SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 1996 Commission File Number 2-94797
WINTHROP FINANCIAL ASSOCIATES, A LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Maryland 04-2846721
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization
One International Place, Boston, MA 02110
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 330-8600
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
<PAGE>
WINTHROP FINANCIAL ASSOCIATES,
A LIMITED PARTNERSHIP
FORM 10-Q
June 30, 1996
Part I. Financial Information:
<TABLE>
Consolidated Statements of Operations
- ------------------------------------------------------------------------------------------------------------------------------------
For the Three Months For the Six Months
Ended June 30, Ended June 30,
(Amounts in thousands except unit data)(Unaudited) 1996 1995 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Rent.................................................................. $ 12,088 $ 11,548 $ 24,566 $ 22,748
Management fees....................................................... 3,985 3,677 7,589 6,978
Leasing commissions................................................... 23 404 155 685
Tenant service revenue................................................ - 917 - 1,956
Investment services................................................... - 553 - 553
Interest.............................................................. 1,297 1,061 2,405 1,711
Other................................................................. 1,727 539 2,861 701
------------ ----------- ----------- ----------
Total Revenues.................................................. 19,120 18,699 37,576 35,332
------------ ----------- ----------- ------------
Expenses:
Management, general and administrative................................ 4,847 4,526 9,108 8,733
Depreciation and amortization......................................... 2,229 1,988 4,273 3,864
Tenant service expense................................................ - 943 - 2,121
Interest. . . . ...................................................... 3,938 4,115 7,884 7,756
Rental properties expense............................................. 5,865 5,907 11,492 11,077
------------ ----------- ----------- -----------
Total Expenses.................................................. 16,879 17,479 32,757 33,551
------------ ----------- ----------- ------------
Operating Income ............................................... 2,241 1,220 4,819 1,781
Equity in income (loss) of investment programs 75 71 114 (4)
Legal settlement expense.............................................. (1,850) - (1,850) -
----------- ------------ ----------- ------------
Operating income before minority interest and
provision for income taxes..................................... 466 1,291 3,083 1,777
Minority Interest..................................................... 504 - 1,005 -
------------ ----------- ------------ -----------
Income before provision for income taxes (38) 1,291 2,078 1,777
------------ ----------- ------------------------
Provision for income taxes............................................ - 509 1,026 949
------------ ----------- ----------- -----------
Net income ..................................................... (38) 782 1,052 828
============ =========== =========== ===========
Net Income allocated to:
General Partner................................................. - - - -
============ =========== =========== ===========
Unitholders:
General Partner ............................................... $ - $ - $ - $ -
============ =========== =========== ===========
Public Unitholders.............................................. $ (38) $ 782 $ 1,052 $ 828
============ =========== =========== ===========
PublicUnitholders Net Income Per Unit/based upon the weighted average number of
Units outstanding - 2,712,814 for the three and six months ended
June 30, 1995 and 1995 ......................................... $ (.01) $ .29 $ .39 $ .31
============ ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<TABLE>
Consolidated Balance Sheets
- -------------------------------------------------------------------------------------------------------------------
June 30, 1996 Dec. 31, 1995
(Amounts in thousands) (Unaudited)
- -------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents (of which $14,000 and $3,834 is unrestricted at June
30, 1996 and December 31, 1995,
respectively).......................................................... $ 23,558 $ 12,362
Current portion of receivables:
Fees, commissions and reimbursements, including accrued interest 4,940 5,488
Related party receivables............................................... 149 234
Other current assets...................................................... 551 1,244
------------ -----------
Total current assets................................................ 29,198 19,328
------------ -----------
Long-term Receivables:
Fees, net of reserves of $8,778 and $16,879 at June 30, 1996
and December 31, 1995.................................................. 10,707 9,678
Loans, net of reserves of $6,532 and $16,888 at June 30, 1996 and
December 31, 1995....................................................... 3,132 3,200
------------ -----------
Total long-term receivables......................................... 13,839 12,878
------------ -----------
Real Estate Assets:
Land..................................................................... 30,727 30,727
Buildings................................................................ 164,338 160,918
Furniture, fixtures, equipment........................................... 7,629 7,255
