Attached files
REZNICK
GROUP
FINANCIAL STATEMENTS AND
INDEPENDENT ACCOUNTANTS' REPORT
BLESSED ROCK OF EL MONTE
(A CALIFORNIA LIMITED PARTNERSHIP)
DECEMBER 31, 2007
Blessed Rock of El Monte
(A California Limited Partnership)
TABLE OF CONTENTS
PAGE
INDEPENDENT AUDITOR'S REPORT 3
FINANCIAL STATEMENTS:
BALANCE SHEET 5
STATEMENT OF OPERATIONS 7
STATEMENT OF CHANGES IN PARTNERS' EQUITY (DEFICIT) 9
STATEMENT OF CASH FLOWS 10
NOTES TO FINANCIAL STATEMENTS 11
Reznick Group, P.C. Tel: (301) 652-9100
7700 Old Georgetown Road Fax: (301) 652-1848
Suite 400 www.reznickgroup.com
Bethesda, MD 20814-6224
INDEPENDENT AUDITOR'S REPORT
To the Partners
Blessed Rock of El Monte
We have audited the accompanying balance sheet of Blessed Rock of El
Monte (a California Limited Partnership) as of December 31, 2007, and the
related statements of operations, changes in 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 the standards of the Public
Company Accounting Oversight Board (United States) and the standards applicable
to financial audits 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. The Partnership has determined
that it is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Partnership's internal control
over financial reporting. Accordingly, we express no such opinion. 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 Blessed Rock of El
Monte as of December 31, 2007, and the results of its operations and cash flows
for the year then ended in conformity with accounting principles generally
accepted in the United States of America.
Atlanta o Austin o Baltimore o Bethesda o Birmingham o Charlotte o Chicago
Los Angeles o Sacramento o Tysons Corner
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As discussed more fully in note 8 of the financial statements, certain
errors resulting principally in the overstatement of depreciation and
amortization due to misallocation of building, deferred fees and organization
cost, in prior years, were discovered by management of the Partnership during
the current year. Accordingly, adjustments have been made to partners' equity
(deficit) as of January 1, 2007, to correct the errors.
/s/ Reznick Group, P.C.
-----------------------
Skokie, Illinois Taxpayer Identification Number
December 17, 2008 52-1088612
Lead Auditor: Jeff Dowd
-4-
Blessed Rock of El Monte
(A California Limited Partnership)
BALANCE SHEET
December 31, 2007
Current assets
Cash and cash equivalents $ 742,805
Accounts receivable - tenants 697
Accounts receivable - other 6,281
Prepaid expenses 16,709
-----------
Total rental property 766,492
-----------
Deposits held in trust - funded
Tenant security deposits 23,710
-----------
Restricted deposits and funded reserves
Mortgage escrow deposits 21,386
Replacement reserve (note 3) 156,559
-----------
Total restricted deposits and funded reserves 177,945
-----------
Property and equipment (note 1)
Land and land improvements 1,271,162
Buildings 8,099,384
Furnishings 57,645
-----------
9,428,191
Less accumulated depreciation (2,159,703)
-----------
Total property and equipment 7,268,488
-----------
Other assets
Deferred fees, net 35,780
-----------
Total other assets 35,780
-----------
Total assets $ 8,272,415
===========
(continued)
-5-
Blessed Rock of El Monte
(A California Limited Partnership)
BALANCE SHEET - CONTINUED
December 31, 2007
LIABILITIES AND PARTNERS' EQUITY
Current liabilities
Accounts payable $ 11,404
Accrued management fee 3,882
Accrued mortgage loan interest 13,883
Accrued interest 72,677
Miscellaneous current liabilities 13,700
Prepaid rent 4,122
Current maturities of long term liabilities (note 3) 53,360
-----------
Total current liabilities 173,028
-----------
Deposit liabilities
Tenant security deposits 23,710
-----------
Long-term liabilities
Mortgage loan payable, net of current maturities (note 3) 2,309,685
Notes payable (note 4) 681,525
Grant loan payable 400,000
Accrued interest 188,000
-----------
Total long-term liabilities 3,579,210
-----------
Total liabilities 3,775,948
Contingency (note 7)
Partners' equity (note 6) 4,496,467
-----------
Total liabilities and Partners' equity $ 8,272,415
===========
See notes to financial statements
-6-
Blessed Rock of El Monte
(A California Limited Partnership)
STATEMENT OF OPERATIONS
Year ended December 31, 2007
Income from rental operations
Rental income - tenant, net $ 927,076
Laundry and vending 10,417
