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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, 2000
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
registrant 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 statements
incorporated by reference in Part III of this Form 10-K or any amendment 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 Securities 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 25
Page 1 of 77
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 general
partner of the Registrant is CIP Associates, Inc., a Delaware corporation (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
residential 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
invests are insured or coinsured by the Department of Housing and Urban
Development ("HUD") and Related Mortgage Corporation ("RMC"), an affiliate of
the General Partner. The remaining 10% of the Registrant's portfolio is
comprised of uninsured non-interest bearing equity loans made directly to the
same developers as the Mortgages for, among other purposes, defrayal of certain
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 28,
2001; it excludes the investment in Willow Trace which was repaid on December
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 81%
Fieldcrest III Dothan, 8/27/ 8.75%- 40
Apartments (5) Alabama 1991 3,343,700 10.11% 383,300 11/92 years 98%
Holly Ridge II Gresham, 3/16/ 9.25%- 40
Apartments (6) Oregon 1993 5,310,100 9.89% 684,000 6/95 years 99%
--------- -------
$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 Additional
Interest Guaranty agreements for Mortenson Manor Apartments ("Mortenson") 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 28, 2001, all loan amounts have been disbursed.
(3) Default Interest payments in the aggregate amount of approximately $742,000
for the years ended December 31, 1993 through 2000 have not been received and,
as a result, the Registrant established an allowance for uncollectability which
equals approximately $656,000 and $608,000 at December 31, 2000 and 1999,
respectively.
(4) A Default Interest payment of $126,435 for the period January 2000 to
December 2000 is expected to be received during the second quarter of 2001. The
Default Interest payments of approximately $127,000 and $130,000 for the years
ended December 31, 1999 and 1996, respectively, have not been received and as a
result, the Registrant established an allowance for uncollectability which
equals approximately $257,000 at December 31, 2000.
(5) A Contingent Interest payment of $46,814 for the period January 2000 to
December 2000 is expected to be received during the second quarter of 2001.
(6) Default and Contingent Interest payments of $51,844 and $34,561 and $52,095
and $35,224, respectively, for the periods July 2000 to December 2000 and July
1999 to December 1999 is expected to be received during the second quarter of
2001 and was received in the first quarter of 2001, respectively.
(7) All loans have call provisions effective ten years following final
endorsement and a grace period. The Registrant, in order to enforce such
provisions, 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 accelerating
payment in full and assuming the risks of foreclosure if the mortgagor failed to
make the accelerated payment. The Registrant presently expects 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.
2000 1999 1998
---- ---- ----
Mortenson 19% 19% 13%
Windemere 37 37 24
Fieldcrest 16 16 13
Holly Ridge 26 25 17
Willow Trace 0 0 20
Repayment of Mortgage Loan
- - - - - --------------------------
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 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 balance 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 proceeds
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 $45,453 was distributed
to the General Partner.
Competition
- - - - - -----------
The Registrant's business is affected by competition to the extent that the
underlying properties from which it is to derive interest and principal payments
may be subject to competition from neighboring properties. In particular, the
receipt of additional interest and the repayment of the equity loans, neither of
which is insured or guaranteed by government or quasi-government agencies, is
dependent upon the economic performance of the underlying properties which could
be adversely affected by competitive conditions.
Employees
- - - - - ---------
The Registrant does not directly employ anyone. All services are performed for
the Registrant by its General Partner and that entity's affiliates. The General
Partner receives compensation in connection with such activities as set forth in
Items 11 and 13. In addition, the Registrant reimburses the General Partner and
certain of its affiliates for expenses incurred in connection with the
performance by their employees of services for the Registrant in accordance with
the Partnership Agreement.
Item 2. Properties.
The Registrant does not own or lease any property.
Item 3. Legal Proceedings.
There are no material legal proceedings pending against or involving the
Registrant.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders during the fiscal year
covered by this report through the solicitation of proxies or otherwise.
PART II
Item 5. Market for the Registrant's Common Equity and Related Security Holder
Matters.
As of December 31, 2000, the Registrant had issued and outstanding 1,836,660
limited partnership interests ("Limited Partnership Interests"). All of the
issued and outstanding Limited Partnership Interests are issued to Related FI
BUC$ 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
anticipated that BACs will be listed for trading on any securities exchange or
included for quotation on the Nasdaq National Market.
All of the Registrant's general partnership interests, representing an aggregate
capital contribution of $1,000, are held by the General Partner.
There are no material legal restrictions upon the Registrant's present or future
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 2000, 1999 and 1998 were as follows:
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
----------- ----------- ----------- -----------
2000 .2212 .2182 .2182 .2206
1999 .2164 .2188 .2212 .2212
1998 .2466 .2493 .2521 2.7021
Quarterly distributions are made 45 days following the close of the calendar
quarter.
A total of $9,803,296 was distributed to the limited partners or BACs holders
during the years 2000, 1999 and 1998. The Registrant utilized the original
working capital reserve, in the aggregate amount of $477,532, for distributions
from 1989 through 1991, which is considered to be a return of capital. An
additional working capital reserve of approximately $2,800,000 was established
from uninvested offering proceeds, a portion of which was applied to pay a part
of the 2000, 1999 and 1998 distributions (which is considered to be a return of
capital). Approximately $274,000, $4,686,000 (see below) and $0 paid to the
limited partners or BACs holders in each of the years ended December 31, 2000,
1999 and 1998, respectively, represented a return of capital. A total of
$153,686 was distributed to the General Partner during 2000, 1999 and 1998.
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 Discussion 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
Registrant. Additional financial information is set forth in the audited
financial statements and footnotes thereto contained in Item 8 hereof.
OPERATIONS Year ended December 31,
- - - - - ---------- -----------------------
2000 1999 1998 1997 1996
---------- ------------ --------- ---------- -----------
Interest income
Mortgage loans $1,994,946 $1,987,628 $2,678,758 $2,471,273 $2,423,058
Temporary investments 45,335 61,369 32,135 14,658 39,064
Other income 3,352 6,517 393,785 2,252 2,202
---------- ---------- ---------- ---------- ----------
Total revenues 2,043,633 2,055,514 3,104,678 2,488,183 2,464,324
---------- ---------- ---------- ---------- ----------
Operating expenses 501,529 488,707 567,549 584,796 598,701
Provision for bad debts 175,493 54,549 144,977 96,079 157,138
---------- ---------- ---------- ---------- ----------
Total Expenses 677,022 543,256 712,526 680,875 755,839
---------- ---------- ---------- ---------- ----------
Net income $1,366,611 $1,512,258 $2,392,152 $1,807,308 $1,708,485
========== ========== ========== ========== ==========
Net income per BAC $ 0.73 $ 0.81 $ 1.28 $ 0.96 $ 0.91
========== ========== ========== ========== ==========
FINANCIAL POSITION December 31,
- - - - - ------------------ -----------------------
2000 1999 1998 1997 1996
--------- ------------ --------- ---------- -----------
Total assets $23,535,982 $23,822,034 $28,561,927 $28,597,517 $29,292,812
========== ========== ========== ========== ==========
CASH DISTRIBUTIONS
Distributions per BAC $ 0.88 $ 0.88 $ 3.45 $ 1.40 $ 1.40
=========== ========== ========== ========== ==========
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
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 reserve.
