Contingent interest (40,428)
Net cash provided by (used in)
operating activities 45,982
Cash flows from investing activities
Net deposits to mortgage escrows (8,003)
Net deposits to reserve for replacements (611)
Net deposits to other reserves (83)
Net cash provided by (used in)
investing activities (8,697)
Cash flows from financing activities
Mortgage principal payments (43,821)
Net cash provided by (used in)
financing activities (43,821)
NET INCREASE (DECREASE) IN CASH (6,536)
Cash, beginning 17,424
Cash, end $ 10,888
Mortenson II
HUD Project No.: 074-36605
STATEMENT OF CASH FLOWS - CONTINUED
Year ended December 31, 1999
Reconciliation of net income (loss) to net
cash provided by (used in) operating activities
Net income (loss) $ (246,841)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities
Depreciation 185,807
Amortization 15,044
Changes in asset and liability accounts
(Increase) decrease in assets
Miscellaneous prepaid expenses 6,292
Tenant security deposits funded 3,161
Increase (decrease) in liabilities
Accounts payable (10,435)
Accrued liabilities 45,005
Accrued interest payable 54,218
Tenant security deposits held in trust 1,935
Prepaid revenue 1,993
Total adjustments 292,823
Net cash provided by (used in)
operating activities $ 45,982
Mortenson II
HUD Project No.: 074-36605
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The partnership was formed as a limited partnership
under the laws of the State of Iowa on August 23, 1990,
for the purpose of constructing and operating a rental
housing project under Section 221(d)4 of the National
Housing Act. The project consists of 104 units located
in Ames, Iowa, and is currently operating under the name
of Celtic Manor.
Cash distributions are limited by agreements between the
partnership and HUD to the extent of surplus cash as
defined by HUD.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the
date of the financial statements and the reported
amounts of revenue and expenses during the reporting
period. Actual results could differ from those
estimates.
Rental Property
Rental property is carried at cost. Depreciation is
provided for in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated
service lives by use of the straight-line method for
buildings and accelerated methods for equipment.
Improvements are capitalized, while expenditures for
maintenance and repairs are charged to expense as
incurred. Upon disposal of depreciable property, the
appropriate property accounts are reduced by the related
costs and accumulated depreciation. The resulting gains
and losses are reflected in the statement of operations.
Estimated service lives are as follows:
Buildings 27.5 years
Building equipment - fixed 7 years
Amortization
Loan costs are amortized over the term of the loan
period using the straight-line method.
Income Taxes
No provision or benefit for income taxes has been
included in these financial statements since taxable
income or loss passes through to, and is reportable by,
the partners individually.
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 tenants
of the property are operating leases.
NOTE C - MORTGAGE PAYABLE
The mortgage note is co-insured by the Federal Housing
Administration (FHA) and is collateralized by a deed of
trust on the rental property. The note bears interest at
the rate of 6.45%. Principal and interest are payable by
the partnership in monthly installments of $28,949
through maturity in August 2031. As of December 31,
1999, the outstanding balance on this loan is
$4,683,379.
Under agreements with the lender and FHA, the
partnership is required to make monthly escrow deposits
for taxes, insurance and replacement of project assets,
and is subject to restrictions as to operating policies,
rental charges, operating expenditures and distributions
to partners.
Aggregate maturities of mortgage payable are as follows:
December 31, 2000 $ 46,668
2001 49,769
2002 53,076
2003 56,602
2004 60,363
Thereafter 4,416,901
$4,683,379
NOTE D - NOTES PAYABLE
Equity Loan
An equity loan of $577,885 has been provided by Capital
Mortgage Plus, L.P. to fund construction costs of the
project and the mortgage buydown escrow. The loan is
noninterest bearing and matures in August 2031. The loan
is secured by a conditional third mortgage, a security
agreement and the mortgage buydown escrow.
Subordinated Promissory Note
The partnership has executed a subordinated promissory
note, which requires additional interest payments on the
mortgage loan from Capital Mortgage Plus, L.P. The note
is secured by a second mortgage on the property, a
security agreement and the mortgage buydown escrow.