Interest income 7,330
Miscellaneous revenue 5,184
Tenant charges 1,313
----------
Total income from rental operations 951,320
----------
Administrative expenses
Advertising and marketing 294
Office expenses 22,266
Other renting expenses 960
Management fee 44,489
Manager salaries 41,261
Legal expenses - Project 4,316
Bookkeeping fees 1,000
Audit expenses 9,950
Bad debts 38
Miscellaneous administrative expenses 14,451
----------
Total administrative expenses 139,025
----------
Utilities expense
Electricity 27,360
Water 25,609
Gas 20,664
----------
Total utilities expense 73,633
----------
Operating and maintenance expenses
Payroll 16,857
Supplies 40,304
Contracts 46,163
Miscellaneous operating expenses 355
Garbage and trash removal 6,229
----------
Total operating and maintenance expenses 109,908
----------
(continued)
-7-
Blessed Rock of El Monte
(A California Limited Partnership)
STATEMENT OF OPERATIONS - CONTINUED
Year ended December 31, 2007
Taxes and insurance
Real estate taxes 11,816
Payroll taxes 7,355
Property and liability insurance 37,439
Fidelity bond insurance 615
Workers' compensation 9,514
Health benefits and other employee benefits 5,865
Miscellaneous 4,864
Property tax administrative cost --
----------
Total taxes and insurance 77,468
----------
Income before financial expenses, depreciation
and amortization 551,286
----------
Financial expenses
Interest on mortgage loan payable 169,156
Interest on notes payable 14,342
Interest on grant loan payable 16,000
Asset management fee 108,926
----------
Total financial expenses 308,424
----------
Income before depreciation and amortization 242,862
Depreciation 212,807
Amortization 6,899
----------
Net income $ 23,156
==========
See notes to financial statements
-8-
Blessed Rock of El Monte
(A California Limited Partnership)
STATEMENT OF CHANGES IN PARTNERS' EQUITY (DEFICIT)
Year ended December 31, 2007
Managing Special
General General Limited Limited
Partner Partner Partner Partners Total
----------- ----------- ----------- ----------- -----------
Partners' equity (deficit),
December 31, 2006, as
previously stated $ (1,975) $ (895) $ (81,036) $ 4,513,520 $ 4,429,614
Prior period adjustment 9 9 906 90,568 91,492
----------- ----------- ----------- ----------- -----------
Partners' equity (deficit),
December 31, 2006, as restated (1,966) (886) (80,130) 4,604,088 4,521,106
Distributions (23,897) - - (23,898) (47,795)
Net income 2 2 229 22,923 23,156
----------- ----------- ----------- ----------- -----------
Partners' equity (deficit),
December 31, 2007 $ (25,861) $ (884) $ (79,901) $ 4,603,113 $ 4,496,467
=========== =========== =========== =========== ===========
See notes to financial statements
-9-
Blessed Rock of El Monte
(A California Limited Partnership)
STATEMENT OF CASH FLOWS
Year ended December 31, 2007
Cash flow from operating activities
Net income $ 23,156
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation 212,807
Amortization 6,899
Changes in:
Tenant security deposits 1,812
Tenant accounts receivable 928
Prepaid expenses 2,093
Tenant security deposits liability 75
Accounts payable (151)
Accrued mortgage loan interest (292)
Accrued liabilities (8,942)
Accrued management fee 3,882
Accrued interest payable on second mortgage 30,342
Prepaid rent 3,426
---------
Net cash provided by operating activities 276,035
---------
Cash flows from investing activities
Purchase of property and equipment (9,883)
Net change in escrow deposits 11,766
Net change in replacement reserve (21,729)
---------
Net cash used in investing activities (19,846)
---------
Cash flows from financing activities
Principal payments on mortgage payable (49,738)
Distributions (47,795)
---------
Net cash used in financing activities (97,533)
---------
Net change in cash and cash equivalents 158,656
Cash and cash equivalents, beginning 584,149
---------
Cash and cash equivalents, ending $ 742,805
=========
See notes to financial statements
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Blessed Rock of El Monte
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 2007
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Blessed Rock of El Monte (a California Limited Partnership) was organized
on February 14, 1996 to acquire, construct, own and operate a 137-unit
apartment project (the "Project") known as Blessed Rock of El Monte
located in El Monte, California.