During the year ended December 31, 2000, cash and cash equivalents of the
Registrant decreased by approximately $91,000 due to cash provided by operating
activities ($1,412,000), collections of principal on mortgage loans
approximately ($143,000) and distributions paid to partners ($1,646,000).
Included 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
operations, the General Partner anticipates that there will be sufficient cash
from operations generated to cover anticipated expenses in 2001 and to fund
future distributions.
A distribution of approximately $1,613,000 made to the limited partners or BACs
holders during the year ended December 31, 2000 was made from adjusted cash flow
from operations and, to a lesser extent, from working capital reserves which is
considered to be a return of capital. 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. Approximately $33,000 and $80,000 was distributed to the General
Partner for each of the years ended December 31, 2000 and 1999, 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 insured or
co-insured by HUD and a private mortgage lender (which is an affiliate of the
General Partner). The Registrant's investments in uninsured non-interest bearing
equity loans (which represent approximately 10% of the Registrant's portfolio)
are secured by a Registrant interest in properties which are diversified by
location so that if one area of the country is experiencing 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
- - - - - ---------------------
2000 vs. 1999
- - - - - -------------
Results of operations for the years ended December 31, 2000 and 1999 consisted
primarily of interest income of $1,995,000 and $1,988,000, respectively, earned
from investments in mortgage loans.
Interest income from temporary investments decreased approximately $16,000 for
the year ended December 31, 2000 as compared to 1999 primarily due to higher
cash and cash equivalents balances in 1999 resulting from the cash received from
the repayment of the Willow Trace mortgage in 1998. A significant amount of the
cash received from the repayment of the Willow Trace mortgage was distributed to
BACs holders on February 15, 1999.
General and administrative increased approximately $21,000 for the year ended
December 31, 2000 as compared to 1999 primarily due to an increase in printing
costs and accounting expense in 2000.
A provision for bad debts of approximately $175,000 and $55,000 was charged for
the years ended December 31, 2000 and 1999, respectively, representing the 2000
Guaranteed Interest due from Mortenson and the 1999 Guaranteed Interest due from
Windemere and the 1999 Guaranteed Interest due from Mortenson, respectively.
1999 vs. 1998
- - - - - -------------
Results of operations for the years ended December 31, 1999 and 1998 consisted
primarily of interest income of $1,988,000 and $2,679,000, respectively, 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 repayment
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 December
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 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 10
Statements of Financial Condition as of December 31, 2000 and 1999 11
Statements of Income for the years ended December 31, 2000, 1999 and 1998 12
Statements of Changes in Partners' Capital (Deficit) for the years 13
ended December 31, 2000, 1999 and 1998
Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998 14
Notes to Financial Statements 15
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, 2000 and
1999 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, 2000. These financial statements are the responsibility of the
General Partners. 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
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 the
General Partner, as well as evaluating the overall financial 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, 2000 and 1999, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2000 in
conformity with generally accepted accounting principles.
Bethesda, Maryland /s/ REZNICK, FEDDER & SILVERMAN
March 21, 2001
CAPITAL MORTGAGE PLUS L.P.
(a limited partnership)
STATEMENTS OF FINANCIAL CONDITION
ASSETS
December 31,
-------------------------
2000 1999
----------- -----------
Investments in mortgage loans (Note 3) $21,357,424 $21,698,812
Cash and cash equivalents 919,391 1,010,890
Accrued interest receivable (net of allowance
of $913,236 and $737,743, respectively) 602,930 437,183
Loan origination costs (net of accumulated
amortization of $177,712 and $158,800, respectively) 656,237 675,149
---------- ----------
Total Assets $23,535,982 $23,822,034
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and other liabilities $ 25,000 $ 20,744
Due to general partner and affiliates (Note 4) 46,170 57,264
----------- ----------
Total liabilities 71,170 78,008
---------- ----------
Partners' capital (deficit):
Limited Partners (1,836,660 BACs issued
and outstanding) (Note 1) 23,618,659 23,892,289
General Partner (151,847) (148,263)
----------- ----------
Total partners' capital 23,464,812 23,744,026
---------- ----------
Total Liabilities and Partners' Capital $23,535,982 $23,822,034
========== ==========
See accompanying notes to financial statements.
CAPITAL MORTGAGE PLUS L.P.
(a limited partnership)
STATEMENTS OF INCOME
Years Ended December 31,
2000 1999 1998
------------ ------------ -----------
Revenues:
Interest income:
Mortgage loans (Note 3) $1,994,946 $1,987,628 $2,678,758
Temporary investments 45,335 61,369 32,135
Other income 3,352 6,517 393,785
------------ ----------- ----------
Total revenues 2,043,633 2,055,514 3,104,678
--------- --------- ---------
Expenses:
General and administrative 84,084 63,458 61,918
General and administrative-
related parties (Note 4) 198,403 206,207 228,185
Provision for bad debts 175,493 54,549 144,977
Amortization 219,042 219,042 277,446
---------- ---------- ----------
Total expenses 677,022 543,256 712,526
---------- ---------- ----------
Net income $1,366,611 $1,512,258 $2,392,152
========= ========= =========
Net income per BAC $ 0.73 $ 0.81 $ 1.28
========= ========= =========
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, 2000, 1999 and 1998
Limited General
Total Partners Partner
Partners' capital (deficit) - January 1, 1998 $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)
Net income 1,366,611 1,339,279 27,332
Distributions (1,645,825) (1,612,909) (32,916)
----------- ----------- ---------
Partners' capital (deficit) - December 31, 2000 $23,464,812 $23,618,659 $(151,847)
========= =========== ==========
See accompanying notes to financial statements.
CAPITAL MORTGAGE PLUS L.P.
(a limited partnership)
STATEMENTS OF CASH FLOWS
Years Ended December 31,
2000 1999 1998
----------- ----------- -----------
Cash flows from operating activities:
Net income $ 1,366,611 $ 1,512,258 $ 2,392,152
----------- ----------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for bad debts 175,493 54,549 144,977
Gain on recovery of amortized portion of Willow
Trace Equity Loan 0 0 (311,742)
Writeoff of unamortized portion of Willow Trace
Loan costs 0 0 133,859
Amortization 219,042 219,042 277,446
Amortization of interest rate buydown (1,452) (1,452) (1,452)
Changes in operating assets and liabilities:
Increase in other assets (341,240) (147,698) (45,744)
Increase (decrease) in accounts payable
and other liabilities 4,255 70 (25,772)
Decrease in due to general partner
and affiliates (11,093) (4,328) (338,706)
----------- ----------- -----------
Total adjustments 45,005 120,183 (167,134)
----------- ----------- -----------
Net cash provided by operating activities 1,411,616 1,632,441 2,225,018
----------- ----------- -----------
Cash flows from investing activities:
Receipt of principal on mortgage loans 142,710 134,427 4,432,259
Receipt of principal on equity loan 0 0 680,000
----------- ----------- -----------
Net cash provided by investing activities 142,710 134,427 5,112,259
----------- ----------- -----------
Cash flows from financing activities:
Distributions to partners (1,645,825) (6,247,893) (2,063,264)
----------- ----------- -----------
Net cash used in financing
activities (1,645,825) (6,247,893) (2,063,264)
----------- ----------- -----------
Net (decrease) increase in cash and cash
equivalents (91,499) (4,481,025) 5,274,013
Cash and cash equivalents at beginning of year 1,010,890 5,491,915 217,902
----------- ----------- -----------
Cash and cash equivalents at end of year $ 919,391 $ 1,010,890 $ 5,491,915
=========== =========== ===========
See Accompanying Notes to Financial Statements.
