FINANCIAL STATEMENTS AND
INDEPENDENT AUDITORS' REPORT
BLUE HILL HOUSING
LIMITED PARTNERSHIP
DECEMBER 31, 1999, 1998 AND 1997
<PAGE>
Blue Hill Housing Limited Partnership
TABLE OF CONTENTS
PAGE
INDEPENDENT AUDITORS' REPORT 3
FINANCIAL STATEMENTS
BALANCE SHEETS 4
STATEMENTS OF PROFIT AND LOSS 5
STATEMENTS OF PARTNERS' EQUITY 6
STATEMENTS OF CASH FLOWS 7
NOTES TO FINANCIAL STATEMENTS 8
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INDEPENDENT AUDITORS' REPORT
To the Partners
Blue Hill Housing Limited Partnership
We have audited the accompanying balance sheets of Blue Hill Housing
Limited Partnership as of December 31, 1999 and 1998, and the related statements
of profit and loss, partners' equity and cash flows for the years ended December
31, 1999, 1998 and 1997. These financial statements are the responsibility of
the partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Blue Hill Housing Limited
Partnership as of December 31, 1999 and 1998, and the results of its operations,
the changes in partners' equity and cash flows for the years ended December 31,
1999, 1998 and 1997, in conformity with generally accepted accounting
principles.
Bethesda, Maryland
January 25, 2000, except for note G
as to which the date is May 2, 2000
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Blue Hill Housing Limited Partnership
BALANCE SHEETS
December 31,
ASSETS
1999 1998
----------- -----------
CURRENT ASSETS
Cash and cash equivalents - operations $ 474,699 $ 272,243
Cash and cash equivalents - entity 209,847 135,092
Tenant accounts receivable 4,138 1,409
Miscellaneous prepaid expenses 26,894 27,030
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Total current assets 715,578 435,774
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DEPOSITS HELD IN TRUST - FUNDED
Tenant deposits 42,139 37,356
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RESTRICTED DEPOSITS AND FUNDED
RESERVES
Escrow deposits 79,779 101,752
Reserve for replacements 228,405 213,165
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308,184 314,917
RENTAL PROPERTY
Land 111,325 111,325
Buildings 10,789,587 10,868,372
Furnishings 60,495 62,003
Office furniture and equipment 3,250 --
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10,964,657 11,041,700
Less accumulated depreciation 3,951,874 3,687,040
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7,012,783 7,354,660
OTHER ASSETS
Intangible assets, net of accumulated 334,680 345,984
amortization of $186,402 and $175,098
Miscellaneous other assets 90,000 --
----------- -----------
424,680 345,984
$ 8,503,364 $ 8,488,691
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
1999 1998
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CURRENT LIABILITIES
Accounts payable $ 22,925 $ 8,718
Accrued interest payable - mortgage 55,751 55,751
Management fees payable 10,897 10,830
Accounts payable - entity 117,723 74,157
Prepaid revenue 151,740 8,662
Current maturities of mortgage payable 34,732 31,362
Development fee payable -- 16,235
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Total current liabilities 393,768 205,715
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DEPOSITS LIABILITY
Tenant deposits held in trust (contra) 40,080 38,139
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LONG-TERM DEBT
Mortgage payable, less current maturities 6,432,685 6,467,417
----------- -----------
CONTINGENCIES -- --
----------- -----------
PARTNERS' EQUITY 1,636,831 1,777,420
$ 8,503,364 $ 8,488,691
=========== ===========
See notes to financial statements
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Blue Hill Housing Limited Partnership
STATEMENTS OF PROFIT AND LOSS
Year ended December 31,
1999 1998 1997
----------- ----------- -----------
Revenue
Rental $ 2,222,212 $ 2,151,805 $ 2,104,840
Interest and other 37,183 34,475 37,566
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2,259,395 2,186,280 2,142,406
----------- ----------- -----------
Expenses
Administrative 368,022 309,536 290,300
Utilities 293,196 317,797 307,875
Operating and maintenance 475,350 462,009 344,999
Taxes and insurance 205,000 179,333 193,017
Interest 664,665 667,709 670,054
Depreciation and amortization 276,139 282,068 407,921
Other 117,612 72,010 117,129
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2,399,984 2,290,462 2,331,295