Effective January 1, 1995, the note provides for a
cumulative annual yield of 9.4% on the outstanding
principal of the mortgage loan and requires payment of
interest equal to the prior year's annual yield
shortfall (as defined in the note) plus 30% of all
remaining excess cash. The interest payment is also
limited to 50% of excess cash for the prior year. Prior
to January 1, 1995, the cumulative annual yield rate was
10.95%. The obligation to make payments under this note
commenced on final endorsement of the mortgage
(February 4, 1992) and ends in August 2031.
As additional security for this note, the partners have
executed an additional interest guaranty whereby the
general partner has guaranteed to fund the interest due
under this note calculated at an alternative interest
rate referred to as the "default rate" of 8.43%.
Interest of $94,425 was accrued during 1999 at this
default rate and $649,289 of interest remains payable at
December 31, 1999. Prior to January 1, 1995, the default
rate was 9.84%. The general partner has also guaranteed
payment of interest up to the lesser of the management
fee or interest calculated at the default rate. The
general partner has also agreed to utilize funds to pay
the interest, which would otherwise be used to pay the
management fee. During 1999, interest of $40,428 was
paid.
The loans are secured by deeds of trust on the property.
The liability of the partnership is limited to the
underlying value of the real estate collateral plus
other amounts deposited with the lender.
NOTE E - MANAGEMENT FEE
The property is managed by Ev Cochrane and Associates,
an affiliate of the general partner. The current
management agreement provides for a management fee of 5%
of monthly rental collections. The fee charged to
operations in 1999 was $41,767. Operating funds, which
would have been used to pay the management fee, were
instead utilized to pay interest on the subordinated
promissory note. During 1999, payment of $41,767 of
management fees was deferred. As of December 31, 1999,
$122,325 of management fees remain payable.
An affiliate of the general partner also charged a
bookkeeping fee of $8,000 for the year. As of
December 31, 1999, the entire amount has been paid.
SUPPLEMENTAL INFORMATION
SUPPORTING DATA REQUIRED BY HUD
Mortenson II
HUD Project No.: 074-36605
SUPPLEMENTAL INFORMATION
SUPPORTING DATA REQUIRED BY HUD
Year ended December 31, 1999
RESERVE FOR REPLACEMENTS
Balance at December 31, 1998 $ 100,295
Total monthly deposits 20,439
Interest income 4,187
Approved withdrawals (24,015)
Balance at December 31, 1999 $ 100,906
Mortenson II
HUD Project No.: 074-36605
SUPPLEMENTAL INFORMATION - CONTINUED
SUPPORTING DATA REQUIRED BY HUD
Year ended December 31, 1999
COMPUTATION OF SURPLUS CASH, DISTRIBUTIONS AND RESIDUAL RECEIPTS
Part A - Compute Surplus Cash
Cash (Accounts 1120,1170 and 1191) $ 84,629
Tenant subsidy vouchers due for period covered by
financial statements 0
Other (describe in detail) 0
Total cash 84,629
Accrued mortgage interest payable 25,629
Delinquent mortgage principal payments 0
Delinquent deposits to reserve for replacements 0
Accounts payable (due within 30 days) 1,051
Deficient tax, insurance or MIP escrow deposits 0
Accrued expenses (not escrowed) 279,626
Prepaid revenue (Account 2210) 3,593
Tenant security deposits liability (Account 2191) 62,496
Other current obligations (describe in detail) 0
Less total current obligations 372,395
Surplus cash (deficiency) $ (287,766)
Part B - Compute Distributions to Owners and Required Deposit to
Residual Receipts
Surplus cash $ (287,766)
Mortenson II
HUD Project No.: 074-36605
SUPPLEMENTAL INFORMATION - CONTINUED
SUPPORTING DATA REQUIRED BY HUD
Year ended December 31, 1999
CHANGES IN FIXED ASSETS ACCOUNTS
Assets
Balance Balance
12/31/98 Additions Deletions 12/31/99
Land $ 42,101 $ 0 $ 0 $ 42,101
Buildings 5,007,451 0 0 5,007,451
Building
equipment -
portable 159,623 0 0 159,623
$5,209,175 $ 0 $ 0 $5,209,175
Accumulated
depreciation $1,477,100 $185,807 $ 0 $1,662,907
Total net book value $3,546,268
Mortenson II
HUD Project No.: 074-36605
SUPPLEMENTAL INFORMATION - CONTINUED
SUPPORTING DATA REQUIRED BY HUD
Year ended December 31, 1999
DETAIL OF ACCOUNTS - STATEMENT OF ACTIVITIES
MISCELLANEOUS ADMINISTRATIVE EXPENSES (ACCOUNTS NO. 6390)
Cable Television $ 24,000
$ 24,000
OTHER ENTITY EXPENSES (ACCOUNTS NO. 7190)
Contingent interest $ 94,425
$ 94,425
Mortenson II
HUD Project No.: 074-36605
SUPPLEMENTAL INFORMATION - CONTINUED
SUPPORTING DATA REQUIRED BY HUD
Year ended December 31, 1999
OTHER INFORMATION
Total mortgage principal payments required during the audit year
(12 monthly payments). Applies to all direct loans and HUD-held