Accumulated depreciation................................................. (20,027) (16,676)
------------- ------------
Total real estate assets............................................ 182,667 182,224
------------ -----------
Other Assets:
Equity interests in and advances to investment programs 4,973
Deferred costs (net of accumulated amortization of $4,759 and
$3,837 at June 30, 1996 and December 31, 1995, respectively) 10,423 11,317
Other assets............................................................. 95 181
------------ -----------
Total other assets.................................................. 10,518 16,471
------------ -----------
$ 236,222 $ 230,901
============= ===========
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities:
Notes payable............................................................ $ 2,047 $ 2,059
Accounts payable......................................................... 2,722 2,819
Accrued expenses and other............................................... 12,783 10,759
------------ -----------
Total current liabilities........................................... 17,552 15,637
------------ -----------
Long-term Liabilities:
Notes payable............................................................ 175,237 175,521
Deferred taxes........................................................... 14,398 13,372
Equity interests in and advances to investment programs 1,781 -
Other long-term liabilities.............................................. 5,007 4,859
------------ -----------
Total long-term liabilities......................................... 196,423 193,752
------------ -----------
Commitments and Contingencies
Minority Interest......................................................... 16,534 16,851
Partners' Capital:
Limited Partners, $25 stated value per Unit; authorized - 21,249,942 Units;
issued and outstanding - 15,284,243 Units:
Public Unitholders, 2,712,814 Units with preferential rights 41,958 40,906
General Partner, 12,571,429 Units without preferential rights (26,636) (26,636)
General Partner........................................................ (5,365) (5,365)
Investment in W.L. Realty Limited Partnership (4,244) (4,244)
------------ ---------------
Total partners' capital............................................. 5,713 4,661
------------ -----------
$ 236,222 $ 230,901
============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<TABLE>
Consolidated Statements of Cash Flows
- ------------------------------------------------------------------------------------------------------------------------------------
For the Six Months
Ended June 30
(Amounts in thousands)(Unaudited) 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net Income ............................................................... $ 1,052 $ 828
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Minority Interest expense............................................. 1,005 -
Depreciation and amortization......................................... 4,273 3,864
Equity in income (loss) of investment programs (114) 4
Increases (decreases) in cash as a result of changes in operating assets and
liabilities:
Fees receivable..................................................... 548 236
Other current assets................................................ 693 758
Long-term receivable ............................................... (1,029) -
Other non-current assets............................................ 86 -
Accounts payable.................................................... (97) (899)
Accrued expenses.................................................... 2,024 (16,753)
Accrued deferred taxes.............................................. 1,026 865
Other liabilities................................................... 148 (794)
----------- ----------
Net cash provided by (used in) operating activities 9,615 (11,891)
------- -----------------
Cash flows from investing activities:
Capital expenditures.................................................... (3,794) (2,550)
Contributions to investment programs.................................... (100) (14)
Distributions from investment programs.................................. 968 350
Proceeds from sale of promissory note................................... 6,000 -
Decrease in earnest money deposit...................................... - 2,200
Repayment of related party receivables.................................. 85 -
Decrease (increase) in loans receivable................................. 68 (340)
----------- ----------
Net cash provided by (used in) investing activities 3,227 (354)
------- -------------
Cash flows from financing activities:
Increase in deferred costs.............................................. (28) (379)
Borrowings of notes payable............................................. - 17,621
Distributions to minority interest...................................... (1,322) -
Repayments of notes payable............................................. (296) (7,724)
----------- ----------
Net cash provided by (used in) financing activities (1,646) 9,518
--------- --------------
Net Increase (decrease) in cash and cash equivalents 11,196 (2,727)
-------- ---------------
Cash and cash equivalents at beginning of period 12,362 18,898
----------- --------------
Cash and cash equivalents at end of period $ 23,558 $ 16,171
========== ==============
</TABLE>
Supplemental disclosure of Non Cash Investing and Financing Activities: In April
1995, the Company purchased, from an unaffiliated party, an apartment complex
in Austin, Texas. In conjunction therewith, the Company obtained $1,000,000 in
seller financing and assumed a mortgage from a related party of $9,945,974.