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NET LOSS $ (140,589) $ (104,182) $ (188,889)
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See notes to financial statements
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Blue Hill Housing Limited Partnership
STATEMENTS OF PARTNERS' EQUITY
Years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
General Limited
Total partners partner
----------- ----------- -----------
<S> <C> <C> <C>
Partners' equity (deficit), December 31, 1996 $ 2,075,491 $ (60,311) $ 2,135,802
Distribution (5,000) -- (5,000)
Net loss - 1997 (188,889) 490 (189,379)
----------- ----------- -----------
Partners' equity (deficit), December 31, 1997 1,881,602 (59,821) 1,941,423
Net loss - 1998 (104,182) 1,940 (106,122)
----------- ----------- -----------
Partners' equity (deficit), December 31, 1998 1,777,420 (57,881) 1,835,301
Net loss - 1999 (140,589) 325 (140,914)
----------- ----------- -----------
Partners' equity (deficit), December 31, 1999 $ 1,636,831 $ (57,556) $ 1,694,387
=========== =========== ===========
</TABLE>
See notes to financial statements
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Blue Hill Housing Limited Partnership
STATEMENTS OF CASH FLOWS
Year ended December 31,
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities
Net loss $(140,589) $(104,182) $(188,889)
Adjustments to reconcile net loss to net cash
provided by operating activities
Depreciation 264,835 270,769 396,622
Amortization 11,304 11,299 11,299
Changes in asset and liability accounts
(Increase) decrease in assets
Tenant accounts receivable (2,729) 2,686 (1,128)
Miscellaneous prepaid expenses 136 122 111
Tenant security deposits - funded (4,783) 355 (1,002)
Mortgage escrow deposits -- 1,686 (4,373)
Increase (decrease) in liabilities
Accounts payable 14,206 (102,713) 2,360
Accrued interest payable -- -- (402)
Accrued liabilities 67 167 1,055
Tenant security deposits held in trust 1,941 1,429 --
Prepaid revenue 143,078 4,658 86
Entity/construction liabilities payable 43,566 (17,904) 13,072
--------- --------- ---------
Net cash provided by operating activities 331,032 68,372 228,811
--------- --------- ---------
Cash flows from investing activities
Net withdrawals from (deposits to) reserve for (15,240) 28,697 (26,733)
replacements
Net withdrawals from (deposits to) other escrows 21,973 80,039 80,669
Entity/construction investing activities paid from (16,235) (82,142) (82,141)
partnership cash
Net purchases of fixed assets (12,957) (29,185) (56,454)
--------- --------- ---------
Net cash used in investing activities (22,459) (2,591) (84,659)
--------- --------- ---------
Cash flows from financing activities
Mortgage principal payments (31,362) (28,319) (25,571)
Distributions paid -- -- (5,000)
--------- --------- ---------
Net cash used in financing activities (31,362) (28,319) (30,571)
--------- --------- ---------
NET INCREASE IN CASH AND CASH 277,211 37,462 113,581
EQUIVALENTS
Cash and cash equivalents, beginning 407,335 369,873 256,292
--------- --------- ---------
Cash and cash equivalents, end $ 684,546 $ 407,335 $ 369,873
========= ========= =========
Supplemental disclosure of cash flow information
Cash paid for interest during the year $ 664,665 $ 667,709 $ 670,456
========= ========= =========
</TABLE>
See notes to financial statements
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Blue Hill Housing Limited Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE A - ORGANIZATION
Blue Hill Housing Limited Partnership was organized under the laws of the
Commonwealth of Massachusetts on November 4, 1987, for the purpose of
acquiring, rehabilitating and operating a low-income residential housing
project under Section 221(d)4 of the National Housing Act. The project
consists of 144 units located in Dorchester, Massachusetts, and is currently
operating under the name of Blue Hill Housing.
Cash distributions are limited by agreements between the partnership and the
Department of Housing and Urban Development (HUD) to the extent of surplus
cash as defined by HUD. If the partnership does not distribute at least
$2,500 annually to the limited partner, the general partners are obligated to
pay such shortfall. The distribution is payable from partnership cash.