CAPITAL MORTGAGE PLUS L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 and 1998
NOTE 1 - General
Capital Mortgage Plus L.P., a Delaware limited partnership (the "Partnership")
commenced a public offering (the "Offering") on May 10, 1989 of 5,000,000
($100,000,000) Beneficial Assignment Certificates ("BACs") representing
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 $36,733,200 of gross proceeds
from the BACs holders representing 1,836,660 BACs. The final close of the
Offering occurred on May 23, 1991 and no further issuance of BACs is
anticipated.
The Partnership was organized on November 23, 1988 and will continue until
December 31, 2041 unless terminated sooner under the provisions of its
partnership agreement.
The general partner of the Partnership is CIP Associates, Inc., a Delaware
corporation (the "General Partner"). Related FI BUC$ Associates, Inc. is the
Assignor Limited Partner of the Partnership. CIP Associates, Inc. and Related FI
BUC$ Associates, Inc. are under substantially common ownership.
The Partnership was formed to invest in insured or guaranteed mortgage
investments. The Partnership has invested in first mortgage construction and
permanent loans ("Mortgages") to finance multifamily residential rental
properties ("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 developers 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 Agreement 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 return 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, $.88 and $3.45 for 2000, 1999
and 1998. The 2000, 1999 and 1998 distributions were made from adjusted cash
flow from operations (and, in particular the fourth quarter 1998 distribution
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
receivable. 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 interest
rate over the average expected lives of the respective mortgages.
b) Cash and Cash Equivalents
Cash and cash equivalents include temporary investments with original maturity
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 directly
to the individual partners. The Partnership may be subject to state and local
taxes in jurisdictions in which it operates.
d) Revenue Recognition
Interest income on the mortgage loans consists of contingent and non-contingent
interest as defined in the mortgage notes and other additional interest
agreements. Non-contingent interest consists of base and default interest, which
is recognized as earned. Contingent interest is based on the projects cash flows
and is recognized when received.
CAPITAL MORTGAGE PLUS L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
(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, 2000 and 1999 is as follows:
Amounts Advanced
---------------------------------------------------------------------
No. of
Apart Date of Final Total Investments in Investments
Property/ -ment Invest- Maturity Mortgage Equity Amounts Loans at in Loans at
Location Units ment Date Loans Loans Advanced 12/31/2000(E) 12/31/1999(E)
- - - - - -------- ----- ---- ---- ----- ----- -------- ------------- -------------
Mortenson 104 8/1990 8/2030 $4,974,090 $577,885 $5,551,975 $ 4,733,086 $4,827,911
Manor
Apts./
Ames, IA
Windemere 204 9/1990 9/2030 8,110,300 736,550 8,846,850 7,892,195 8,006,301
Apts./
Wichita, KS
Fieldcrest 112 8/1991 8/2031 3,343,700 383,300 3,727,000 3,320,237 3,370,691
III
Apts./
Dothan, AL
Holly 144 3/1993 3/2033 5,310,100 684,400 5,994,500 5,411,906 5,493,909
Ridge II --------- ------- --------- --------- ---------
Apts./
Gresham, OR
Total $21,738,190 $2,382,135 $24,120,325 $21,357,424 $21,698,812
=========== ========== =========== =========== ===========
Interest earned by the Partnership during 2000
------------------------------------------------------------
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) Race (C) ate (D) Earned
- - - - - ---------- -------- -------- -------- ------- ------
Mortenson $297,477 $93,773 $ 0 $ 0 $ 391,250
Manor 6.45% 1.98% .97% 30.00%
Apts./
Ames, IA
Windemere 620,082 126,435 0 0 746,517
Apts./ 7.95% 1.60% 1.08% 30.00%
Wichita, KS
Fieldcrest 281,247 0 46,814 0 328,061
III 8.68% 0% 1.36% 30.00%
Apts./
Dothan, AL
Holly 421,056 51,844 34,561 21,657 529,118
Ridge II 8.125% 1.00% .64% 30.00%
Apts./
Gresham, OR
------ ------- ------ ------ ---------
$1,619,862 $272,052 $81,375 $21,657 $1,994,946
========== ======== ======= ======= ==========
CAPITAL MORTGAGE PLUS L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 and 1998
(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 interests.
(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 Partnership
after payment of the Annual Yield and is contingent upon property cash flow.
Willow Trace provided sufficient cash flow in 1998 to pay the Partnership a
participation in 1998. Fieldcrest provided sufficient cash flow in 1998 and 1999
to pay the Partnership a participation during 1998, 1999 and 2000.
(E) The Investments in Loans amount reflects the unpaid balance of the Mortgages
and the unamortized balance of the equity loans in the amounts of $20,807,677
and $549,747, respectively, at December 31, 2000 and $20,950,388 and $748,424,
respectively, at December 31, 1999.
(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") (the Equity Loan and
Mortgage Loan, collectively the "Willow Trace 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 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 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.
2000 1999
------------ -------------
Investment in loans January 1, $ 21,698,812 $ 22,031,917
Additions:
Fieldcrest discount amortization 1,452 1,452
------------ ------------
1,452 1,452
------------ ------------
Deductions:
Amortization of equity loans (200,130) (200,130)
Collection of principal -Mortgages
-Mortenson (46,668) (43,761)
-Windemere (52,727) (48,676)
-Fieldcrest (18,345) (16,813)
-Holly Ridge (24,970) (25,177)
------------ ------------
(342,840) (334,557)
------------ ------------
Investment in loans December 31, $ 21,357,424 $ 21,698,812
============ ============
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 certain
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, 2000, 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, $94,000 and $96,000 for the years ended
December 31, 2000, 1999 and 1998, respectively. During the fourth quarter of
1999 and the first quarter of 1998, the Partnership received default interest of
approximately $40,000 and $40,000 representing partial payment for 1998 and
1997. Windmere has not paid its default interest of approximately $127,000 and
$130,000 for the years ended December 31, 1999 and 1996. As a result, an
allowance for uncollectability relating to the default interest amounted to
approximately $913,000 and $738,000 at December 31, 2000 and 1999, respectively.
Previously, the operations of Mortenson were not 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 2000, 1999 and 1998 of approximately $94,000,
$94,000 and $96,000, has been accrued and approximately $50,000, $53,000 and
$55,000 for 2000, 1999 and 1998 has been reserved.
NOTE 4 - Related Parties
The costs incurred to related parties for the years ended December 31, 2000,
1999 and 1998 were as follows:
2000 1999 1998
-------- -------- ---------
Partnership management fees (a) $126,368 $126,368 $146,391
Expense reimbursement (b) 72,035 79,839 81,794
--------- --------- ---------
Total general and administrative-
related parties $198,403 $206,207 $228,185
========= ========= =========
(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 and 2000 partnership
management fees were calculated on the reduced asset base due to the repayment
of the Willow Trace Loan on December 16, 1998. During the years ended December
31, 2000, 1999 and 1998, payments of approximately $126,000, $126,000 and
$344,000 were made, respectively. At both December 31, 2000 and 1999, 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 Partnership
which include, but are not limited to: accounting and financial management;
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 asset
monitoring services 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, 2000, 1999 and 1998, payments of approximately $83,000,
$84,000 and $146,000 were made, respectively, relating to these costs. As of
December 31, 2000 and 1999, the General Partner and its affiliates were due
approximately $15,000 and $26,000, 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 2000, 1999 and 1998, 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 financial
instruments, as defined by SFAS No. 107, be disclosed. Financial instruments 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 financial
instruments.
