FORM 10-QSB--QUARTERLY OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
QUARTERLY OR TRANSITIONAL REPORT
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1998
or
[ ] TRANSITION REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from ........to.........
Commission file number 2-84760
WINTHROP GROWTH INVESTORS 1 LIMITED PARTNERSHIP
(Exact name of small business issuer as specified in its charter)
Massachusetts 04-2839837
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
55 Beattie Place
P. O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a)
WINTHROP GROWTH INVESTORS 1 LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEET
(Unaudited)
September 30, 1998
(in thousands, except unit data)
Assets
Cash and cash equivalents $ 1,752
Receivables and deposits 686
Restricted escrows 925
Other assets 1,351
Investment properties:
Land $ 4,015
Buildings and related personal property 40,428
44,443
Less accumulated depreciation (22,976) 21,467
$ 26,181
Liabilities and Partners' (Deficit) Capital
Liabilities
Accounts payable $ 341
Tenant security deposit liabilities 150
Other liabilities 591
Mortgage notes payable 21,144
Partners' (Deficit) Capital
General Partners' $ (1,274)
Limited Partners' (23,139 units
issued and outstanding) 5,229 3,955
$ 26,181
See Accompanying Notes to Consolidated Financial Statements
b)
WINTHROP GROWTH INVESTORS 1 LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Nine Months
Ended September 30, Ended September 30,
1998 1997 1998 1997
Revenues:
Rental income $ 1,710 $ 1,657 $ 5,162 $ 5,030
Other income 102 99 261 277
Total revenues 1,812 1,756 5,423 5,307
Expenses:
Operating 793 866 2,284 2,411
General and administrative 56 36 135 134
Depreciation 467 478 1,364 1,271
Interest 464 466 1,403 1,414
Property taxes 134 139 400 420
Total expenses 1,914 1,985 5,586 5,650
Net loss $ (102) $ (229) $ (163) $ (343)
Net loss allocated to
general partner (10%) $ (10) $ (23) $ (16) $ (34)
Net loss allocated to limited
partners (90%) (92) (206) (147) (309)
$ (102) $ (229) $ (163) $ (343)
Net loss per limited
partnership unit: $ (3.97) $ (8.91) $ (6.34) $ (13.34)
Distributions per limited
partnership unit $ -- $ 2.16 $ 4.32 $ 6.48
See Accompanying Notes to Consolidated Financial Statements
c)
WINTHROP GROWTH INVESTORS 1 LIMITED PARTNERSHIP
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' (DEFICIT) CAPITAL
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partners' Partners' Total
Original capital contributions 23,149 $ 2,000 $ 23,149 $ 25,149
Partners' (deficit) capital at
December 31, 1997 23,139 $ (1,258) $ 5,476 $ 4,218
Distributions to partners -- -- (100) (100)
Net loss for the nine months
ended September 30, 1998 -- (16) (147) (163)
Partners' (deficit) capital at
September 30, 1998 23,139 $ (1,274) $ 5,229 $ 3,955
See Accompanying Notes to Consolidated Financial Statements
d)
WINTHROP GROWTH INVESTORS 1 LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
1998 1997
Cash flows from operating activities:
Net loss $ (163) $ (343)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 1,364 1,271
Amortization of loan costs and deferred costs 88 82
Change in accounts:
Receivables and deposits (93) (511)
Other assets (112) 33
Accounts payable 192 (12)
Tenant security deposit liabilities 3 (11)
Other liabilities 149 180
Net cash provided by operating activities 1,428 689
Cash flows from investing activities:
Property improvements and replacements (1,040) (625)
Net withdrawals from restricted escrows 143 186
Net cash used in investing activities (897) (439)
Cash flows from financing activities:
Payments on mortgage notes payable (187) (172)
Distributions paid to partners (100) (150)
Net cash used in financing activities (287) (322)
Net increase (decrease) in cash and cash equivalents 244 (72)
Cash and cash equivalents at beginning of period 1,508 1,348
Cash and cash equivalents at end of period $ 1,752 $ 1,276
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,332 $ 1,346
See Accompanying Notes to Consolidated Financial Statements
WINTHROP GROWTH INVESTORS 1 LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited financial statements of Winthrop Growth Investors 1
Limited Partnership, (the "Partnership") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of Two Winthrop Properties, Inc. (the "Managing General
Partner"), all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three and nine month periods ended September 30, 1998, are not necessarily
indicative of the results that may be expected for the fiscal year ending
December 31, 1998. For further information, refer to the financial statements
and footnotes thereto included in the Partnership's annual report on Form 10-KSB
for the fiscal year ended December 31, 1997.