The Project is eligible and qualifies for low-income housing tax credits
in accordance with Section 42 of the Internal Revenue Code (the "Code") of
1986. Generally, the low-income housing credit is computed as a percentage
of the qualified basis of the property including the rehabilitation and is
allowed annually during a period of ten years commencing with the years
the building is placed into service. In addition, in order to qualify for
the credit, the Partnership must conform with certain occupancy standards
as set forth in the Code.
The following is a summary of significant accounting policies followed in
the preparation of these financial statements:
Property and equipment
----------------------
Property and equipment is recorded at cost. The assets are being
depreciated using the straight-line method over the estimated useful
lives. The cost of maintenance and repairs is charged to income as
incurred. Significant renewals and betterments are capitalized.
Assets are depreciated over their estimated useful lives. The estimated
service lives of the assets for depreciation purposes may be different
than their actual economic useful lives.
Method Estimated lives
------------- ---------------
Buildings Straight-line 40 years
Land improvements Straight-line 15 years
Furnishings Straight-line 5 years
Management of the Partnership assesses the recoverability of property and
equipment by determining whether the depreciation of such assets over
their remaining lives can be recovered through projected undiscounted cash
flows. The amount of impairment, if any, is measured based on fair value
(projected discounted cash flows) and is charged to operations in the
period in which such impairment is determined by management. To date,
management has not identified any impairment of property and equipment.
-11-
Blessed Rock of El Monte
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2007
Deferred fees and Amortization
------------------------------
Loan fees are amortized over the term of the mortgage loan using the
straight-line method. Accounting principles generally accepted in the United
States of America require that the effective yield method be used to amortize
financing costs; however, the effect of using the straight-line method is not
materially different from the results that would have been obtained under the
effective yield method. Tax credit fees are amortized over 15 years using the
straight-line method.
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 the
tenants of the property are operating leases.
Tenant receivable and bad debt
------------------------------
Delinquent receivables are written off and included in bad debt expense in the
period the balances are deemed to be uncollectible, which is generally after the
tenant vacates.
Accounting principles generally accepted in the United States of America require
that the allowance method be used to recognize bad debts; however, the effect of
using the direct write-off method is not materially different from the results
that would have been obtained under the allowance method.
Property taxes
--------------
Property taxes are expensed in the year of lien on the property such that twelve
months of expense is charged to operations each period.
Cash and cash equivalents
-------------------------
For purposes of the statement of cash flows, the Partnership considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents. At December 31, 2007, cash and cash equivalents consist
of two unrestricted checking accounts and a petty cash fund.
-12-
Blessed Rock of El Monte
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2007
Use of estimates
----------------
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Income taxes
------------
Blessed Rock of El Monte is a Partnership, and thus income, losses, and credits
are recognized for federal income tax purposes by the individual Partners.
Accordingly, no provision for federal or state taxes on revenue and income has
been recognized in the accompanying financial statements.
Advertising costs
-----------------
Advertising costs are expensed as incurred. Advertising expense totaled $294 for
the year ended December 31, 2007.
Reclassification
----------------
Certain prior year amounts have been reclassified to conform to the current year
financial statement presentation. These reclassifications had no effect on the
reported net loss of the Partnership.
Concentration of credit risk
----------------------------
The Partnership deposits its cash in financial institutions. At times, deposits
may exceed federally insured limits. The Partnership has not experienced any
losses in such accounts.