Considerable judgment is required in interpreting data to develop the estimates
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 estimation
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 each class of
financial instrument matures in three months or less and does not represent
unanticipated credit concerns.
Investments in Loans
- - - - - --------------------
At December 31, 2000, the estimated carrying value of the mortgage loans
approximated fair value. The estimated fair values at December 31, 2000 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 investments, 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, 2001, distributions of $405,119 and $8,268 were paid to BAC
holders and the General Partner, respectively, representing the 2000 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 affairs
are managed and controlled by the General Partner. The General Partner was
organized in Delaware in November 1988. The executive officers and director 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 subsequent
changes in that ownership to the Securities and Exchange Commission on Forms 3,
4 and 5. Such executive officers, directors (and ten percent holders) 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 Partner'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, 60, 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 taxation 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 Related 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. Mr. Ross also
serves on the Board of Directors of CharterMac.
STUART J. BOESKY, 44, 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 Shipley
& Rothstein from 1984 until February 1986 when he joined Capital where he
presently serves as Managing Director. From 1983 to 1984 Mr. Boesky practiced
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 Juris Doctor degree. He
then received a Master of Law degree in Taxation from Boston University School
of Law. Mr. Boesky also serves on the Board of Directors of Aegis Realty, Inc.,
CharterMac and American Mortgage Acceptance Company.
ALAN P. HIRMES, 46, 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. Mr.
Hirmes also serves on the Board of Directors of Aegis Realty, Inc. and
CharterMac.
GLENN F. HOPPS, 37, 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 University
at Albany with a Bachelor of Science Degree in Accounting.
TERESA WICELINSKI, 35, 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 and/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
officers 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 General Partner
believes that any compensation attributable to services performed 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, 2001, no person was known by the Registrant to be the beneficial
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, 2001, 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
Compensation. However, there have been no direct financial transactions between
the Registrant and the director and/or 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 10
Statements of Financial Condition as of December 31, 2000 and 1999 11
Statements of Income for the years ended December 31, 2000, 1999 and 1998 12
Statements of Changes in Partners' Capital (Deficit) for the years 13
ended December 31, 2000, 1999 and 1998
Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998 14
Notes to Financial Statements 15
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (continued)
Sequential
Page
---------------
(a) 2. Financial Statement Schedules
All schedules have been omitted because they are not required or
because the required information is contained in the financial
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 Registrant'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 Mortenson 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 respect 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 Windemere
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 respect to
Windemere Development, Inc. (incorporated by reference to Exhibit 10(c)
in the Registrant's Form 8 Amendment dated October 30, 1990 to Current
Report on Form 8-K dated September 28, 1990)
(10G) Mortgage Note, dated August 23, 1991, with respect to Fieldcrest 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 Fieldcrest 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 respect 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)
Sequential
Page
---------------
(10L) Subordinated Promissory Note, dated March 16, 1993, with respect to
Holly Ridge Apartments in Gresham, Oregon (incorporated by reference to
Exhibit 10(c) in the Registrant's Current Report on Form 8-K dated
March 16, 1993)
(10M) Modification Agreement, dated January 1, 1995, with respect to
Mortenson Manor Apartments in Ames, Iowa (incorporated by reference to
Exhibit (10P) in the Registrant's Form 10-K for the fiscal year ended
December 31, 1995)
(10N) 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 Exhibit (10Q) in the
Registrant's Form 10-K for the fiscal year ended December 31, 1995)
99. Additional Exhibits
(99A) The Financial Statements of Windemere Development, Inc., which 30
owns and operates an apartment complex known as Windemere at
Tallgrass located in Wichita, Kansas, as required by Staff Accounting
Bulletin No. 71
(99B) The Financial Statements of Mortenson II, which owns and operates an 43
apartment complex known as Mortenson Manor Apartments located in Ames,
Iowa, as required by Staff Accounting Bulletin No 71.
(99C) The Financial statements of HR II Associates, which owns and operates 68
an apartment complex known as Holly Ridge II located in Gresham,
Oregon, as required by Staff Accounting Bulletin No 71.
(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 Exchange
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: By: _________________________
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)
_____________________ of CIP Associates, Inc.
Alan P. Hirmes (the General Partner of the Registrant)
Treasurer (principal accounting
_____________________ officer) of CIP Associates, Inc.
Glenn F. Hopps (the General Partner of the Registrant)
_____________________ Director of CIP Associates, Inc.
Stephen M. Ross (the General Partner of the Registrant)
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
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: March 30, 2001 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.
- - - - - ------------------ (the General Partner of the Registrant) March 30, 2001
Alan P. Hirmes
Treasurer (principal accounting
/s/ Glenn F. Hopps officer) of CIP Associates, Inc.
- - - - - ------------------ (the General Partner of the Registrant) March 30, 2001
Glenn F. Hopps
/s/ Stephen M. Ross Director of CIP Associates, Inc.
- - - - - ------------------- (the General Partner of the Registrant) March 30, 2001
Stephen M. Ross
WINDEMERE DEVELOPMENT, INC.
Financial Statements
December 31, 2000 and 1999
Contents
--------
Independent Auditors' Report
Financial Statements
Balance Sheets
Statements of Income
Statements of Changes in Stockholders' Equity
Statement of Cash Flows
Notes to Financial Statements
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, 2000 and 1999, 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, 2000 and 1999, 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 15, 2001
WINDEMERE DEVELOPMENT, INC.
Balance Sheet
December 31, 2000 and 1999
Assets
2000 1999
------------ ------------
Current assets:
Petty cash $ 100 $ 100
Cash in bank and interest-bearing deposits 38,688 54,756
Rent receivable 14,165 9,153
---------- ----------
Total current assets 52,953 64,009
Deposits held in trust - funded:
Tenant security deposits 25,311 39,024
Restricted deposits and funded reserves:
Mortgagee escrow deposits - Note 2 69,513 67,129
Reserve for replacements - Note 4 37,071 32,929
----------- -----------
Total deposits 106,584 100,058
Fixed assets:
Land and special assessments 756,956 746,418
Buildings and improvements 7,808,748 7,808,748
Furniture and equipment 139,991 110,114
---------- ----------
8,705,695 8,665,280
Less accumulated depreciation 1,770,541 1,559,036
--------- ---------
Total fixed assets 6,935,154 7,106,244
Other assets:
Loan costs, net of amortization of $145,453
and $128,934 515,309 531,828
---------- ----------
Total $7,635,311 $7,841,163
========= =========
WINDEMERE DEVELOPMENT, INC.