Reclassification
Certain reclassifications have been made to the 1997 information to conform to
the 1998 presentation.
NOTE B - TRANSACTIONS WITH AFFILIATED PARTIES
The Partnership has no employees and is dependent on the Managing General
Partner and its affiliates for the management and administration of all
partnership activities. The Partnership paid property management fees based upon
collected gross rental revenues for property management services as noted below
for the nine month periods ended September 30, 1998 and 1997. Such fees are
included in operating expenses on the consolidated statements of operations and
are reflected in the following table. The Partnership Agreement provides for
reimbursement to the Managing General Partner and its affiliates for certain
expenses incurred in connection with the administration of Partnership
activities. The Managing General Partner and its affiliates received
reimbursements and fees as reflected in the following table:
For the Nine Months Ended
September 30,
(in thousands)
1998 1997
Property management fees $272 $256
Reimbursements for services of affiliates 45 71
In addition, the Partnership paid approximately $14,000 during the nine month
period ended September 30, 1998 to an affiliate of the Managing General Partner
for construction oversight reimbursements related to capital improvements and
major repair projects. There were no similar expenses paid during the
corresponding period in 1997.
On February 6, 1997, LON-WGI Associates, L.L.C. ("LON-WGI"), an affiliate of
the Managing General Partner, commenced a tender offer to purchase up to 11,000
units of limited partnership interest in the Partnership, at $275 per unit.
Upon the completion of the offer, LON-WGI acquired 4,792.34 units or
approximately 20.7% of the total limited partnership units of the Partnership.
LON-WGI entered into an agreement to sell its limited partnership units to an
affiliate of Insignia Financial Group, Inc. ("Insignia") on October 28, 1997.
The sale was completed in April 1998.
On October 28, 1997, Insignia acquired 100% of the Class B stock of First
Winthrop Corporation ("FWC"), the sole shareholder of the Managing General
Partner. In connection with this transaction, a nominee of Insignia was elected
as a director of the Managing General Partner. The nominee has the authority to
appoint members to a newly created residential committee of the board of
directors of the Managing General Partner (the "Residential Committee"). The
Residential Committee is generally authorized to act on behalf of the General
Partner in managing the business activities of the Partnership. On October 28,
1997, the Partnership terminated Winthrop Management as the managing agent, and
appointed an affiliate of Insignia to assume management of the property. On
October 1, 1998, Insignia completed its merger with and into Apartment
Investment and Management Company ("AIMCO"), a publicly traded real estate
investment trust, with AIMCO being the surviving corporation (the "Insignia
Merger"). As a result of the Insignia Merger, AIMCO has the right to appoint a
director of the Managing General Partner who, in turn, has the right to appoint
the members of the Residential Committee. In addition, the property manager
became an affiliate of AIMCO. The Managing General Partner does not believe
this transaction will have a material effect on the affairs and operations of
the Partnership.
NOTE C - SUPPLEMENTARY INFORMATION REQUIRED PURSUANT TO SECTION 9.4 OF THE
PARTNERSHIP AGREEMENT
Statement of Cash Available for Distribution:
Three Months Ended Nine Months Ended
September 30, 1998 September 30, 1998
Net Loss $ (102,000) $ (163,000)
Add: Amortization expense 28,000 88,000
Depreciation expense 467,000 1,364,000
Less: Cash to reserves (393,000) (1,189,000)
Cash Available for
Distribution $ -- $ 100,000
Distributions allocated to
Limited Partners $ -- $ 100,000
General Partners' interest
Cash Available for
distribution $ -- $ --
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The Partnership's investment properties consist of four apartment complexes. The
following table sets forth the average occupancy of the properties for the nine
month periods ended September 30, 1998 and 1997:
Average
Occupancy
1998 1997
Meadow Wood Apartments 87% 87%
Jacksonville, Florida
Stratford Place Apartments 96% 97%
Gaithersburg, Maryland
Stratford Village Apartments 82% 87%
Montgomery, Alabama
Sunflower Apartments 98% 95%
Dallas, Texas
Occupancy at Sunflower Apartments has increased due to stronger marketing
efforts. The occupancy rate at Stratford Village Apartments continues to be
affected by move-outs due to military transfers and job loss/transfers.