and fully-insured mortgages. Any HUD-approved second mortgages
are included. $ 43,821
Total of 12 monthly deposits in the audit year made to the replacement
reserve account, as required by the regulatory agreement, even if
payments are temporarily suspended or reduced. $ 20,439
Replacement reserve and residual receipts reserve releases which are
included as expense items on the statement of operations. $ 24,015
Project improvement reserve releases under the flexible subsidy
program which are included as expense items on the statement of
operations. N/A
Mortgage payable note detail (Section 236 only)
Interest reduction payments from subsidy N/A
Related party transactions detail:
Entity name Amount paid
Mortenson I $ 8,000
INDEPENDENT AUDITORS' REPORT ON INTERNAL CONTROL
To the Partners
Mortenson II
We have audited the financial statements of Mortenson II, as of and for
the year ended December 31, 1999, and have issued our report thereon
dated January 18, 2000. We have also audited Mortenson II's compliance
with requirements applicable to major HUD-assisted programs and have
issued our report thereon dated January 18, 2000.
We conducted our audits in accordance with generally accepted auditing
standards, Government Auditing Standards issued by the Comptroller
General of the United States, and the "Consolidated Audit Guide for
Audits of HUD Programs" (the Guide), issued by the U.S. Department of
Housing and Urban Development, Office of the Inspector General. Those
standards and the Guide require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement and about whether Mortenson II complied
with laws and regulations, noncompliance with which would be material
to a major HUD-assisted program.
The management of the partnership is responsible for establishing and
maintaining internal control. In fulfilling this responsibility,
estimates and judgments by management are required to assess the
expected benefits and related costs of controls. The objectives of
internal control are to provide management with reasonable, but not
absolute, assurance that assets are safeguarded against loss from
unauthorized use or disposition, that transactions are executed in
accordance with management's authorization and recorded properly to
permit the preparation of financial statements in accordance with
generally accepted accounting principles, and that HUD-assisted
programs are managed in compliance with applicable laws and
regulations. Because of inherent limitations in any internal control,
errors, fraud or instances of noncompliance may nevertheless occur and
not be detected. Also, projection of any evaluation of internal control
to future periods is subject to the risk that procedures may become
inadequate because of changes in conditions or that the effectiveness
of the design of controls may deteriorate.
In planning and performing our audits of the partnership for the year
ended December 31, 1999, we obtained an understanding of the design of
relevant controls and determined whether they have been placed in
operation, and we assessed control risk in order to determine our
auditing procedures for the purpose of expressing our opinions on the
partnership's financial statements and on its compliance with specific
requirements applicable to its major HUD-assisted programs and to
report on internal control in accordance with the provisions of the
Guide and not to provide any assurance on internal control.
We performed tests of controls, as required by the Guide, to evaluate
the effectiveness of the design and operation of internal controls that
we considered relevant to preventing or detecting material
noncompliance with specific requirements that are applicable to the
partnership's HUD assisted programs. Our procedures were less in scope
than would be necessary to render an opinion on internal control.
Accordingly, we do not express such an opinion.
Our consideration of internal control would not necessarily disclose
all matters in internal control that might be material weaknesses under
standards established by the American Institute of Certified Public
Accountants. A material weakness is a condition in which the design or
operation of one or more of the internal control components does not
reduce to a relatively low level the risk that errors or fraud in
amounts that would be material in relation to the financial statements
or that noncompliance with laws and regulations that would be material
to a HUD-assisted program may occur and not be detected within a timely
period by employees in the normal course of performing their assigned
functions. We noted no matters involving internal control and its
operation that we consider to be material weaknesses as defined above.