Balance Sheet
December 31, 2000 and 1999
Liabilities and Stockholders' Equity
------------------------------------
2000 1999
------------ ---------------
Current liabilities:
Accounts payable, trade $ 8,773 $ 614
Accrued management fee 140,879 89,130
Accrued interest payable 431,876 306,808
Accrued real estate taxes 52,664 55,054
Accrued mortgage insurance 29,144 29,341
Mortgage payable, current portion 57,114 52,727
Rent deferred credits 6,273 12,531
----------- -----------
Total current liabilities 726,723 546,205
Deposit liabilities:
Tenant security deposits 31,200 36,789
Long-term liabilities:
Mortgage payable 7,769,555 7,822,282
Less current portion 57,114 52,727
----------- -----------
Total long-term liabilities 7,712,441 7,769,555
Stockholders' equity (deficit):
Common stock, authorized 1,000 shares;
issued - 1,000 shares 1,000 1,000
Additional paid-in capital 749,569 736,650
Retained deficit (1,585,622) (1,249,036)
---------- ----------
Total stockholders' deficit (835,053) (511,386)
----------- -----------
Total $7,635,311 $7,841,163
========= =========
See notes to financial statements.
WINDEMERE DEVELOPMENT, INC.
Statements of Income
Years Ended December 31, 2000 and 1999
2000 1999
------------ ---------------
Operating income:
Rental $1,197,453 $1,371,335
Operating expenses:
Interest 750,504 764,683
Mortgage insurance 58,090 58,499
Bank charges 247 0
Property taxes 94,807 96,600
Insurance 32,468 29,977
Equipment leasing 2,009 5,087
Management fees 65,852 80,224
Salaries and wages 110,844 100,809
Payroll taxes 5,612 3,781
Utilities 58,086 71,903
Professional fees 13,417 14,452
Repairs and maintenance 87,607 117,279
Advertising 10,711 7,908
Office supplies and postage 2,844 1,468
Donations 0 300
Miscellaneous 2,743 3,076
Depreciation and amortization 228,024 226,130
---------- ----------
Total operating expenses 1,523,865 1,582,176
--------- ---------
Loss from operations (326,412) (210,841)
Other income (expense):
Interest and dividends 3,714 3,328
Gain on sale of assets 2,351 2,432
Unrealized loss on securities (16,239) (3,936)
------------ -----------
Total other income (expense) (10,174) 1,824
------------ -----------
Net Loss $ (336,586) $ (209,017)
========== ==========
See notes to financial statements.
WINDEMERE DEVELOPMENT, INC.
Statements of Changes in Stockholders' Equity (Deficit)
Years Ended December 31, 2000 and 1999
Additional
Common Paid-In Retained
Stock Capital Earnings Total
------------ ----------- ----------- -------------
Balance at
January 1,
1999 $ 1,000 $ 736,650 $(1,040,019) $ (302,369)
Net loss 0 0 (209,017) (209,017)
----------- ----------- ----------- -----------
Balance at
December 31,
1999 1,000 736,650 (1,249,036) (511,386)
Net loss 0 0 (336,586) (336,586)
Contributed capital 0 12,919 0 12,919
----------- ----------- ----------- -----------
Balance of
December 31,
2000 $ 1,000 $ 749,569 $(1,585,622) $ (835,053)
=========== =========== =========== ===========
See notes to financial statements.
WINDEMERE DEVELOPMENT, INC.
Statements of Cash Flows
Years Ended December 31, 2000 and 1999
2000 1999
------------ ---------------
Cash flows from operating activities:
Rental receipts 1,186,184 1,360,373
Interest and dividend receipts 3,714 3,328
Capital gain dividends 2,351 2,432
------------ ------------
1,192,249 1,366,133
Administrative (24,390) (30,600)
Management fees (14,103) (18,835)
Utilities (58,112) (72,218)
Salaries and wages (116,456) (104,590)
Operating and maintenance (87,003) (122,573)
Real estate taxes and escrow deposits (99,581) (92,887)
Property insurance (32,468) (29,977)
Tenant security and other deposits (8,115) (216)
Interest on mortgage (625,437) (703,933)
Mortgage insurance premium (58,287) (58,682)
---------- ----------
(1,123,952) (1,234,511)
---------- ----------
Net cash provided by operating activities 68,297 131,622
Cash flows from investing activities:
Purchase of property and equipment (40,415) (67,713)
Deposits into reserve for replacement (31,937) (30,877)
Withdrawals from reserve for replacement 27,795 0
Transfer to cash escrow 0 47,139
---------- ----------
Net cash used in investing activities (44,557) (51,451)
Cash flows from financing activities:
Mortgage principal payments (52,727) (48,676)
Capital contributed 12,919 0
---------- -----------
Net cash used in financing activities (39,808) (48,676)
---------- ----------
Net increase (decrease) in cash and
cash equivalents (16,068) 31,495
Cash and cash equivalents, beginning of year 54,856 23,361
---------- ----------
Cash and cash equivalents, end of year $ 38,788 $ 54,856
========== ==========
WINDEMERE DEVELOPMENT, INC.
Statements of Cash Flows
Years Ended December 31, 2000 and 1999
2000 1999
----------- -----------
Cash flows from operating activities:
Net loss $(336,586) $(209,017)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 228,024 226,130
Unrealized loss on securities 16,239 3,936
(Increase) decrease in rent receivable (5,012) (7,513)
Decrease in accounts receivable, related party 0 4,348
(Increase) decrease in cash restricted for tenant
security deposits (2,526) 353
(Increase) decrease in mortgagee escrow deposits (2,384) 1,259
Increase (decrease) in accounts payable 8,159 (8,242)
Increase in accrued liabilities 174,230 124,386
Increase (decrease) in tenant security deposits (5,589) (569)
Increase in deferred revenue (6,258) (3,449)
--------- ---------
Net cash provided by operating activities $ 68,297 $ 131,622
========= =========
See notes to financial statements.
WINDEMERE DEVELOPMENT, INC.
Notes to Financial Statements
December 31, 2000 and 1999
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 $10,711 and $7,908 for the years ended
December 31, 2000 and 1999, respectively.
2. Restricted Deposits and Funded Reserves
The Company has deposited with the lender the following amounts:
Mortgagee escrow deposits 2000 1999
- - - - - ------------------------- ----------- --------
Mortgage and Property Insurance,
Real estate taxes and special assessments $ 69,513 $ 67,129
======== ========
An evaluation of the adequacy of certain escrows is as follows:
Estimated amount required as of December 31, 2000 and 1999 for future payment
of:
2000 1999
---------- ----------
Property insurance $ 16,875 $ 16,875
Mortgage insurance 39,059 39,121
--------- ---------
55,934 55,996
Total confirmed by mortgagee 69,513 67,129
--------- ---------
Amount on deposit in excess of
estimated requirements $ 13,579 $ 11,133
======== ========
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 $5,889 less than the deposits held for
tenants. The account consists of a mutual fund and has been adjusted to market
value at December 31, 2000.