Additionally, market conditions in the Montgomery area continue to be soft due
to low interest rates and new construction. Although low, occupancy at Meadow
Wood Apartments is comparable to the average occupancy in the surrounding area.
In addition, renovations to the exterior building and pool area along with other
improvements have been undertaken in 1998 to increase overall curb appeal.
Results of Operations
The Partnership realized a net loss of approximately $163,000 for the nine
months ended September 30, 1998, compared to a net loss of approximately
$343,000 for the same period in 1997. The Partnership's net loss for the three
months ended September 30, 1998 was approximately $102,000 compared to a net
loss of approximately $229,000 for the same period in 1997. The decrease in net
loss for the three and nine month periods ended September 30, 1998 is primarily
due to an increase in rental income combined with a decrease in operating
expense partially offset by an increase in depreciation expense. Rental income
increased due to overall rental rate increases at a majority of the
Partnership's investment properties partially offset by occupancy decreases at
two of the Partnership's four properties. Operating expenses decreased
primarily due to decreases in repairs and maintenance and insurance costs in
1998 as compared to 1997. Depreciation expense increased due to the addition of
approximately $1,334,000 of capital improvements and replacements at the
Partnership's investment properties over the last twelve months. Included in
operating expense for the nine months ended September 30, 1998 is approximately
$16,000 of major repairs and maintenance, which is comprised primarily of
parking lot repairs and construction services costs.
As part of the ongoing business plan of the Partnership, the Managing General
Partner monitors the rental market environment of each of its investment
properties to assess the feasibility of increasing rents, maintaining or
increasing occupancy levels and protecting the Partnership from increases in
expenses. As part of this plan, the Managing General Partner attempts to
protect the Partnership from the burden of inflation-related increases in
expenses by increasing rents and maintaining a high overall occupancy level.
However, due to changing market conditions, which can result in the use of
rental concessions and rental reductions to offset softening market conditions,
there is no guarantee that the Managing General Partner will be able to sustain
such a plan.
Liquidity and Capital Resources
At September 30, 1998, the Partnership had cash and cash equivalents of
approximately $1,752,000 as compared to approximately $1,276,000 at September
30, 1997. The net increase in cash and cash equivalents for the nine months
ended September 30, 1998 is approximately $244,000 compared to a net decrease
in cash and cash equivalents of approximately $72,000 for the corresponding
period of 1997. Net cash provided by operating activities increased due to the
decrease in net loss, as discussed above, as well as reductions in the use of
cash for receivables and deposits and accounts payable due to the timing of
receipts and payments. Partially offsetting these decreases is an increase in
other assets due to the timing of payments. Net cash used in investing
activities increased during the nine months ended September 30, 1998 due to an
increase in property improvements and replacements combined with a decrease in
withdrawals from restricted escrows. Net cash used in financing activities
decreased due to a decrease in distributions to partners during the nine months
ended September 30, 1998, compared to the prior year.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the properties to adequately maintain the physical
assets and the other operating needs of the Partnership and to comply with
federal, state and local legal and regulatory requirements. Such assets are
currently thought to be sufficient for any near-term needs of the Partnership.
The Managing General Partner is currently assessing the need for capital
improvements at each of the Partnership's properties. To the extent that
additional capital improvements are required, the Partnership's distributable
cash flow, if any, may be adversely affected at least in the short term. The
mortgage indebtedness of approximately $21,144,000 is being amortized over
varying periods with balloon payments due at maturity of approximately
$4,000,000 in 2000 and $8,000,000 in 2006. The Managing General Partner will
attempt to refinance such indebtedness or sell the properties prior to such
maturity dates. If the properties cannot be refinanced or sold for a sufficient
amount, the Partnership will risk losing such properties through foreclosure.
Distributions of approximately $100,000 and $150,000 were paid to the limited
partners during the nine months ended September 30, 1998 and 1997, respectively.
The Partnership's distribution policy will be reviewed on a quarterly basis.
There can be no assurance, however, that the Partnership will generate
sufficient funds from operations to permit further distributions to its partners
in 1998 or subsequent periods.
Transfer of Control - Subsequent Event
On October 1, 1998, Insignia completed its merger with and into Apartment
Investment and Management Company ("AIMCO"), a publicly traded real estate
investment trust, with AIMCO being the surviving corporation (the "Insignia
Merger"). As a result of the Insignia Merger, AIMCO has the right to appoint a
director of the Managing General Partner who, in turn, has the right to appoint
the members of the Residential Committee. In addition, the property manager
became an affiliate of AIMCO. The Managing General Partner does not believe
this transaction will have a material effect on the affairs and operations of
the Partnership.
