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, 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 (I.R.S. Employer
incorporation or organization) Identification No.)
55 Beattie Place, PO 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 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
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a)
WINTHROP GROWTH INVESTORS 1 LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
September 30, 1999
Assets
Cash and cash equivalents $ 1,799
Receivables and deposits 876
Restricted escrows 658
Other assets 1,019
Investment properties:
Land $ 4,015
Buildings and related personal property 41,689
45,704
Less accumulated depreciation (24,792) 20,912
$ 25,264
Liabilities and Partners' (Deficit) Capital
Liabilities
Accounts payable $ 135
Tenant security deposit liabilities 159
Accrued property taxes 256
Other liabilities 327
Mortgage notes payable 20,877
Partners' (Deficit) Capital
General partners $ (1,258)
Limited partners (23,139 units
issued and outstanding) 4,768 3,510
$ 25,264
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 Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
Revenues:
Rental income $1,831 $1,710 $5,497 $5,162
Other income 73 102 227 261
Total revenues 1,904 1,812 5,724 5,423
Expenses:
Operating 766 799 2,260 2,303
General and administrative 79 56 191 135
Depreciation 454 467 1,405 1,364
Interest 452 458 1,364 1,384
Property taxes 127 134 339 400
Total expenses 1,878 1,914 5,559 5,586
Net income (loss) $ 26 $ (102) $ 165 $ (163)
Net income (loss) allocated
to general partners (10%) $ 3 $ (10) $ 17 $ (16)
Net income (loss) allocated
to limited partners (90%) 23 (92) 148 (147)
$ 26 $ (102) $ 165 $ (163)
Net income (loss) per limited
partnership unit $ .99 $(3.97) $ 6.40 $(6.35)
Distributions per limited
partnership unit $ -- $ -- $ -- $ 4.32
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' capital (deficit) at
December 31, 1998 23,139 $(1,275) $ 4,620 $ 3,345
Net income for the nine months
ended September 30, 1999 -- 17 148 165
Partners' capital (deficit)
at September 30, 1999 23,139 $(1,258) $ 4,768 $ 3,510
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,
1999 1998
Cash flows from operating activities:
Net income (loss) $ 165 $ (163)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 1,405 1,364
Amortization of loan costs and deferred costs 82 88
Casualty gain (52) --
Loss on disposal of property -- 34
Change in accounts:
Receivables and deposits (166) (93)
Other assets 175 (146)
Accounts payable (62) 192
Tenant security deposit liabilities 14 3
Accrued property taxes (37) 180
Other liabilities 35 (31)
Net cash provided by operating activities 1,559 1,428
Cash flows used in investing activities:
Property improvements and replacements (937) (1,040)
Net insurance proceeds from casualties 66 --
Net withdrawals from restricted escrows 51 143
Net cash used in investing activities (820) (897)
Cash flows from financing activities:
Payments on mortgage notes payable (203) (187)
Distributions to partners (600) (100)
Net cash used in financing activities (803) (287)
Net (decrease) increase in cash and cash equivalents (64) 244
Cash and cash equivalents at beginning of period 1,863 1,508
Cash and cash equivalents at end of period $ 1,799 $ 1,752
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,316 $ 1,332
See Accompanying Notes to Consolidated Financial Statements
e)
WINTHROP GROWTH INVESTORS 1 LIMITED PARTNERHSIP
NOTES TO CONSOLDIATED 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"), a Delaware corporation, 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, 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 income of the properties in 1999
and 100% of the losses in 1998.
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, the sole shareholder of the
Managing General Partner 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 Geneneral 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 nine months
ended September 30, 1999 and 1998:
1999 1998
(in thousands)
Property management fees (included in operating expenses) $286 $272
Reimbursement for services of affiliates (included in
investment properties and general and administrative
expenses) 115 59
During the nine months ended September 30, 1999 and 1998, affiliates of the
Managing General Partner were entitled to receive 5% of gross receipts from all
of the Partnership's properties as compensation for providing property
management services. The Partnership paid to such affiliates approximately
$286,000 and $272,000 during the nine months ended September 30, 1999 and 1998,
respectively.