This report is intended for the information and use of the audit
committee, management, others within the organization and the
Department of Housing and Urban Development, and is not intended to be
and should not be used by anyone other than these specified parties.
/s/ Reznick Fedder & Silverman
Charlotte, North Carolina
January 18, 2000
INDEPENDENT AUDITORS' REPORT ON
COMPLIANCE WITH SPECIFIC REQUIREMENTS
APPLICABLE TO MAJOR HUD PROGRAMS
To the Partners
Mortenson II
We have audited the financial statements of Mortenson II, as of and for
the year ended December 31, 1999, and have issued our report thereon
dated January 18, 2000.
We have also audited Mortenson II's compliance with the specific
program requirements governing federal financial reports; mortgage
status; replacement reserve; security deposits; cash receipts and
are applicable to its major HUD-assisted programs for the year ended
December 31, 1999. The management of Mortenson II is responsible for
compliance with those requirements. Our responsibility is to express an
opinion on compliance with those requirements based on our audit.
We conducted our audit of compliance with specific program requirements
in accordance with generally accepted auditing standards, Government
Auditing Standards, issued by the Comptroller General of the United
States, and the "Consolidated Audit Guide for Audits of HUD Programs"
(the Guide), issued by the U.S. Department of Housing and Urban
Development, Office of the Inspector General. Those standards and the
Guide require that we plan and perform the audit to obtain reasonable
assurance about whether material noncompliance with the requirements
referred to above occurred. An audit includes examining, on a test
basis, evidence about Mortenson II's compliance with those
requirements. We believe that our audit provides a reasonable basis for
our opinion.
In our opinion, Mortenson II complied, in all material respects, with
the specific program requirements that are applicable to its major HUD-
assisted programs for the year ended December 31, 1999.
This report is intended for the information and use of the audit
committee, management, others within the organization and the
Department of Housing and Urban Development and is not intended to be
and should not be used by anyone other than these specified parties.
/s/ Reznick Fedder & Silverman
Charlotte, North Carolina
January 18, 2000
INDEPENDENT AUDITORS' REPORT ON COMPLIANCE
WITH SPECIFIC REQUIREMENTS APPLICABLE TO
FAIR HOUSING AND NON-DISCRIMINATION
To the Partners
Mortenson II
We have audited the financial statements of Mortenson II as of and for
the year ended December 31, 1999, and have issued our report thereon
dated January 18, 2000.
We have applied procedures to test Mortenson II's compliance with the
Fair Housing and Non-Discrimination requirements applicable to its HUD-
assisted programs for the year ended December 31, 1999.
Our procedures were limited to the applicable procedures described in
the "Consolidated Audit Guide for Audits of HUD Programs" (the Guide),
issued by the U.S. Department of Housing and Urban Development, Office
of the Inspector General. Our procedures were substantially less in
scope than an audit, the objective of which is the expression of an
opinion on Mortenson II's compliance with the Fair Housing and Non-
Discrimination requirements. Accordingly, we do not express such an
opinion.
The results of our test disclosed no instances of noncompliance that
are required to be reported herein under Government Auditing Standards.
This report is intended for the information and use of the audit
committee, management, others within the organization, and the
Department of Housing and Urban Development and is not intended to be
and should not be used by anyone other than these specified parties.
/s/ Reznick Fedder & Silverman
Charlotte, North Carolina
January 18, 2000
HRII ASSOCIATES
Financial Statements and Supplemental Data
December 31, 1999
INDEPENDENT AUDITORS' REPORT
To the Partners of
HRII Associates
We have audited the accompanying balance sheet of HRII
Associates (the Partnership) as of December 31, 1999,
and the related statements of operations, changes in
partners' deficit, and cash flows for the year then
ended. These financial statements are the
responsibility of the Partnership's 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 HRII Associates as of December 31,
1999, and the results of its operations, and cash flows
for the year then ended, in conformity with generally
accepted accounting principles.
/s/ Tanner & Co.
