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 June 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 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
(in thousands, except unit data)
(Unaudited)
June 30, 1999
Assets
Cash and cash equivalents $ 1,630
Receivables and deposits 813
Restricted escrows 739
Other assets 1,057
Investment properties:
Land $ 4,015
Buildings and related personal property 41,339
45,354
Less accumulated depreciation (24,339) 21,015
$ 25,254
Liabilities and Partners' (Deficit) Capital
Liabilities
Accounts payable $ 179
Tenant security deposit liabilities 151
Accrued property taxes 170
Other liabilities 324
Mortgage notes payable 20,946
Partners' (Deficit) Capital
General Partners' $ (1,261)
Limited Partners' (23,139 units
issued and outstanding) 4,745 3,484
$ 25,254
See Accompanying Notes to Consolidated Financial Statements
b)
WINTHROP GROWTH INVESTORS 1 LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except unit data)
(Unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
Revenues:
Rental income $ 1,854 $ 1,740 $ 3,666 $ 3,452
Other income 81 95 154 159
Total revenues 1,935 1,835 3,820 3,611
Expenses:
Operating 752 773 1,494 1,504
General and administrative 80 37 112 79
Depreciation 487 453 951 897
Interest 455 460 912 926
Property tax 122 129 212 266
Total expenses 1,896 1,852 3,681 3,672
Net income (loss) $ 39 $ (17) $ 139 $ (61)
Net income (loss) allocated to
general partner (10%) $ 4 $ (2) $ 14 $ (6)
Net income (loss) allocated to
limited partners (90%) 35 (15) 125 (55)
$ 39 $ (17) $ 139 $ (61)
Net income (loss) per limited
partnership unit $ 1.51 $ (.65) $ 5.40 $ (2.38)
Distributions per limited
partnership unit $ -- $ 4.32 $ -- $ 4.32
See Accompanying Notes to Consolidated Financial Statements
c)
WINTHROP GROWTH INVESTORS 1 LIMITED PARTNERSHIP
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(in thousands, except unit data)
(Unaudited)
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, 1998 23,139 $(1,275) $ 4,620 $ 3,345
Net income for the six months
ended June 30, 1999 -- 14 125 139
Partners' (deficit) capital at
June 30, 1999 23,139 $(1,261) $ 4,745 $ 3,484
See Accompanying Notes to Consolidated Financial Statements
d)
WINTHROP GROWTH INVESTORS 1 LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Six Months Ended
June 30,
1999 1998
Cash flows from operating activities:
Net income (loss) $ 139 $ (61)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation 951 897
Amortization of loan costs and deferred costs 55 60
Casualty gain (52) --
Loss on disposal of property -- 34
Change in accounts:
Receivables and deposits (103) (176)
Other assets 164 93
Accounts payable (18) (22)
Tenant security deposit liabilities 6 9
Accrued property taxes (123) 47
Other liabilities 32 69
Net cash provided by operating activities 1,051 950
Cash flows from investing activities:
Property improvements and replacements (586) (568)
Net insurance proceeds from casualties 66 --
Net deposits to restricted escrows (30) (155)
Net cash used in investing activities (550) (723)
Cash flows from financing activities:
Payments on mortgage notes payable (134) (123)
Distributions paid to limited partners (600) --
Net cash used in financing activities (734) (123)
Net (decrease) increase in cash and cash equivalents (233) 104
Cash and cash equivalents at beginning of period 1,863 1,508
Cash and cash equivalents at end of period $ 1,630 $ 1,612
Supplemental disclosure of cash flow information:
Cash paid for interest $ 879 $ 889
See Accompanying Notes to Consolidated Financial Statements
e)
WINTHROP GROWTH INVESTORS 1 LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Winthrop Growth
Investors 1 Limited Partnership, (the "Partnership" or "Registrant") 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 six month periods ended June 30, 1999, are
not necessarily indicative of the results that may be expected for the fiscal
year ending December 31, 1999. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Partnership's annual report on Form 10-KSB for the fiscal year ended December
31, 1998.
Principles of Consolidation
The consolidated statements of the Partnership include its 99%, 99.9% and 99.98%
general partnership interests in DEK Associates, Meadow Wood Associates and
Stratford Place Investors Limited Partnership, respectively. Additionally, the
Partnership is the 100% beneficiary of the Stratford Village Realty Trust. All
significant interpartnership balances have been eliminated. In addition, due to
the cumulative minority interest loss exceeding minority interest capital, the
Partnership recorded 100% of the losses of the properties in 1999.