Year 2000
General Description of the Year 2000 Issue and the Nature and Effects of the
Year 2000 on Information Technology (IT) and Non-IT Systems
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. The Partnership is
dependent upon the Managing General Partner and its affiliates for management
and administrative services ("Managing Agent"). Any computer programs or
hardware that have date-sensitive software or embedded chips may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
The Managing Agent has determined that it will be required to modify or replace
significant portions of its software and certain hardware so that those systems
will properly utilize dates beyond December 31, 1999. The Managing Agent
presently believes that with modifications or replacements of existing software
and certain hardware, the Year 2000 Issue can be mitigated. However, if such
modifications and replacements are not made, or are not completed timely, the
Year 2000 Issue could have a material impact on the operations of the Managing
Agent and the Partnership.
Status of Progress in Becoming Year 2000 Compliant
The Managing Agent's plan to resolve the Year 2000 Issue involves the following
four phases: assessment, remediation, testing and implementation. To date, the
Managing Agent has fully completed its assessment of all information systems
that could be significantly affected by the Year 2000, and has begun the
remediation, testing and implementation phase on both hardware and software
systems. Assessments are continuing in regards to embedded systems in operating
equipment. The Managing Agent anticipates having all phases complete by June 1,
1999.
In addition to the areas the Partnership is relying on the Managing Agent to
verify compliance with, the Partnership has certain operating equipment,
primarily at the property sites, which needed to be evaluated for Year 2000
compliance. The focus of the Managing General Partner was to the security
systems, elevators, heating-ventilation-air-conditioning systems, telephone
systems and switches, and sprinkler systems. The Managing General Partner is
currently engaged in the identification of all non-compliant operational
systems, and is in the process of estimating the costs associated with any
potential modifications or replacements needed to such systems in order for them
to be Year 2000 compliant. It is not expected that such costs would have a
material adverse affect upon the operations of the Partnership.
Risk Associated with the Year 2000
The Managing General Partner believes that the Managing Agent has an effective
program in place to resolve the Year 2000 issue in a timely manner and has
appropriate contingency plans in place for critical applications that could
affect the Partnership's operations. To date, the Managing General Partner is
not aware of any external agent with a Year 2000 issue that would materially
impact the Partnership's results of operations, liquidity or capital resources.
However, the Managing General Partner has no means of ensuring that external
agents will be Year 2000 compliant. The Managing General Partner does not
believe that the inability of external agents to complete their Year 2000
resolution process in a timely manner will have a material impact on the
financial position or results of operations of the Partnership. However, the
effect of non-compliance by external agents is not readily determinable.
Other
Certain items discussed in this quarterly report may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 (the "Reform Act") and as such may involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Partnership to be materially different from any future
results, performance or achievements expressed or implied by such forward-
looking statements. Such forward-looking statements speak only as of the date
of this quarterly report. The Partnership expressly disclaims any obligation or
undertaking to release publicly any updates or revisions to any forward-looking
statements contained herein to reflect any change in the Partnership's
expectations with regard thereto or any change in events, conditions or
circumstances on which any such statement is based.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 27, Financial Data Schedule, is filed as an exhibit to
this report.
(b) Reports on Form 8-K:
None filed during the quarter ended September 30, 1998.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
WINTHROP GROWTH INVESTORS 1 LIMITED PARTNERSHIP
By: Two Winthrop Properties, Inc.
Managing General Partner
By: /s/Patrick Foye
Patrick Foye
Residential Vice President
By: /s/Timothy R. Garrick
Timothy R. Garrick
Residential Vice President - Accounting
(Duly Authorized Officer)
Date: November 16, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Winthrop Growth Investors 1 Limited Partnership 1998 Third Quarter 10-QSB
and is qualified in its entirety by reference to such 10-QSB filing.
</LEGEND>
<CIK> 0000722565
<NAME> WINTHROP GROWTH INVESTORS 1 LIMITED PARTNERSHIP
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,752
<SECURITIES> 0
<RECEIVABLES> 686
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 44,443
<DEPRECIATION> (22,976)
<TOTAL-ASSETS> 26,181
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 21,144
0
0
<COMMON> 0
<OTHER-SE> 3,955
<TOTAL-LIABILITY-AND-EQUITY> 26,181
<SALES> 0
<TOTAL-REVENUES> 5,423
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,586
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,403
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (163)
<EPS-PRIMARY> (6.34)<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