The Partnership's operations are concentrated in the multifamily real estate
market. In addition, the Partnership operated in a heavily regulated
environment. The operations of the Partnership are subject to the administrative
directives, rules and regulations of federal, state and local regulatory
agencies. Such administrative directives, rules and regulations are subject to
change by an act of Congress. Such changes may occur with little notice or
inadequate funding to pay for the related cost, including the additional
administrative burden, if any, to comply with a change.
-13-
Blessed Rock of El Monte
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2007
NOTE 2 - DEFERRED FEES AND AMORTIZATION
The costs incurred to obtain financing and tax credits have been
capitalized and are being amortized. The balance of such costs at December
31, 2007 is as follows:
Amortization
Period
------------
Loan fees 16 years $ 40,800
Tax credit fees 15 years 65,241
------------
106,041
Less: Accumulated amortization (70,261)
------------
Net capitalized costs $ 35,780
============
As a result of a reevaluation of accumulated amortization through December
31, 2007 it was determined that excess amortization had been taken in
prior years and a correction was made resulting in a net recovery amount
of $9,256 for 2007.
NOTE 3 - MORTGAGE LOAN
The Partnership has entered into a mortgage loan agreement in the original
amount of $2,720,000. The loan agreement provides, among other things, for
the following:
a. An interest rate of 7.05% per annum;
b. Monthly principal and interest payments of $18,188;
c. A balloon payment of $2,017,000 payable June 1, 2013;
d. A maturity date of June 1, 2013; and
e. The funding of a reserve fund for replacing assets of the Project.
-14-
Blessed Rock of El Monte
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2007
Mortgage loan principal payments for each of the next five years and
thereafter are estimated as follows:
2008 $ 53,360
2009 57,245
2010 61,414
2011 65,887
2012 70,686
Thereafter 2,054,453
--------------
$ 2,363,045
==============
The liability of the Partnership under the mortgage loan is limited to the
underlying value of the property and equipment collateral in addition to
other amounts deposited with the lender. For the year ended December 31,
2007, interest expense was $169,156, and accrued interest was $13,883 as
of December 31, 2007.
Replacement reserve
-------------------
In accordance with the Partnership Agreement, the Partnership is required
to establish and maintain a replacement reserve account for the purpose of
capital improvements. The reserve account is to be funded in the amount of
$20,544 per year. As of December 31, 2007, the balance of the replacement
reserve was $156,559.
NOTE 4 - NOTES PAYABLE
Notes payable at December 31, 2007 consist of the following:
A 4% note payable in the amount of $250,878, with a term of 15 years, is
payable to El Monte Community Redevelopment Agency (RDA), secured by a
deed of trust and rents from the Project. Payments of interest and
principal are made annually beginning on April 1, 2003, and thereafter
each April 1, until the outstanding principal balance of the note and all
accrued interest are paid in full. Payments are to be paid from 50% of the
residual rental income, as defined in the promissory note agreement.
Payments, if any, are applied first to accrued interest and second to
principal on the note. At December 31, 2007, accrued interest on the note
was $51,141.
-15-
Blessed Rock of El Monte
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2007
A 1% note payable in the amount of $430,647, with a term of 30 years
beginning April 3, 1996, is payable to RDA for various development fees,
secured by a deed of trust and rents from the Project. Commencing April 3,
1997, and thereafter on each April 3 for the following six succeeding
years, payments of $4,239 were due. Payments increased to $8,478 April 3,
2004 and continue for the next seven succeeding years. On April 3, 2012,
payments increase to $32,534 and continue for the next 14 succeeding
years, or until paid in full. Payments to be paid from 50% of residual
rental income, as defined in promissory note agreement. Payments first
applied to interest. At December 31, 2007, accrued interest on the note
was $21,536.
Cash held for payment of notes
------------------------------
The Partners' calculation of 50% of residual rental income for 2006 was
$72,677. This amount was not confirmed by RDA, nor was the required
payment made during 2007. The agent is currently attempting to confirm the
amount due and forward the payment to RDA.