Certain reclassifications have been made to the 1998 information to conform to
the 1999 presentation.
NOTE B - TRANSFER OF CONTROL
On October 28, 1997, Insignia Financial Group, Inc. ("Insignia") acquired 100%
of the Class B stock of First Winthrop Corporation as well as a 20.7% limited
partnership interest in the Partnership. Pursuant to this transaction, the by-
laws of the Managing General Partner were amended to provide for the creation of
a Residential Committee.
Pursuant to the amended and restated by-laws, Insignia had the right to elect
one director to the Managing General Partner's Board of Directors and to cause
the Managing General Partner to take such actions as it deemed necessary and
advisable in connection with the activities of the Partnership.
Pursuant to a series of transactions which closed on October 1, 1998 and
February 26, 1999, Insignia and Insignia Properties Trust merged into Apartment
Investment and Management Company ("AIMCO"), a publicly traded real estate
investment trust, with AIMCO being the surviving corporation. As a result,
AIMCO acquired all of the rights of Insignia in and to the limited partnership
interest and the rights granted to Insignia pursuant to the First Winthrop
Corporation transaction. The Managing General Partner does not believe that
this transaction will have a material effect on the affairs and operations of
the Partnership.
NOTE C - 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 Agreement provides for certain payments
to affiliates for services and as reimbursement of certain expenses incurred by
affiliates on behalf of the Partnership. The following payments were paid or
accrued to the Managing General Partner and affiliates during the six months
ended June 30, 1999 and 1998:
1999 1998
(in thousands)
Property management fees (included in $190 $180
operating expenses)
Reimbursement for services of affiliates
(included in operating and general and
administrative expenses) 71 42
During the six months ended June 30, 1999 and 1998, affiliates of the Managing
General Partner were entitled to 5% of gross receipts from the Partnership's
investment properties for providing property management services. The
Partnership paid to such affiliates approximately $190,000 and $180,000 during
the six months ended June 30, 1999 and 1998, respectively.
An affiliate of the Managing General Partner received reimbursements of
accountable administrative expenses amounting to approximately $71,000 and
$42,000 for the six months ended June 30, 1999 and 1998, respectively. Included
in these expenses for the six months ended June 30, 1999 and 1998, is
approximately $3,000 and $11,000, respectively, in reimbursements for
construction oversight costs.
On April 27, 1999, AIMCO Properties, L.P., an affiliate of the Managing General
Partner commenced a tender offer to purchase up to 10,425 (45.05% of the total
outstanding units) units of limited partnership interest in the Partnership for
a purchase price of $284 per unit. The offer expired on June 30, 1999.
Pursuant to the offer, AIMCO Properties, L.P. acquired 996 units. As a result,
AIMCO and its affiliates currently own 5,862.34 units of limited partnership
interest in the Partnership representing 25.335% of the total outstanding units.
On July 23, 1999, AIMCO Properties, L.P. commenced an additional tender offer to
purchase up to 10,425 (45.05% of the total outstanding units) units of limited
partnership interest in the Partnership for a purchase price of $284 per unit.
This offer is scheduled to expire August 25, 1999. It is possible that AIMCO or
its affiliate will make one or more additional offers to acquire additional
limited partnership interests in the Partnership for cash or in exchange for
units in the operating partnership of AIMCO.
NOTE D - SUPPLEMENTARY INFORMATION REQUIRED PURSUANT TO SECTION 9.4
OF THE PARTNERSHIP AGREEMENT
Statement of Cash Available for Distribution for the three and six months ended
June 30, 1999 (in thousands):
Three Months Ended Six Months Ended
June 30, 1999 June 30, 1999
Net Income $ 39 $ 139
Add: Amortization expense 27 55
Depreciation expense 487 951
Less: Cash to reserves (553) (1,145)
Cash Available for Distribution $ -- $ --
Distributions allocated to
Limited Partners $ -- $ --
General Partners' interest in
Cash Available for
Distribution $ -- $ --
NOTE E - SEGMENT INFORMATION
Description of the types of products and services from which the reportable
segment derives its revenues:
The Partnership has one reportable segment: residential properties. The
Partnership's residential property segment consists of four apartment complexes
in four states in the United States: Alabama, Florida, Maryland and Texas. The
Partnership rents apartment units to tenants for terms that are typically twelve
months or less.