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:
2000 1999
------------ ------------
Balance at beginning of year $ 32,929 $ 49,191
Monthly deposits 30,031 30,031
Transfer 0 (47,139)
Withdrawal (27,795) 0
--------- ------------
35,165 32,083
Interest earned 1,906 846
---------- ----------
Balance confirmed by mortgagee $ 37,071 $ 32,929
======== =======
5. Long-Term Liabilities
Long-term debt at December 31, 2000 and 1999 consisted of the following
obligations:
2000 1999
------------ ---------------
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, 2000 and 1999 were
$124,703 and 125,517 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. $7,769,555 $7,822,282
Less current portion 57,114 52,727
------------ ------------
$7,712,441 $7,769,555
========= =========
Maturities of debt are as follows:
2000 1999
------------ ---------------
2000 $ 0 $ 52,727
2001 57,114 57,114
2002 61,867 61,867
2003 67,015 67,015
2004 72,592 72,592
2005 78,633 0
Later years 7,432,334 7,510,967
--------- ---------
$7,769,555 $7,822,282
========= =========
6. Accrued Real Estate Taxes
Accrued real estate taxes at December 31, 2000 consist of the following:
Description Basis for Period Amount
of Tax Accrual Covered Due Date Accrued
- - - - - -------------- --------------- ------------- -------- -------
Real estate Second-half January 1 June 20, $52,664
taxes and due for 2000 to December 2001
special 31
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 2000 were $65,852.
The following summarizes other related party transactions for 2000:
Related Party Classification Amount
- - - - - ------------- -------------- ------
Carolyn Gaddis Salaries and wages $ 11,700
Jerry Gaddis Salaries and wages 13,650
Doug Gaddis Salaries and wages 3,900
---------
Total $ 29,250
========
8. Restatement
The financial statements for the year ended December 31, 1999 have been restated
to correct an error in recording expenses allocated between related parties. The
effects on the financial statements are as follows:
Prior Restated
Accounts receivable, related party $ 4,348 $ 0
Accounts payable, trade 111,677 614
Retained earnings (1,355,751) (1,249,036)
FINANCIAL STATEMENTS AND
INDEPENDENT AUDITORS' REPORT
MORTENSON II
HUD PROJECT NO.: 074-36605
DECEMBER 31, 2000
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
Mortenson II
HUD Project No.: 074-36605
TABLE OF CONTENTS
PAGE
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
INDEPENDENT AUDITORS' REPORT
To the Partners
Mortenson II
We have audited the accompanying balance sheet of Mortenson II, as of December
31, 2000, 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,
2000, 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 statements. Such information has been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, is fairly stated in all material respects in relation to the
basic financial statements taken as a whole.
In accordance with Government Auditing Standards and the "Consolidated Audit
Guide for Audits of HUD Programs," we have also issued reports dated March 7,
2001 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. Those reports are an integral part of an audit
performed in accordance with Government Auditing Standards and should be read in
conjunction with this report considering the results of our audit.
/s/ Reznick Fedder & Silverman
Charlotte, North Carolina Federal Employer
March 7, 2001 Identification Number:
52-1088612
Audit Principal: Ronald G. Vance
Mortenson II
HUD Project No.: 074-36605
BALANCE SHEET
December 31,2000
ASSETS
CURRENT ASSETS
1120 Cash - operations $ 95,681
1130 Tenant accounts receivable 12,504
1140 Accounts and notes receivable - operations 177
1200 Miscellaneous prepaid expenses 28,198
--------
Total current assets 136,560
DEPOSITS HELD IN TRUST - FUNDED
1191 Tenant deposits 66,932
RESTRICTED DEPOSITS AND FUNDED RESERVES
1310 Escrow deposits $ 69,221
1320 Reserve for replacements 126,485
1330 Other reserves 1,930
--------
197,636
RENTAL PROPERTY
1410 Land 42,101
1420 Buildings 5,007,451
1440 Building equipment - portable 159,623
---------
5,209,175
1495 Less accumulated depreciation 1,847,648
---------
3,361,527
OTHER ASSETS
1520 Intangible assets, net of accumulated
amortization of $142,918 458,827
---------
458,827
---------
$4,221,482
==========
Mortenson II
HUD Project No.: 074-36605
BALANCE SHEET - CONTINUED
December 31, 2000
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
2110 Accounts payable - operations $ 11,014
2123 Accrued management fee payable 165,854
2131 Accrued interest payable - first mortgage 24,581
2150 Accrued property taxes payable 157,184
2170 Mortgage payable - first mortgage,
current maturities 49,769
2210 Prepaid revenue 5,698
------------
Total current liabilities 414,100
DEPOSITS LIABILITY
2191 Tenant deposits held in trust (contra) 66,932
LONG-TERM LIABILITIES
2133 Accrued interest payable - other
loans/notes (surplus cash) $ 743,062
2320 Mortgage payable - first mortgage,
net of current maturities 4,587,002
2323 Other loans/notes payable - surplus cash,
net of current maturities 577,885
----------
5,907,949
3130 PARTNERS' EQUITY (DEFICIT) (2,167,499)
----------
$4,221,482
==========
Mortenson II
HUD Project No.: 074-36605
STATEMENT OF OPERATIONS
Year ended December 31, 2000
RENTAL REVENUE
5120 Rent revenue - gross potential $ 844,737
5170 Garage and parking spaces 14,179
-------------
Total rental revenue $ 858,916
VACANCIES
5220 Apartments (21,769)
------------
Total vacancies (21,769)
-----------
Net rental revenue 837,147
FINANCIAL REVENUE
5410 Financial revenue - project operations 2,720
5440 Revenue from investments -
replacement reserve 5,524
-----------
Total financial revenue 8,244
OTHER REVENUE
5910 Laundry and vending 6,932
5920 Tenant charges 45,336
----------
Total other revenue 52,268
-----------
Total revenue 897,659
----------
Mortenson II
HUD Project No.: 074-36605
STATEMENT OF OPERATIONS - CONTINUED
Year ended December 31, 2000
ADMINISTRATIVE EXPENSES
6210 Advertising and marketing 4,015
6311 Office expenses 29,175
6312 Office or model apartment rent 6,900
6320 Management fee 43,529
6330 Manager or superintendent salaries 35,242
6340 Legal expense - project 2,077
6350 Auditing expense 7,500
6351 Bookkeeping fees/accounting services 7,220
6390 Miscellaneous administrative expenses 26,161
---------
Total administrative expenses 161,819
UTILITIES EXPENSE
6450 Electricity 9,100
6451 Water 2,353
6452 Gas 5,489
6453 Sewer 1,961
----------
Total utilities expense 18,903
OPERATING AND MAINTENANCE EXPENSES
6510 Payroll 15,258
6515 Supplies 68,412
6520 Contracts 9,139
6521 Operating and maintenance rent free unit 6,840
6525 Garbage and trash removal 7,743
6570 Vehicle and maintenance equipment
operation and repairs 7,619
-----------
Total operating and maintenance expenses 115,011
Mortenson II
HUD Project No.: 074-36605
STATEMENT OF OPERATIONS - CONTINUED
Year ended December 31, 2000
TAXES AND INSURANCE
6710 Real estate taxes 157,126
6711 Payroll taxes 7,667
6720 Property and liability insurance 8,138
6721 Fidelity bond insurance 243
6722 Workmen's compensation 2,147
6723 Health insurance and other
employee benefits 5,109
6790 Miscellaneous taxes, licenses,
permits and insurance 1,128
----------
Total taxes and insurance 181,558
FINANCIAL EXPENSES
6820 Interest on mortgage payable 299,741
6850 Mortgage insurance premium/
service charge 34,935
----------
Total financial expenses 334,676