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
Notes to Consolidated Financial Statements June 30, 1996
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
1. The accompanying condensed consolidated financial statements reflect the
accounts of Winthrop Financial Associates ("WFA") and its subsidiaries
including First Winthrop (collectively referred to as the "Company"). All
significant intercompany accounts and transactions have been eliminated in
consolidation.
The consolidated financial statements were prepared on the accrual basis of
accounting and reflect the Company's results of operations for an interim
period which may not necessarily be indicative of the results of operations
for the year ending December 31, 1996. In the opinion of management, all
adjustments considered necessary for a fair presentation of the results of
operations for an interim period have been made in the accompanying
consolidated financial statements. These condensed consolidated financial
statements should be read in conjunction with the financial statements and
notes thereto included in the Partnership's latest annual report on Form
10-K.
Public Unitholders are entitled to a 6% per annum cumulative priority
distribution from all operating cash flow. At June 30, 1996, this unpaid
accumulated preference amounted to $22,380,000 or $8.25 per unit.
The net income of the Company is first allocated to Public Unitholders up
to the amount of the 6% per annum cumulative priority distribution and then
any remaining income is allocated to all partners in accordance with their
percentage interests. Net loss for financial statement purposes is
allocated to all partners in accordance with their percentage interests as
outlined in the partnership agreement. The Company made interest and income
tax payments during the three months ended March 31, 1996 and 1996 as
follows:
2. STATEMENTS OF CASH FLOWS
<TABLE>
<S> <C> <C>
(Amounts in thousands) 1996 1995
-----------------------------------------------------------
Interest...................... $ 7,507 $ 6,941
Income Taxes.................. - 84
</TABLE>
3. RELATED PARTY TRANSACTIONS
During the six months ended June 30, 1996 the Company was repaid advances
of $85,000 from certain affiliates of Apollo. Such advances bear interest
at prime plus 1% and are due on demand. The balance due from related
parties at June 30, 1996, waas $149,000.
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
This item should be read in conjunction with the financial statements and
other items contained elsewhere in the report.
Liquidity and Capital Resources
During the first six months of 1996, distributions to the Registrant's
partners remained suspended. However, on May 23, 1996, the Cook County Circuit
Court gave final approval to the settlement in the Friedman litigation. See
"Part II, Item 1- Legal Proceedings." As a result, it is expected that each
Preferred Unitholders' interest in the Registrant will be liquidated during the
second half of 1996 at a price equal to $10.50 per unit or, in the case of
dissenting Preferred Unitholders, an amount judicially determined pursuant to
applicable statutory appraisal procedures.
The Company generates substantially all of its income from rental revenues
received at its properties and management fees received by its Apartment,
Commercial and Asset Management Divisions and is responsible for costs
associated with the ownership and maintenance of its assets as well as general
and administrative costs. At June 30, 1996, the Company had cash resources
available to it of $23,558,000 of which $14,000,000 was unrestricted as compared
to $12,362,000 of cash at December 31, 1995 of which $3,834,000 was
unrestricted. The Company invests its working capital in money market accounts
or repurchase agreements secured by United States Treasury obligations.
The Company generated $9,615,000 of cash from operating activities and
$3,227,000 of cash from investing activities while utilizing $1,646,000 in
financing activities during the six months ended June 30, 1996. The significant
cash provided from operations is primarily the result of a collection of
significant amounts previously advanced to partnerships and fees receivable. The
prior year amount of $11,891,000 used in operations is primarily the result of a
payment of $17,000, 000 related to a legal settlement.