Measurement of segment profit or loss
The Partnership evaluates performance based on net income. The accounting
policies of the reportable segment are the same as those of the Partnership as
described in the Partnership's annual report on Form 10-KSB for the year ended
December 31, 1998.
Factors management used to identify the Partnership's reportable segment
The Partnership's reportable segment consists of investment properties that
offer similar products and services. Although each of the investment properties
is managed separately, they have been aggregated into one segment as they
provide services with similar types of products and customers.
Segment information for the six months ended June 30, 1999 and 1998 is shown in
the tables below (in thousands). The "Other" column includes partnership
administration related items and income and expense not allocated to the
reportable segment.
1999
Residential Other Totals
Rental income $ 3,666 $ -- $ 3,666
Other income 144 10 154
Interest expense 912 -- 912
Depreciation 951 -- 951
General and administrative expense -- 112 112
Segment income (loss) 241 (102) 139
Total assets 18,300 6,954 25,254
Capital expenditures for investment
properties 586 -- 586
1998
Residential Other Totals
Rental income $ 3,452 $ -- $ 3,452
Other income 158 1 159
Interest expense 926 -- 926
Depreciation 897 -- 897
General and administrative expense -- 79 79
Segment income (loss) 32 (93) (61)
Total assets 18,737 7,469 26,206
Capital expenditures for investment
properties 568 -- 568
NOTE F - CASUALTY GAIN
In January 1999, Sunflower Apartments had a fire that damaged six apartment
units. Total insurance proceeds received less the write-off of assets replaced
resulted in a net casualty gain of approximately $52,000. Additionally, the
Partnership received approximately $40,000 of insurance proceeds related to a
casualty claim made in 1996 on behalf of Sunflower Apartments.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The matters discussed in this Form 10-QSB contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the
disclosures contained in this Form 10-QSB and the other filings with the
Securities and Exchange Commission made by the Partnership from time to time.
The discussions of the Partnership's business and results of operations,
including forward-looking statements pertaining to such matters, does not take
into account the effects of any changes to the Partnership's business and
results of operations. Accordingly, actual results could differ materially from
those projected in the forward-looking statements as a result of a number of
factors, including those identified herein.
The Partnership's investment properties consist of four apartment complexes.
The following table sets forth the average occupancy of the properties for the
six months ended June 30, 1999 and 1998:
Average Occupancy
1999 1998
Meadow Wood Apartments 89% 87%
Jacksonville, Florida
Stratford Place Apartments 98% 96%
Gaithersburg, Maryland
Stratford Village Apartments 95% 84%
Montgomery, Alabama
Sunflower Apartments 96% 98%
Dallas, Texas
The average occupancy rate at Stratford Village Apartments increased due to the
re-lease of corporate units and more tenants renewing their leases.
Results of Operations
The Partnership had net income of approximately $139,000 for the six months
ended June 30, 1999, as compared to a net loss of approximately $61,000 for the
corresponding period of 1998. The Partnership reported net income of
approximately $39,000 for three months ended June 30, 1999, as compared to net
loss of approximately $17,000 for the three months ended June 30, 1998. The
increase in net income is primarily attributable to an increase in total revenue
partially offset by an increase in total expenses for the three and six months
ended June 30, 1999. Total revenue increased primarily due to an increase in
rental income attributable to an increase in the average occupancy and average
rental rates at three of the Partnership's four investment properties.
Total expenses increased primarily due to an increase in depreciation and
general and administrative expenses which was offset by a decrease in property
tax expense. Depreciation expense increased due to the property improvements and
replacements placed into service during the last twelve months. General and
administrative expense increased as a result of an increase in management
reimbursements to the Managing General Partner allowed under the Partnership
Agreement. Also included in general and administrative expenses are costs
associated with the quarterly and annual communications with investors and
regulatory agencies and the annual audit required by the Partnership Agreement
are also included. Property tax expense decreased primarily as a result of
lower assessed values at several of the Partnership's investment properties and
as a result of a refund received for the Stratford Place Apartments property.
In January 1999, Sunflower Apartments had a fire that damaged six apartment
units. Total insurance proceeds received less the write-off of assets replaced
resulted in a net casualty gain of approximately $52,000. Additionally, the
Partnership received approximately $40,000 of insurance proceeds related to a
casualty claim made in 1996 on behalf of Sunflower Apartments.