DEPRECIATION AND AMORTIZATION
6600 Depreciation expense 184,741
6610 Amortization expense 15,044
-----------
Total depreciation and amortization 199,785
CORPORATE OR MORTGAGOR ENTITY REVENUE AND EXPENSES
7190 Other expenses 93,773
-----------
Total corporate or mortgagor entity
revenue and expenses 93,773
-----------
Total expenses 1,105,525
---------
Net income (loss) $ (207,866)
===========
Mortenson II
HUD Project No.: 074-36605
STATEMENT OF PARTNERS' EQUITY (DEFICIT)
Year ended December 31, 2000
General partner Limited partner Total
--------------- --------------- ------------
Partners' equity (deficit)
December 31, 1999 $(1,497,970) $(461,663) $(1,959,633)
Net income (loss) (2,079) (205,787) (207,866)
---------- -------- -----------
Partners' equity (deficit)
December 31, 2000 $(1,500,049) $(667,450) $(2,167,499)
========== ======== ==========
Mortenson II
HUD Project No.: 074-36605
STATEMENT OF CASH FLOWS
Year ended December 31, 2000
Cash flows from operating activities
Rental receipts $ 836,203
Interest receipts 8,244
Other operating receipts 52,268
Administrative expenses paid (76,325)
Utilities paid (17,714)
Salaries and wages paid (50,500)
Operating and maintenance paid (90,979)
Real estate taxes paid (157,243)
Property insurance paid (8,048)
Miscellaneous taxes and insurance paid (1,128)
Net tenant security deposits received (paid) 11,245
Other operating expenses paid (15,166)
Interest paid on mortgages (300,789)
Mortgage insurance premium paid (34,699)
----------
Net cash provided by (used in) operating activities 155,369
----------
Cash flows from investing activities
Net deposits to mortgage escrows 1,644
Net deposits to reserve for replacements (25,579)
Net deposits to other reserves (33)
---------
Net cash provided by (used in) investing activities (23,968)
---------
Cash flows from financing activities
Mortgage principal payments (46,608)
--------
Net cash provided by (used in) financing activities (46,608)
--------
NET INCREASE (DECREASE) IN CASH 84,793
Cash, beginning 10,888
--------
Cash, end $ 95,681
========
Mortenson II
HUD Project No.: 074-36605
STATEMENT OF CASH FLOWS - CONTINUED
Year ended December 31, 2000
Reconciliation of net income (loss) to net
cash provided by (used in) operating activities
Net income (loss) $ (207,866)
------------
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities
Depreciation 184,741
Amortization 15,044
Changes in asset and liability accounts
(Increase) decrease in assets
Tenant accounts receivable 3,674
Miscellaneous prepaid expenses 326
Tenant security deposits funded 6,809
Increase (decrease) in liabilities
Accounts payable 9,963
Accrued liabilities 42,364
Accrued interest payable 93,773
Tenant security deposits held in trust 4,436
Prepaid revenue 2,105
-----------
Total adjustments 363,235
-----------
Net cash provided by (used in) operating activities $ 155,369
============
Mortenson II
HUD Project No.: 074-36605
NOTES TO FINANCIAL STATEMENTS
December 31, 2000
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, 2000, the outstanding balance on this loan is $4,636,771.
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, 2001 $ 49,769
2002 53,076
2003 56,602
2004 60,363
2005 64,373
Thereafter 4,352,588
---------
$4,636,771
==========
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 $93,773 was accrued during 2000
at this default rate and $743,062 of interest remains payable at December 31,
2000. 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 2000, no interest 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 2000 was
$43,529. Operating funds, which would have been used to pay the management fee,
were instead utilized to pay interest on the subordinated promissory note.
During 2000, payment of $43,529 of management fees was deferred. As of December
31, 2000, $165,854 of management fees remain payable.
An affiliate of the general partner also charged a bookkeeping fee of $7,220 for
the year. As of December 31, 2000, 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, 2000
RESERVE FOR REPLACEMENTS
Balance at December 31, 1999 $ 100,906
Total monthly deposits 20,055
Interest income 5,524
------------
Balance at December 31, 2000 $ 126,485
============
Mortenson II
HUD Project No.: 074-36605
SUPPLEMENTAL INFORMATION - CONTINUED
SUPPORTING DATA REQUIRED BY HUD
Year ended December 31, 2000
COMPUTATION OF SURPLUS CASH, DISTRIBUTIONS AND RESIDUAL RECEIPTS
Part A - Compute Surplus Cash
- - - - - -----------------------------
Cash (Accounts 1120,1170 and 1191) $ 162,613
Tenant subsidy vouchers due for period covered by
financial statements 0
Other (describe in detail) 0
---------
Total cash 162,613
---------
Accrued mortgage interest payable 24,581
Delinquent mortgage principal payments 0
Delinquent deposits to reserve for replacements 0
Accounts payable (due within 30 days) 11,014
Loans and notes payable (due within 30 days) 0
Deficient tax, insurance or MIP escrow deposits 0
Accrued expenses (not escrowed) 165,854
Prepaid revenue (Account 2210) 5,698
Tenant security deposits liability (Account 2191) 66,932
Other current obligations (describe in detail) 0
---------
Less total current obligations 274,079
---------
Surplus cash (deficiency) $(111,466)
=========
Part B - Compute Distributions to Owners and Required Deposit to Residual
Receipts
- - - - - -------------------------------------------------------------------------------
Surplus cash $(111,466)
---------
Limited Dividend Projects
Annual distribution earned during fiscal period covered by
the statements 0
Distribution accrued and unpaid as of the end of the prior
fiscal period 0
Distributions and entity expenses paid during fiscal period
covered by the statements 0
---------
Amount remaining as distribution earned but unpaid 0
---------
Amount available for distribution during next fiscal period$ 0
=========
Deposit due residual receipts reserve $ 0
=========
Mortenson II
HUD Project No.: 074-36605
SUPPLEMENTAL INFORMATION - CONTINUED
SUPPORTING DATA REQUIRED BY HUD
Year ended December 31, 2000
CHANGES IN FIXED ASSETS ACCOUNTS
Assets
-------------------------------------------------------------
Balance Balance
12/31/99 Additions Deletions 12/31/00
-------- --------- --------- --------
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 $1,662,907 $ 184,741 $ 0 $1,847,648
========= ========== ========= =========
Total net
book value $3,361,527
=========
Mortenson II
HUD Project No.: 074-36605
SUPPLEMENTAL INFORMATION - CONTINUED
SUPPORTING DATA REQUIRED BY HUD
Year ended December 31, 2000
DETAIL OF ACCOUNTS - STATEMENT OF ACTIVITIES
MISCELLANEOUS ADMINISTRATIVE EXPENSES (ACCOUNTS NO. 6390)
Cable Television $24,000
Miscellaneous administrative expenses 2,161
-------
$26,161
=======
OTHER ENTITY EXPENSES (ACCOUNTS NO. 7190)
Contingent interest $93,773
-------
$93,773
=======
Mortenson II
HUD Project No.: 074-36605
SUPPLEMENTAL INFORMATION - CONTINUED
SUPPORTING DATA REQUIRED BY HUD
Year ended December 31, 2000
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. $ 46,608
===========
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. $ 20,055
===========
Replacement reserve and residual receipts reserve releases which are
included as expense items on the statement of operations. $ 0
===========
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 $ 7,220
============
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 March 7, 2001.