Grant loan payable
------------------
The Partnership received a loan of $400,000 on April 3, 1996 from the City
of El Monte as part of a public program to ensure affordable housing for
senior citizen tenants. Interest accrues on the principal amount at 4%,
with a term of 55 years. The loan is secured by a deed of trust and rents
from the Project. At maturity, the principal amount of the loan and all
accrued interest shall be deemed discharged and waived by the City unless
there is an occurrence of an event of default, as specified under the loan
agreement. If default occurs, the City of El Monte is entitled to exercise
its rights and the entire principal amount outstanding and any accrued
interest could become due and payable at the option of the City of El
Monte. Accrued interest at December 31, 2007 was $188,000.
-16-
Blessed Rock of El Monte
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2007
Accrued interest at December 31, 2007, is as follows:
4% note payable $ 51,141
1% note payable 21,536
Grant loan 188,000
------------
260,677
Cash held (72,677)
------------
Accrued interest on second mortgage $ 188,000
============
NOTE 5 - RELATED PARTY TRANSACTIONS
Operational asset management fee
--------------------------------
The Partnership Agreement provides for an asset management fee equal to
$10 per unit per month, to accrue to the Managing General Partner and is
payable based on the cash flow provisions of the Partnership Agreement.
The fee to be paid is cumulative if not paid each year. During the year
ended December 31, 2007, $6,233 of operational asset management fees were
incurred and paid. At December 31, 2007, no amounts remained payable.
Asset management fee
--------------------
The Partnership Agreement provides for an asset management fee equal to
30% of Remaining Cash, as defined, to accrue to the Limited Partner and is
payable based on the cash flow provisions of the Partnership Agreement.
The fee to be paid is cumulative if not paid each year. During the year
ended December 31, 2007, $68,279 was incurred and paid.
Incentive management fee
------------------------
The Partnership shall pay to the General Partner an incentive management
fee equal to 40% of Remaining Cash, as defined. The incentive management
fee shall be paid from available cash flow and does not accrue from year
to year. For the year ended December 31, 2007, incentive management fees
of $31,864 were incurred and paid.
-17-
Blessed Rock of El Monte
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2007
Reporting fee
-------------
The Partnership shall pay to each Limited Partner a reporting fee equal to
15% of the Cash Flow from Operations, as defined, but should not be less
than $6,000 for each Limited Partner. The reporting fee shall be paid from
available cash flow and accrues from year to year. For the year ended
December 31, 2007, a reporting fee of $2,550 was incurred and paid.
Management Fee
--------------
For the period January 1, 2006 through July 18, 2007, the Partnership's
management agent was WNC Management, an affiliate of the General Partner
(the "Former Agent"). Effective July 19, 2007, the Partnership entered
into an agreement with Professional Property Management, LLC ("PPM"), an
unrelated party (the "Agent"), in connection with the management of the
Project's rental operations. For the year ended December 31, 2007,
management fees expensed were $44,489, of which $3,882 remained payable.
NOTE 6 - PARTNERS' PROFIT, LOSSES, AND DISTRIBUTIONS
In general, income (loss), tax credits and cash flow from operations are
allocated 98.99% to the Limited Partners, .99% to the Special Limited
Partner, .01% to the General Partner and .01% to the Managing General
Partner.
Income (loss) and cash flow from sources other than operations will be
allocated pursuant to the terms of the Partnership Agreement regarding
such.
NOTE 7 - CONTINGENCY
The Project's low-income housing credits are contingent on its ability to
maintain compliance with applicable sections of Section 42. Failure to
maintain compliance with occupant eligibility, and/or unit gross rent, or
to correct non-compliance within a specified time period could result in
recapture of previously taken tax credits plus interest. In addition, such
potential noncompliance may require an adjustment to the contributed
capital by the Investor Limited Partner.
-18-
Blessed Rock of El Monte
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2007
NOTE 8 - RESTATEMENT OF BEGINING PARTNERS EQUITY (DEFICIT)
During 2007 management determined that original costs related to building,
deferred fees, and organization costs had been incorrectly allocated. As a
result building costs and deferred fees were understated by $62,330 and
$106,041, respectively, while organization costs had been overstated.
After adjusting building, deferred fees and organization costs to reflect
the correct allocations it was determined accumulated depreciation and
amortization had been overstated in prior years by $79,927 and $11,565,
respectively. As a result, net adjustments totaling $91,492 have been made
to beginning partners' equity as of January 1, 2007, to correct for these
errors.
-19-