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 June 30, 1999, the Partnership had cash and cash equivalents of approximately
$1,630,000 as compared to approximately $1,612,000 at June 30, 1998. The
decrease in cash and cash equivalents of approximately $233,000 from the
Partnership's year ended December 31, 1998, is due to approximately $550,000 and
$734,000 of cash used in investing and financing activities, respectively,
partially offset by cash provided by operating activities of approximately
$1,051,000. Cash used in investing activities consisted of property
improvements and replacements and net deposits to restricted escrows partially
offset by net insurance proceeds (see discussion above). Cash used in financing
activities consisted of payments of principal made on the mortgages encumbering
the Partnership's properties and distributions paid to the limited partners.
The Partnership invests its working capital reserves in money market accounts.
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 other operating needs of the Partnership and to comply with Federal,
state, and local legal and regulatory requirements. Capital improvements
planned for each of the Partnership's properties are detailed below.
Sunflower Apartments
Based on a report received from an independent third party consultant analyzing
necessary exterior improvements and estimates made by the Managing General
Partner on interior improvements, it is estimated that the property requires
approximately $277,000 of capital improvements over the next few years. The
Partnership has budgeted, but is not limited to, capital improvements of
approximately $307,000 for 1999 at this property which include certain of the
required improvements and consist of appliances, carpeting, building
improvements, condensing units, and sewer replacements. During the six months
ended June 30, 1999, the Partnership expended approximately $32,000 for capital
improvements at Sunflower Apartments consisting primarily of floor covering
replacement. These improvements were funded from operating cash flow.
Meadow Wood Apartments
Based on a report received from an independent third party consultant analyzing
necessary exterior improvements and estimates made by the Managing General
Partner on interior improvements, it is estimated that the property requires
approximately $933,000 of capital improvements over the next few years. The
Partnership has budgeted, but is not limited to, capital improvements of
approximately $900,000 for 1999 at this property which include certain of the
required improvements and consist of air conditioning repairs, cabinet
replacement, carpet replacement, fencing and landscaping upgrades, parking lot
repairs, appliances and roof repairs. During the six months ended June 30,
1999, the Partnership expended approximately $197,000 for capital improvements
at Meadow Wood Apartments consisting primarily of floor covering and roof
replacements, and interior building improvements. These improvements were
funded from operating cash flow.
Stratford Place Apartments
Based on a report received from an independent third party consultant analyzing
necessary exterior improvements and estimates made by the Managing General
Partner on interior improvements, it is estimated that the property requires
approximately $1,067,000 of capital improvements over the next few years. The
Partnership has budgeted, but is not limited to, capital improvements of
approximately $665,000 for 1999 at this property which include certain of the
required improvements and consist of air conditioning repairs, carpet
replacement, parking lot repairs, and plumbing and building improvements.
During the six months ended June 30, 1999, the Partnership expended
approximately $273,000 for capital improvements at Stratford Place Apartments
consisting primarily of plumbing and structural upgrades and interior and
exterior building improvements. These capital improvements were funded from
operating cash flow.
Stratford Village
Based on a report received from an independent third party consultant analyzing
necessary exterior improvements and estimates made by the Managing General
Partner on interior improvements, it is estimated that the property requires
approximately $123,000 of capital improvements over the next few years. The
Partnership has budgeted, but is not limited to, capital improvements of
approximately $154,000 for 1999 at this property which include certain of the
required improvements and consist of carpet replacement, building improvements
and parking lot repairs. During the six months ended June 30, 1999, the
Partnership expended approximately $84,000 for capital improvements at Stratford
Village consisting primarily of building improvements and floor covering. These
improvements were funded from the Partnership's replacement reserve for this
property.
The additional capital expenditures will be incurred only if cash is available
from operations or from Partnership reserves. To the extent that such budgeted
capital improvements are completed, the Partnership's distributable cash flow,
if any, may be adversely affected at least in the short term.
The Partnership's current assets are thought to be sufficient for any near-term
needs (exclusive of capital improvements) of the Partnership. The mortgage
indebtedness of approximately $20,946,000 is amortized over varying periods with
balloon payments of approximately $4,071,000 in 2000 and $8,000,000 in 2006.
The Managing General Partner will attempt to refinance such indebtedness and/or
sell the properties prior to such maturity date. If the properties cannot be
refinanced or sold for a sufficient amount, the Partnership will risk losing
such properties through foreclosure.