An affiliate of the Managing General Partner received reimbursements of
accountable administrative expenses amounting to approximately $115,000 and
$59,000 for the nine months ended September 30, 1999 and 1998, respectively.
Included in these expenses for the nine months ended September 30, 1999 and
1998, is approximately $7,000 and $14,000, 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.
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 expired August 25, 1999. Pursuant to this offer, AIMCO Properties,
L.P., acquired 588 units.
As a result of the 1999 tender offers, AIMCO and its affiliates currently own
6,456.34 units of limited partnership interest in the Partnership representing
27.90% of the total outstanding units. It is possible that AIMCO or its
affiliates 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 nine months ended
September 30, 1999 (in thousands):
Three Months Ended Nine Months Ended
September 30, 1999 September 30, 1999
Net Income $ 26 $ 165
Add: Amortization expense 27 82
Depreciation expense 454 1,405
Less: Cash to reserves (507) (1,652)
Cash available for distribution $ -- $ --
Distributions allocated to
Limited Partners $ -- $ --
General Partners' interest in
cash available for
distribution $ -- $ --
NOTE E - SEGMENT REPORTING
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 segments 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 nine month periods ended September 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
(in thousands)
Rental income $ 5,497 $ -- $ 5,497
Other income 214 13 227
Depreciation 1,405 -- 1,405
Interest expense 1,364 -- 1,364
General and administrative expense -- 191 191
Segment profit (loss) 343 (178) 165
Total assets 24,508 756 25,264
Capital expenditures for investment
properties 937 -- 937
1998 Residential Other Totals
(in thousands)
Rental income $ 5,162 $ -- $ 5,162
Other income 252 9 261
Depreciation 1,364 -- 1,364
Interest expense 1,384 -- 1,384
General and administrative expense -- 135 135
Segment loss (37) (126) (163)
Total assets 24,674 1,507 26,181
Capital expenditures for investment
properties 1,040 -- 1,040
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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 discussion 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
nine months ended September 30, 1999 and 1998:
Average Occupancy
1999 1998
Ashton Ridge Apartments (formerly
Meadow Wood Apartments)
Jacksonville, Florida 91% 87%
Stratford Place Apartments
Gaithersburg, Maryland 98% 96%
Stratford Village Apartments
Montgomery, Alabama 94% 82%
Sunflower Apartments
Dallas, Texas 97% 98%
The average occupancy rate at Stratford Village Apartments increased due to
improved resident retention efforts. The average occupancy rate at Ashton Ridge
Apartments increased due to the temporary hiring of two leasing specialists
during the third quarter of 1999.
Results of Operations
The Partnership had net income of approximately $165,000 for the nine months
ended September 30, 1999, as compared to a net loss of approximately $163,000
for the corresponding period of 1998. The Partnership reported net income of
approximately $26,000 for the three months ended September 30, 1999, as compared
to net loss of approximately $102,000 for the three months ended September 30,
1998. The increase in net income for both comparable periods is primarily
attributable to an increase in total revenues combined with a decrease in total
expenses for the three and nine months ended September 30, 1999. Total revenues
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. Partially offsetting the increase in
rental income was a decrease in other income. Partially offsetting the decrease
in other income is primarily due to a decrease in interest income as a result of
lower average cash balances held in interest-bearing accounts.
Total expenses decreased due to decreases in property tax and operating
expenses, which were partially offset by increases in general and administrative
expenses and, with respect to the comparable nine month period only,
depreciation. The decrease in operating expense is largely due to declines in
property and maintenance expenses. The decrease in property expense is due to
declines in property and health insurance premiums and employee benefits. These
decreases were largely offset by increases in employee salaries and utilities.
The decline in maintenance expense is due to extensive repairs performed in 1998
at the properties. 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.
Depreciation expense for the comparable nine month periods increased due to the
property improvements and replacements placed into service during the last
twelve months. Depreciation expense remained relatively constant for the
comparable three month periods. 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.