We have also audited Mortenson II's compliance with requirements applicable to
major HUD-assisted programs and have issued our report thereon dated March 7,
2001.
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, 2000, 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
March 7, 2001
HRII ASSOCIATES
Financial Statements and Report of Independent Certified Public Accountants
December 31, 2000
[The Stoddard Group LLC Letterhead]
To the Owners of
HRII Associates
We have audited the accompanying balance sheet of HRII Associates (the
Partnership) as of December 31, 2000, 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
and the standards applicable to financial audit contained in 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 HRII Associates as of December
31, 2000, and the results of its operations, changes in partners' deficit, and
cash flows for the year then ended, in conformity with generally accepted
accounting principles.
/s/ Hansen, Bradshaw, Malmrose & Erickson
February 26, 2001
HRII ASSOCIATES
Balance Sheet
December 31, 2000
Assets
Cash $ 210,853
Tenant accounts receivable - net of allowance for doubtful
accounts of $32,640 8,337
Prepaid expenses 75,993
Restricted deposits (note 3) 284,464
Land, buildings and equipment (notes 1,4) 4,039,442
Loan costs, net of accumulated amortization of $47,284 (note 1) 234,657
----------
Total assets $4,853,746
=========
Liabilities and Partners' Deficit
Accounts payable $ 3,980
Accrued liabilities 213,984
Related party payable 1,004
Mortgage note payable (note 5) 5,169,712
Note payable (note 5) 90,093
Tenant security deposits (note 1) 34,599
Prepaid revenue (note 1) 4,925
Equity loan (note 6) 684,400
----------
Total liabilities 6,202,697
Partners' deficit (1,348,951)
----------
Total liabilities and partners' deficit $4,853,746
=========
The accompanying notes are an integral part of these financial statements.
HRII ASSOCIATES
Statement of Operations and Partners' Deficit
For the Year Ended December 31, 2000
Revenues:
Rent $1,054,406
Other 48,774
-----------
1,103,180
-----------
Operating expenses:
Administrative 200,246
Utilities 77,003
Operating and maintenance 148,197
Taxes and insurance 132,558
Depreciation and amortization (note 1) 130,008
--------
688,012
-------
Income from operations 415,168
--------
Other income (expense):
Loss on write-off of receivable (note 2) (239,440)
Interest income 10,593
Interest expense (521,062)
--------
Total other expense (749,909)
--------
Net loss (334,741)
Partners' deficit beginning of year (1,009,974)
Distributions to partners (4,236)
-----------
Partners' deficit end of year $(1,348,951)
=========
The accompanying notes are an integral part of these financial statements.
HRII ASSOCIATES
Statement of Cash Flows
For the Year Ended December 31, 2000
Cash flow from operating activities:
Rental receipts $1,051,982
Interest receipts 10,593
Other receipts 48,774
-----------
1,111,349
Administrative (115,872)
Management fees (43,776)
Utilities (77,003)
Salaries and wages (93,298)
Operating and maintenance (106,655)
Real estate taxes and escrow deposits (97,861)
Property insurance (10,308)
Miscellaneous taxes and insurance (24,389)
Interest on mortgage (340,794)
Tenant security deposits 1,892
Interest expense - other loans (116,230)
----------
Net cash provided by operating activities 87,055
-----------
Cash flow from investing activities:
Deposits to mortgage escrow (1,084)
Deposits to replacement reserve (23,167)
---------
Net cash used in investing activities (24,251)
---------
Cash flow from financing activities:
Principal payments on long-term debt (35,706)
Distributions to partners (4,236)
Increase in note payable 1,757
------------
Net cash used in financing activities (38,185)
-----------
Net increase in cash 24,619
Cash, beginning of year 186,234
----------
Cash, end of year $ 210,853
==========
Financing and investing activities not affecting cash:
Issuance of note payable to purchase property and equipment $ 88,336
===========
Cash flows from operating activities:
Net loss $ (334,741)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Loss on write-off of receivable 239,440
Depreciation and amortization 130,008
Increase in tenant accounts receivable, net (1,021)
Increase in miscellaneous prepaid expenses (3,968)
Decrease in restricted deposits 4,130
Decrease in accounts payable (9,581)
Increase in accrued liabilities 65,425
Increase in related party payable 1,004
Decrease in tenant security deposits liability (2,238)
Decrease in prepaid revenue (1,403)
------------
Net cash provided by operating activities $ 87,055
===========
The accompanying notes are an integral part of these financial statements.
HRII ASSOCIATES
Notes to Financial Statements
December 31, 2000
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Organization
- - - - - ---------------------
HRII Associates (HUD Project No. 126-35216) (the Partnership) 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 Partnership'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.
HRII ASSOCIATES
Notes to Financial Statements
December 31, 2000
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 (The Stoddard Group, L.L.C.) 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 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, 2000, 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 valuation 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 also owns The Stoddard Group, L.L.C.
(Stoddard). Stoddard provides services for the Partnership, which include
accounting services and management functions. The management fee expensed to
Stoddard for the year ended December 31, 2000 was $43,777. In addition,
approximately $117,170 was paid to Stoddard to reimburse costs of payroll,
payroll taxes and workman's compensation insurance for their employees who
provide on-site labor to the Project.
HRII ASSOCIATES
Notes to Financial Statements
December 31, 2000
Accrued workman's compensation and payroll taxes of $5,243 at December 31, 2000
represents a payable to Stoddard.
The Partnership also made cash advances to entities formerly under common
ownership and management and had a net receivable from those entities in the
amount of $239,440 at December 31, 1999. During 2000, the Partnership terminated
its relationship with these entities and determined that this receivable was
uncollectible. The Partnership wrote off the net receivable of $239,440 in 2000
as an other expense in the statement of operations.
3. Restricted Deposits
Restricted deposits consist of the following:
Property tax and insurance escrow $ 30,084
Replacement reserve escrow 137,251
Equity loan reserves 82,362
Tenant security deposits 34,767
-----------
$ 284,464
=========
4. Land, Building and Equipment
Land, buildings and equipment consist of the following:
Land and land improvements $ 242,044
Buildings 4,627,115
Furniture for tenant use 295,312
Office furniture and equipment 5,226
------------
5,169,697
Less: accumulated depreciation (1,130,255)
----------
$4,039,442
==========
HRII ASSOCIATES
Notes to Financial Statements
December 31, 2000
5. Mortgage Payable and Note 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.
The Partnership has a note payable to a corporation due in semi-annual
installments of $7,130, including interest at 6%. The loan matures on September
1, 2005. The loan balance at December 31, 2000 includes accrued interest of
$1,757.
Future maturities over the next five years are as follows:
Year Ending December 31:
2001 $ 37,562
2002 40,881
2003 44,464
2004 48,324
2005 96,164
Thereafter 4,992,410
---------
$5,259,805
==========
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.
7. Commitment and Contingency
The Partnership entered into an agreement in March 1993 with an entity which
provided funds for certain costs in connection with the construction of the
Project. Under the terms of the agreement, HRII Associates is obligated to pay
additional interest amounts to this entity from the proceeds of events such as
sale or refinancing.
8. 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, 2000, there is no surplus cash.