Salt Lake City, Utah
March 31, 2000
HRII ASSOCIATES
Balance Sheet
December 31, 1999
Assets
Cash $ 186,234
Tenant accounts receivable -
net of allowance for doubtful
accounts of $32,640 7,316
Prepaid expenses 72,025
Restricted deposits 264,343
Land, buildings and equipment 4,065,507
Related party receivables 318,637
Loan costs, net of
accumulated amortization
of $40,235 241,706
Total assets $5,155,768
Liabilities and Partners' Deficit
Accounts payable $ 13,561
Accrued liabilities 148,559
Related party payables 79,197
Mortgage note payable 5,196,860
Tenant deposits held in trust 36,837
Prepaid revenue 6,328
Equity loan 684,400
Total liabilities 6,165,742
Commitments and contingencies -
Partners' deficit (1,009,974)
Total liabilities and partners' deficit $5,155,768
See accompanying notes to financial statements.
HRII ASSOCIATES
Statement of Operations
Year Ended December 31, 1999
Revenues:
Rent $1,056,745
Other 47,496
1,104,241
Operating expenses:
Administrative 196,770
Utilities 67,093
Operating and maintenance 150,209
Taxes and insurance 155,579
Depreciation and amortization 149,135
718,786
Income from operations 385,455
Other income (expense):
Interest income 9,008
Interest expense (537,833)
Net loss $(143,370)
See accompanying notes to financial statements.
HRII ASSOCIATES
Statement of Changes in Partners' Deficit
Year Ended December 31, 1999
Balance, beginning of year $ (866,604)
Net loss (143,370)
Balance, end of year $(1,009,974)
See accompanying notes to financial statements.
HRII ASSOCIATES
Statement of Cash Flows
Year Ended December 31, 1999
Cash flow from operating activities:
Net loss $ (143,370)
Adjustments to reconcile
net loss to net cash
provided by operating
activities:
Depreciation and amortization 149,135
(Increase) decrease in:
Tenant receivables 10,640
Prepaid expenses 132
Restricted deposits 4,627
(Decrease) increase in:
Accounts payable (12,613)
Accrued liabilities 67,157
Tenant deposits (2,413)
Net cash provided by
operating activities 77,879
Cash flow from investing activities:
Purchase of property and equipment (2,626)
Advances to related parties (46,556)
Net cash used in
investing activities (49,182)
Cash flow from financing activities-
payments on long-term debt (25,178)
Increase in cash 3,519
Cash, beginning of year 182,715
Cash, end of year $ 186,234
Cash paid during the years for:
Interest $ 474,518
Income taxes $ -
See accompanying notes to financial statements.
HRII ASSOCIATES
Notes to Financial Statements
December 31, 1999
1. Summary of Significant Accounting Policies
Business Organization
HRII Associates is a Utah Limited Partnership which was organized in
1989. The Project consists of 144 units in apartment buildings in
Gresham, Oregon. The apartment complex is financed with a loan which
is insured by the U.S. Department of Housing and Urban Development
(HUD), under section 221(d)(4) of the National Housing Act (HUD Project
No. 126-35216). The Project's operating methods are regulated by HUD
under the terms of a regulatory agreement.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent 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.
Concentration of Credit Risk
Financial instruments which potentially subject the Partnership to
concentration of credit risk consist primarily of tenant rents
receivable. The Partnership maintains allowances for possible losses
which, when realized, have been within range of management's
expectations.
The Partnership maintains its cash in bank deposit accounts which, at
times, may exceed federally insured limits. The Partnership has not
experienced any losses in such accounts and believes it is not exposed
to any significant credit risk on cash and cash equivalents.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Partnership considers
all highly liquid debt instruments with an original maturity of three
months or less to be cash equivalents.
Land, Buildings and Equipment
Land, buildings and equipment are recorded at cost and are depreciated
using the straight-line method over estimated useful lives ranging from
5 to 40 years. Major additions and improvements are capitalized while
minor replacements, maintenance and repairs which do not increase the
useful lives of the property are expensed as incurred.
Loan Costs
Costs incurred by the Partnership in connection with obtaining the
construction loan and long-term financing have been capitalized and are
amortized using the straight-line method over the term of the HUD
insured mortgage.
Revenue Recognition
Prepaid rents are accrued as a liability by the Partnership and the
associated revenue is recognized as it is earned. Tenant security
deposits are recognized as income when forfeited.