Each building of the project has qualified and been allocated low-income
housing credits pursuant to Internal Revenue Code Section 42 ("Section 42")
which regulates the use of the project as to occupant eligibility and unit
gross rent, among other requirements. Each building of the project must meet
the provisions of these regulations during each of 15 consecutive years in
order to remain qualified to receive the credits.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
Property and Equipment
Land, buildings and improvements are recorded at cost. Depreciation is
provided for in amounts sufficient to relate the cost of depreciable assets
to operations over their estimated service lives using the straight-line
method over a 40-year life. Personal property is recorded at cost and is
depreciated over its estimated service life of five to seven years using
accelerated methods or 12 years using the straight-line method. Improvements
are capitalized, while expenditures for maintenance and repairs are charged
to expense as incurred. Upon disposal of depreciable property, the
appropriate property accounts are reduced by the related costs and
accumulated depreciation. The resulting gains and losses are reflected in the
statements of profit and loss.
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Blue Hill Housing Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Amortization
Mortgage costs are amortized over the term of the mortgage loan using the
effective interest method.
Cash and Cash Equivalents
The partnership invests all cash balances in overnight repurchase agreements
with its bank which are invested in U.S. Treasury Notes. Management considers
highly liquid investments with original maturity dates of 90 days or less to
be cash equivalents.
Provision for Doubtful Accounts
The partnership considers accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is required. If amounts
become uncollectible, they will be charged to operations when that
determination is made.
Income Taxes
No provision or benefit for income taxes has been included in these financial
statements since taxable income or loss passes through to, and is reportable
by, the partners individually.
Rental Income
Rental income is recognized as rentals become due. Rental payments received
in advance are deferred until earned. All leases between the partnership and
tenants of the property are operating leases.
NOTE C - MORTGAGE PAYABLE
The mortgage note is co-insured by the Federal Housing Administration (FHA)
and collateralized by a deed of trust on the rental property. The note bears
interest at the rate of 10.25%. Principal and interest are payable by the
partnership in monthly installments of $58,002 through October 2029.
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Blue Hill Housing Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE C - MORTGAGE PAYABLE (Continued)
Under agreements with the mortgage lender and FHA, the partnership is
required to make monthly escrow deposits for taxes, insurance and replacement
of project assets, and is subject to restrictions as to operating policies,
rental charges, operating expenditures and distributions to partners.
The liability of the partnership under the mortgage note is limited to the
underlying value of the real estate collateral plus other amounts deposited
with the lender.
Aggregate maturities of the mortgage payable for each of the next five years
and thereafter, are as follows:
December 31, 2000 $ 34,732
2001 38,591
2002 42,597
2003 47,175
2004 52,244
Thereafter 6,252,078
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$ 6,467,417
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NOTE D - RELATED PARTY TRANSACTIONS
Development Fee Payable
The partnership has accrued a development fee payable to the general partners
for services provided during the development and rehabilitation of the
project. This fee was capitalized as part of the rental property during the
year ended December 31, 1989 and is payable from capital contributions, the
operating deficit escrow and interest earned on the escrow. During 1999, 1998
and 1997, $16,235, $82,142 and $82,141, respectively, of this fee was paid.
As of December 31, 1999 and 1998, $0 and $16,235, respectively, remain
payable. If future releases from the operating deficit escrow (see note F)
exceed entity income, the excess will be considered additional development
fee. Accordingly, during 1999, $9,707 was paid and capitalized into rental
property.
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Blue Hill Housing Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE D - RELATED PARTY TRANSACTIONS (Continued)
Management Fees (Continued)
The property is managed by affiliates of the general partners, pursuant to a
management agreement approved by HUD. The current management agreement
provides for a management fee of 6% of monthly rental collections. The fee
charged to operations during 1999, 1998 and 1997 was $133,904, $129,936 and
$127,538, respectively. In addition, a reporting fee of $5.25 per unit per
month is charged for bookkeeping and reporting services. The reporting fee
charged to operations during each of the three years ended December 31 was
$9,072. At December 31, 1999 and 1998, $10,897 and $10,830, respectively, in
management fees are payable.