There were no cash distributions declared during the six month periods ended
June 30, 1999 and 1998. In January 1999, the Partnership paid a distribution to
the limited partners of approximately $600,000 ($25.93 per limited partnership
unit), which had been declared at the end of 1998. The Partnership's
distribution policy is reviewed on a semi-annual basis. Future cash
distributions will depend on the levels of net cash generated from operations,
the availability of cash reserves, and the timing of debt maturities,
refinancings and/or property sales. There can be no assurance, however, that
the Partnership will generate sufficient funds from operations, after required
capital expenditures, to permit further distributions to its partners in 1999 or
subsequent periods.
Tender Offer
On April 27, 1999, AIMCO Properties, L.P., an affiliate of the Managing General
Partner commenced a tender offer to purchase up to 10,425 (45.05% of the total
outstanding units) units of limited partnership interest in the Partnership for
a purchase price of $284 per unit. The offer expired on June 30, 1999.
Pursuant to the offer, AIMCO Properties, L.P. acquired 996 units. As a result,
AIMCO and its affiliates currently own 5,862.34 units of limited partnership
interest in the Partnership representing 25.335% of the total outstanding units.
On July 23, 1999, AIMCO Properties, L.P. commenced an additional tender offer to
purchase up to 10,425 (45.05% of the total outstanding units) units of limited
partnership interest in the Partnership for a purchase price of $284 per unit.
This offer is scheduled to expire August 25, 1999. It is possible that AIMCO or
its affiliate will make one or more additional offers to acquire additional
limited partnership interests in the Partnership for cash or in exchange for
units in the operating partnership of AIMCO.
Year 2000 Compliance
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 digits 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 of the 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.
Over the past two years, 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
not completed in time, the Year 2000 issue could have a material impact on the
operations of the Partnership.
The Managing Agent's plan to resolve Year 2000 issues involves four phases:
assessment, remediation, testing, and implementation. To date, the Managing
Agent has fully completed its assessment of all the information systems that
could be significantly affected by the Year 2000, and has begun the remediation,
testing and implementation phases on both hardware and software systems.
Assessments are continuing in regards to embedded systems. The status of each
is detailed below.
Status of Progress in Becoming Year 2000 Compliant, Including Timetable for
Completion of Each Remaining Phase
Computer Hardware:
During 1997 and 1998, the Managing Agent identified all of the computer systems
at risk and formulated a plan to repair or replace each of the affected systems.
In August 1998, the main computer system used by the Managing Agent became fully
functional. In addition to the main computer system, PC-based network servers,
routers and desktop PCs were analyzed for compliance. The Managing Agent has
begun to replace each of the non-compliant network connections and desktop PCs
and, as of June 30, 1999, had completed approximately 90% of this effort.
The total cost to the Managing Agent to replace the PC-based network servers,
routers and desktop PCs is expected to be approximately $1.5 million of which
$1.3 million has been incurred to date. The remaining network connections and
desktop PCs are expected to be upgraded to Year 2000 compliant systems by
September 30, 1999. The completion of this process is scheduled to coincide
with the release of a compliant version of the Managing Agent's operating
system.
Computer Software:
The Managing Agent utilizes a combination of off-the-shelf, commercially
available software programs as well as custom-written programs that are designed
to fit specific needs. Both of these types of programs were studied, and
implementation plans written and executed with the intent of repairing or
replacing any non-compliant software programs.
In April, 1999 the Managing Agent embarked on a data center consolidation
project that unifies its core financial systems under its Year 2000 compliant
system. The estimated completion date for this project is October, 1999.
During 1998, the Managing Agent began converting the existing property
management and rent collection systems to its management properties Year 2000
compliant systems. The estimated additional costs to convert such systems at all
properties, is $200,000, and the implementation and testing process was
completed in June, 1999.
The final software area is the office software and server operating systems.
The Managing Agent has upgraded all non-compliant office software systems on
each PC and has upgraded 90% of the server operating systems. The remaining
server operating systems are planned to be upgraded to be Year 2000 compliant by
September, 1999. The completion of this process is scheduled to coincide with
the release of a compliant version of the Managing Agent's operating system.
Operating Equipment:
The Managing Agent has operating equipment, primarily at the property sites,
which needed to be evaluated for Year 2000 compliance. In September 1997, the
Managing Agent began taking a census and inventory of embedded systems
(including those devices that use time to control systems and machines at
specific properties, for example elevators, heating, ventilating, and air
conditioning systems, security and alarm systems, etc.).