As part of the ongoing business plan of the Partnership, the Managing General
Partner monitors the rental market environment of its investment properties to
assess the feasibility of increasing rents, maintaining or increasing occupancy
levels and protecting the Partnership from increases in expense. 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, 1999, the Partnership had cash and cash equivalents of
approximately $1,799,000 compared to approximately $1,752,000 at September 30,
1998. Cash and cash equivalents decreased by approximately $64,000 from December
31, 1998, due to approximately $820,000 of cash used in investing activities and
approximately $803,000 of cash used in financing activities, which were
partially offset by approximately $1,559,000 of cash provided by operating
activities. Cash used in investing activities consisted of property
improvements and replacements offset by net withdrawals from escrow accounts
maintained by mortgage lenders and net insurance proceeds received (see
discussion above). Cash used in financing activities consisted of payments made
on the mortgages encumbering the Partnership's investment properties and
distributions paid to the partners. The Partnership invests its working capital
reserves in a money market account.
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
the 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 nine months
ended September 30, 1999, the Partnership expended approximately $49,000 for
capital improvements at Sunflower Apartments consisting primarily of floor
covering replacement. These improvements were funded from operating cash flow.
Ashton Ridge Apartments (formerly 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 upgrades, cabinet
replacement, carpet replacement, fencing and landscaping upgrades, parking lot
improvements, appliances and roof replacements. During the nine months ended
September 30, 1999, the Partnership expended approximately $286,000 for capital
improvements at Ashton Ridge Apartments consisting primarily of floor covering,
cabinet and roof replacements, and interior building improvements. The interior
building improvements are approximately 75% complete as of September 30, 1999.
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 $655,000 for 1999 at this property which include certain of the
required improvements and consist of air conditioning upgrades, carpet
replacement, parking lot resurfacing, and plumbing and building improvements.
During the nine months ended September 30, 1999, the Partnership expended
approximately $463,000 for capital improvements at Stratford Place Apartments
consisting primarily of air conditioning upgrades, parking lot resurfacing,
plumbing and structural upgrades and interior and exterior building
improvements. The parking lot resurfacing and plumbing upgrades are
substantially complete as of September 30, 1999. These capital improvements
were funded from replacement reserves and 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 resurfacing. During the nine months ended September 30, 1999,
the Partnership expended approximately $139,000 for capital improvements at
Stratford Village consisting primarily of building improvements, parking lot
resurfacing, and floor covering. The parking lot resurfacing is substantially
complete as of September 30, 1999. 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 $20,877,000 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 nine months ended September
30, 1999. The Partnership declared and paid a distribution to the limited
partners of approximately $100,000 ($4.32 per limited partnership unit) during
the nine months ended September 30, 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 distributions to its partners
during the remainder of 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.
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 expired August 25, 1999. Pursuant to this offer, AIMCO Properties,
L.P., acquired 588 units.
As a result of the 1999 tender offers, AIMCO and its affiliates currently own
6,456.34 units of limited partnership interest in the Partnership representing
27.90% of the total outstanding units. It is possible that AIMCO or its
affiliates 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 September 30, 1999, had virtually completed 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.
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 virtually all of the server operating systems.
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 virtually
no Year 2000 issues. A complete, formal assessment of all the properties by the
Managing Agent was virtually completed by September 30, 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
September 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 has banking relationships with three major financial
institutions, all of which have designated their compliance. The Managing Agent
has updated data transmission standards with all of the financial institutions.
All financial institutions have communicated that they are Year 2000 compliant
and accordingly no accounts were required to be moved from the existing
financial institutions.
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 expenses
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 September 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/Martha L. Long
Martha L. Long
Senior Vice President
and Controller
Date:
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Winthrop
Growth Investors 1 Limited Partnership 1999 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-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,799
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 45,704
<DEPRECIATION> (24,792)
<TOTAL-ASSETS> 25,264
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 20,877
0
0
<COMMON> 0
<OTHER-SE> 3,510
<TOTAL-LIABILITY-AND-EQUITY> 25,264
<SALES> 0
<TOTAL-REVENUES> 5,724
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,559
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,364
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 165
<EPS-BASIC> 6.40<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