Partnership Administration Fee
The partnership has entered into a Partnership Administrative Services
agreement with the general partners for their services in managing the
business of the partnership. The annual fee is equal to 50% of net cash flow
available for distribution as defined in the partnership agreement with a
maximum of $500,000 per annum. For the years ended December 31, 1999, 1998
and 1997, a partnership administrative fee of $117,723, $74,157 and $92,061,
respectively, was incurred, of which $117,723 and $74,157, were payable as of
December 31, 1999 and 1998, respectively.
NOTE E - HOUSING ASSISTANCE PAYMENT CONTRACT AGREEMENT
FHA has contracted with the partnership, under Section 8 of Title II of the
Housing and Community Development Act of 1974, to make annual housing
assistance payments to the partnership on behalf of qualified tenants. The
agreement expires June 16, 2003.
NOTE F - OPERATING DEFICIT ESCROW
The partnership has entered into an agreement with the Commonwealth of
Massachusetts, Executive Office of Communities and Development (EOCD) in
order to receive its allocation of housing credit dollar amounts pursuant to
Section 42 of the Internal Revenue Code. The agreement requires the
establishment of a reserve to fund operating deficits for a period of five
years from the date of final endorsement of the mortgage. The partnership was
required to deposit into an escrow account $684,507, reduced by an estimate
of interest which will be earned on the
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Blue Hill Housing Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE F - OPERATING DEFICIT ESCROW (Continued)
account during the deficit period. The deposit was made prior to final
endorsement of the mortgage. As of December 31, 1999 and 1998, $0 and
$26,372, respectively, are in escrow.
NOTE G - CONTINGENCIES
Tax Credits
The project's low-income housing credits are contingent on its ability to
maintain compliance with applicable sections of Section 42. Failure to
maintain compliance with occupant eligibility, and/or unit gross rent, or to
correct noncompliance within a specified time period could result in
recapture of previously taken tax credits plus interest. In addition, such
potential noncompliance may require an adjustment to the contributed capital
by the limited partner.
Insurance Claim
During 1999, the partnership filed a claim with the insurance company in
connection with required repairs to certain boilers of the project's boiler
system. The partnership is still negotiating with the insurance company for a
final settlement and is obtaining bids to repair the boiler system. The
partnership will record in the financial statements the insurance settlement
when the claim is settled and the liability when the contract for the
required repairs is executed and completed.
Physical Inspection
In November 1999, the property underwent a physical inspection performed by
the Real Estate Assessment Center (REAC). Due to the number of severe
problems found in the property's physical condition, the inspection resulted
in a failing score and was forwarded to the Departmental Enforcement Center
(DEC). DEC is responsible for performing a comprehensive evaluation of the
property in which the physical condition of the property and financial and
management matters are reviewed.
Management concluded, upon examination of the inspection report, that
material errors were made and that the report was inconsistent and
inaccurate. Therefore, on December 22, 1999, management submitted a formal
appeal of the REAC inspection, requesting a re-scoring of the property.
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Blue Hill Housing Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE G - CONTINGENCIES (Continued)
Physical Inspection (Continued)
On May 2, 2000, management received correspondence from REAC in response to
the appeal. REAC acknowledged that material errors were made in the
inspection. A separate quality assurance onsite review of the property
performed on March 20, 2000 also found that the inspector made certain
mistakes and misstatements in the inspection report. Therefore, REAC
determined that the original inspection was not conducted in accordance with
proper protocol. It has decided to initiate a complete re-inspection of the
property.
Due to the uncertainty of the events described above and possible outcomes,
the amount resulting from any ultimate unfavorable decision by REAC related
to possible repair costs cannot be determined.
NOTE H - NEIGHBORHOOD NETWORK CENTER
During 1997, pursuant to HUD's approval, the partnership and Elm Hill
Housing, L.P., an affiliate, established a Neighborhood Network Center. Cost
incurred by the partnership during 1999 and 1998 amounted to $69,056 and
$29,185, respectively. The amount of these costs capitalized during 1999 and
1998 amounted to $0 and $29,185, respectively. $69,056 was expensed in 1999.
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