Cost Allocation
On March 1, 1993, the Partnership entered into a cross easement
agreement with Holly Ridge Associates, an entity which owns Phase I of
Holly Ridge. Holly Ridge Phase I is located on property adjacent to
the Phase II property. The two phases share common amenities such as
the exercise facilities, sauna, tanning beds, swimming pools, tennis
courts, maintenance building, etc. In addition, the same management
company (Overland Management Corporation) manages both projects. Under
the terms of the agreement, joint costs of the two phases are allocated
based on the number of units in each phase.
Management Fee
The Partnership pays a management fee to Overland Management
Corporation equal to 4% of defined gross revenues.
Income Taxes
Under tax law provisions, the Partnership does not pay income taxes on
its income. Instead, the income or loss of the Partnership is
allocated to the partners, and the partners are responsible for any
income taxes related to their share of allocated income.
Financial Instruments
None of the Partnership's financial instruments are held for trading
purposes. The Partnership estimates that the fair value of all
financial instruments at December 31, 1999, does not differ materially
from the aggregate carrying values of its financial instruments
recorded in the accompanying balance sheet. The estimated fair value
amounts have been determined by the Partnership using available market
information and appropriate valuating methodologies. Considerable
judgement is necessarily required in interpreting market data to
develop the estimates of fair value, and, accordingly, the estimates
are not necessarily indicative of the amounts that the Partnership
could realized in a current market exchange
2. Related Party Transactions
A general partner of HRII Associates is also vice president of Overland
Management Corporation. Overland Management Corporation provides
services for the Partnership, which include accounting services and
management functions. The management fee expensed to Overland
Management Corporation for the year ended December 31, 1999 was
$40,210. At December 31, 1999, the Partnership's accounts payable and
accrued liabilities include $4,716 payable to Overland Management
Corporation for December 1999 management fees. In addition,
approximately $144,852 was paid to Overland Management Corporation to
reimburse costs of payroll, payroll taxes and workman's compensation
insurance for their employees who provide on-site labor to the Project.
Accrued workman's compensation and payroll taxes of $3,854 at December
31, 1999 represents a payable to Overland Management Corporation.
The Partnership has also made cash advances to entities under common
ownership and management and has a receivable from those entities in
the amount of $318,637.
The Partnership has payables to related companies for expenses paid on
the Partnership's behalf in the amount of $79,197.
3. Restricted Deposits
Restricted deposits consist of the following:
Property tax and insurance escrow $ 29,000
Replacement reserve escrow 114,084
Equity loan reserves 82,362
Tenant security deposit 38,897
$ 264,343
4. Land, Building and Equipment
Land, buildings and equipment consist of the following:
Land and land improvements $ 242,044
Buildings 4,530,221
Furniture for tenant use 295,312
Office furniture and equipment 5,226
5,072,803
(1,007,296)
$4,065,507
5. Mortgage Payable
The HUD insured mortgage note is payable to a financial institution in
monthly installments of $37,921 including interest at 8.25%. The loan
is secured by the apartment complex and matures on August 1, 2034.
Future maturities over the next five years are as follows:
Year Ending December 31:
2000 $ 27,335
2001 29,677
2002 32,221
2003 34,982
2004 37,979
Thereafter 5,034,666
$5,196,860
6. Equity Loan
The Partnership has a non-interest bearing equity loan payable to a
financial institution payable upon maturity of the HUD insured mortgage
in the amount of $684,400.
Under the terms of a separate agreement, HRII Associates is obligated
to pay additional interest amounts to this financial institution based
on the equity loan balance and surplus cash calculations and from the
proceeds of events such as sale or refinancing of the Project. During
the year ended December 31, 1999, the Partnership expensed $107,301 as
interest expense related to this obligation and has a payable of
$108,976 recorded in accrued liabilities at December 31, 1999.
7. Allowable Distributions to Partners
Under the HUD regulatory agreement for Section 221(d)(4) projects,
distributions to partners from funds provided by rental operations are
allowed, provided: 1) surplus cash, as defined by HUD, is available for
such purposes, 2) the project is in compliance with all outstanding
notices of requirements for proper maintenance and 3) there is no
default under the regulatory agreement or under the regulatory
agreement or under the mortgage note. For the year ended December 31,
1999, there is no surplus cash.