In February 1996, the Company contributed approximately $36.6 million of
receivables to Nineteen New York Properties Limited Partnership ("19NY") in
connection with a loan restructuring transaction pursuant to which an affiliate
of Apollo Real Estate Advisors, L.P. ("Apollo") acquired the existing debt on
certain of 19NY's properties. The remaining $10 million of receivables owed by
19NY and 1626 New York Associates Limited Partnership, a general partner of
19NY, were evidenced by a promissory note which the Company sold to an affiliate
of Apollo for $6,000,000.
At this time the Company believes that its cash reserves and cash flow
from operations will be sufficient to satisfy future working capital
requirements. It appears, however, that the original investment objectives of
capital growth and quarterly distributions will not be attained in the
foreseeable future and that limited partners are unlikely to receive a return of
all of their invested capital.
Results of Operations
Operating income improved by $3,038,000 and $1,021,000 for the six months
and three months ended June 30, 1996 as compared to the same periods in 1995,
due to an increase in revenues of $2,244,000 and $421,000, respectively, as well
as a decrease in expenses of $794,000 and $600,000 respectively.
The increase in revenues for the six months ended June 30, 1996 as compared
to 1995 is due to increases in rental revenue of $1,818,000, management fees of
$611,000, interest income of $694,000 and other income of $2,160,000. These
increases were partially offset by decreases in leasing commissions of $530,000,
investment services revenue of $553,000 and tenant service revenue of
$1,956,000. Revenues for the three month period ended June 30, 1996 were
$19,120,000 compared to $18,699,000 or a 2.2% increase from the three month
period in 1995.
The increase in rental revenue is primarily attributable to the acquisition
in April 1995 of a 329 unit apartment complex located in Austin, Texas and
overall improved operations at the Company's properties. The increase in
management fees was primarily attributable to the improved revenues at the
properties the Company manages which were partially offset by lost contract
charges and the elimination of construction management fees due to the
outsourcing of these services. Interest income increased as a result of higher
cash balances and the increase in other income is attributable to non-recurring
recoveries of previously reserved fees receivable, cash distributions received
from investment programs and fees received for arranging financings.
Tenant service revenue decreased due to the outsourcing of building cleaning,
security and construction services. The decrease in leasing commissions is
attributable to both timing and the outsourcing of leasing functions at certain
of the Company's properties.
<PAGE>
Operating expenses decreased by 2.4% for the six month period ended June 30,
1996 when compared to the six month period ended June 30, 1995 due to a decrease
in tenant service expense of $2,121,000 which was partially offset by increases
in management, general and administrative expense of $375,000, rental expense of
$415,000, depreciation and amortization of $409,000 and interest expense of
$128,000. Operating expenses decreased by 3.4% for the quarter ended June 30,
1996 compared to the quarter ended June 30, 1995. Savings were recognized in
tenant service expense, interest expense and rental property expense which were
offset by increases in management, general & administrative and depreciation and
amortization expense.
The increase in management, general and administrative expenses is
attributable to an increase in legal and professional fees partially offset by
savings due to a reduction in the number of employees of the Company as well as
other cost cutting measures. The decrease in tenant service expense is the
result of the outsourcing of these functions. The increases for the six month
period ended June 30, 1996 in rental expense, depreciation and amortization are
primarily attributable to the acquisition of the Austin, property. The increase
in interest expense for the six month period ended June 30, 1996 is attributed
to the additional $42 million financing secured by certain of the Company's
residential apartment properties which closed in July, 1995.