The Managing Agent has chosen to focus its attention mainly upon security
systems, elevators, heating, ventilating and air conditioning systems, telephone
systems and switches, and sprinkler systems. While this area is the most
difficult to fully research adequately, management has not yet found any major
non-compliance issues that put the Managing Agent at risk financially or
operationally.
A pre-assessment of the properties by the Managing Agent has indicated no Year
2000 issues. A complete, formal assessment of all the properties by the
Managing Agent is in process and will be completed in September, 1999. Any
operating equipment that is found non-compliant will be repaired or replaced.
The total cost incurred for all properties managed by the Managing Agent as of
June 30, 1999 to replace or repair the operating equipment was approximately
$75,000. The Managing Agent estimates the cost to replace or repair any
remaining operating equipment is approximately $125,000.
The Managing Agent continues to have "awareness campaigns" throughout the
organization designed to raise awareness and report any possible compliance
issues regarding operating equipment within its enterprise.
Nature and Level of Importance of Third Parties and Their Exposure to the Year
2000
The Managing Agent continues to conduct surveys of its banking and other vendor
relationships to assess risks regarding their Year 2000 readiness. The Managing
Agent has banking relationships with three major financial institutions, all of
which have indicated their compliance efforts will be complete before July,
1999. The Managing Agent has updated data transmission standards with all of the
financial institutions. The Managing Agent's contingency plan in this regard is
to move accounts from any institution that cannot be certified Year 2000
compliant by September 1, 1999.
The Partnership does not rely heavily on any single vendor for goods and
services, and does not have significant suppliers and subcontractors who share
information systems (external agent). To date the Partnership is not aware of
any external agent with a Year 2000 compliance issue that would materially
impact the Partnership's results of operations, liquidity, or capital resources.
However, the Partnership has no means of ensuring that external agents will be
Year 2000 compliant.
The Managing Agent does not believe that the inability of external agents to
complete their Year 2000 remediation 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.
Costs to Address Year 2000
The total cost of the Year 2000 project to the Managing Agent is estimated at
$3.5 million and is being funded from operating cash flows. To date, the
Managing Agent has incurred approximately $2.9 million ($0.7 million expensed
and $2.2 million capitalized for new systems and equipment) related to all
phases of the Year 2000 project. Of the total remaining project costs,
approximately $0.5 million is attributable to the purchase of new software and
operating equipment, which will be capitalized. The remaining $0.2 million
relates to repair of hardware and software and will be expensed as incurred.
The Partnership's portion of these costs are not material.
Risks Associated with the Year 2000
The Managing Agent believes it has an effective program in place to resolve the
Year 2000 issue in a timely manner. As noted above, the Managing Agent has not
yet completed all necessary phases of the Year 2000 program. In the event that
the Managing Agent does not complete any additional phases, certain worst case
scenarios could occur. The worst case scenarios could include elevators,
security and heating, ventilating and air conditioning systems that read
incorrect dates and operate with incorrect schedules (e.g., elevators will
operate on Monday as if it were Sunday). Although such a change would be
annoying to residents, it is not business critical.
In addition, disruptions in the economy generally resulting from Year 2000
issues could also adversely affect the Partnership. The Partnership could be
subject to litigation for, among other things, computer system failures,
equipment shutdowns or failure to properly date business records. The amount of
potential liability and lost revenue cannot be reasonably estimated at this
time.
Contingency Plans Associated with the Year 2000
The Managing Agent has contingency plans for certain critical applications and
is working on such plans for others. These contingency plans involve, among
other actions, manual workarounds and selecting new relationships for such
activities as banking relationships and elevator operating systems.
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 June 30, 1999.
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 J. Foye
Patrick J. Foye
Executive Vice President
By: /s/ Carla R. Stoner
Carla R. Stoner
Senior Vice President
Finance and Administrator
Date: August 12, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Winthrop
Growth Investors I Limited Partnership 1999 Second Quarter 10-QSB and is
qualified in its entirety by reference to such 10-QSB filing.
</LEGEND>
<CIK> 0000722565
<NAME> WINTHROP GROWTH INVESTORS I LIMITED PARTNERSHIP
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,630
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 45,354
<DEPRECIATION> (24,339)
<TOTAL-ASSETS> 25,254
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 20,946
0
0
<COMMON> 0
<OTHER-SE> 3,484
<TOTAL-LIABILITY-AND-EQUITY> 25,254
<SALES> 0
<TOTAL-REVENUES> 3,820
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,681
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 912
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 139
<EPS-BASIC> 5.40<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