The legal settlement expense of $1,850,000 relates to the proposed settlement
of a law suit relating to 353 San Francisco Associates Limited Partnership
discussed in more detail in Part II Item 1, Legal Proceedings.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 Legal Proceedings
Gray, et al v. First Winthrop Corporation, et al. (No. C-90-2600-JPV), filed
on September 10, 1990 in the U.S. District Court, Northern District of
California. This suit was brought by as a class action by two individuals, who
were limited partners in 353 San Francisco Associates Limited Partnership
("353"), a real estate investment partnership organized in 1984. 353 owned an
office building in San Francisco which was foreclosed upon by the first mortgage
lender in April 1990. The plaintiffs alleged violations of common law and
securities law fraud in the conduct of the original offering of investment
interests and seek rescission of their investment, totaling $28 million plus
accrued interest.
In September, 1994, summary judgment was entered against the plaintiffs and
in favor of First Winthrop Corporation ("FWC") on all claims asserted by the
plaintiffs. In May 1996 the United States Court of Appeals for the Ninth Circuit
reversed the summary judgment granted by the District Court in favor of the
Company and remanded the case for trial. In July, 1996, a settlement was reached
with class counsel pursuant to which FWC agreed to pay approximately $1.85
million to the plaintiffs. The settlement is subject to FWC and class counsel
entering into a stipulation of settlement. In addition, the settlement is
subject to receiving court and class approval. It is expected that the
settlement of this matter will occur, if at all, during the first half of 1997.
If a stipulation is not entered into or the settlement approved, the Company
believes that an adverse decision at trial would have a significant negative
impact on the Company's ability to continue operations.
Albert Friedman, Individually and as representative of a class of similarly
situated persons, v. Linnaeus Associates Limited Partnership et al., No. 94 CH
11524, Cir. Ct. of Cook County, Ill. The plaintiff brought a purported class
action in December 1994 on behalf of all Preferred Unitholders against Linnaeus,
Management Investors and Nomura.
On May 23, 1996, the Partnership received final approval from the Court
with respect to the settlement of this action. The settlement provides for the
liquidation of the Preferred Unitholders investment in the Partnership by
effecting a merger of an affiliate of the Partnership and the Partnership. In
connection with the merger, each Preferred Unitholders' interest in the
Partnership will be liquidated at a price equal to $10.50 per unit or, in the
case of dissenting Preferred Unitholders, an amount judicially determined
pursuant to applicable statutory appraisal procedures. It is anticipated that
the merger will be effected during the second half of 1996.
ITEM 6 Exhibits and Reports on Form 8-K
(a) Exhibit 27, Financial Data Schedule, is filed as an exhibit to this report.
(b) Reports on Form 8K: No report on Form 8-K was filed during the period.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
WINTHROP FINANCIAL ASSOCIATES,
A LIMITED PARTNERSHIP
(Registrant)
By: /s/ Michael L. Ashner
Michael L. Ashner
Chief Executive Officer
By: /s/ Edward V. Williams
Edward V. Williams
Chief Financial Officer
DATED: August 14, 1995
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information
extracted from unaudited financial statements for the
six month period ending June 30, 1996 and is
qualified in its entirety by reference to such financial
statements
</LEGEND>
<CIK> 0000759253
<NAME> WINTHROP FINANCIAL ASSOCIATES, A LIMITED PARTNERSHIP
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 23,558,000
<SECURITIES> 0
<RECEIVABLES> 34,238,000
<ALLOWANCES> (15,310,000)
<INVENTORY> 0
<CURRENT-ASSETS> 29,198,000
<PP&E> 202,694,000
<DEPRECIATION> (20,027,000)
<TOTAL-ASSETS> 236,222,000
<CURRENT-LIABILITIES> 17,552,000
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 5,713,000
<TOTAL-LIABILITY-AND-EQUITY> 236,222,000
<SALES> 0
<TOTAL-REVENUES> 37,576,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 24,873,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,884,000
<INCOME-PRETAX> 2,078,000
<INCOME-TAX> 1,026,000
<INCOME-CONTINUING> 3,928,000
<DISCONTINUED> 0
<EXTRAORDINARY> (1,850,000)
<CHANGES> 0
<NET-INCOME> 1,052,000
<EPS-PRIMARY> 00.39
<EPS-DILUTED> 00.39
</TABLE>
