SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED] For the Fiscal Year Ended February 28, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from
______ to ______.
0-17793
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(Commission File Number)
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
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(Exact name of registrant as specified in its governing instruments)
Delaware 13-3481443
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(State or other jurisdiction of organization) (I.R.S. Employer
Identification No.)
Wilder Richman Historic Corporation
599 W. Putnam Avenue
Greenwich, Connecticut 06830
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (203) 869-0900
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Securities registered pursuant to Section 12(b) of the Act:
None
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(Title of each Class)
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 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___
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in a definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
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The aggregate sales price of the units of limited partnership interest held by
non-affiliates of the Registrant is $19,280,000. There is currently no public
market for the units of limited partnership interest and, accordingly, such
figure does not represent the market value for the units.
Documents incorporated by reference:
The Prospectus of the Registrant, dated May 13, 1988 and filed pursuant to Rule
424(b)(iii) under the Securities Act of 1933, is incorporated by reference into
Parts I, II and III of this Annual Report on Form 10-K.
PART I
Item 1. Business
General Development of Business
Registrant (also referred to as the "Partnership") is a limited
partnership which was formed under the Delaware Revised Uniform Limited
Partnership Act on October 15, 1987. The general partner of the Partnership is
Wilder Richman Historic Corporation, a Delaware corporation (the "General
Partner" or "WRHC").
Registrant was organized to acquire all of the limited partnership
interests in Dixon Mill Associates I (Phase One), Limited Partnership, Dixon
Mill Associates II (Phase Two), Limited Partnership, and Dixon Mill Associates
III (Phase Three), Limited Partnership, each of which is a New Jersey limited
partnership (individually "Dixon Mill I," "Dixon Mill II" and "Dixon Mill III,"
respectively, and collectively the "Operating Partnerships"). Each Operating
Partnership owns one phase ("Phase") of an aggregate 433-unit residential
apartment complex (the "Complex") located in Jersey City, New Jersey, that
consists of buildings designated as certified historic structures by the U.S.
Department of the Interior. The Operating Partnerships have constructed,
substantially rehabilitated and are operating the Complex. The rehabilitation of
the Complex qualified for a rehabilitation tax credit in 1988, 1989 and 1990.
The general partner of the Operating Partnerships is Dixon Venture Corp. (the
"Operating General Partner"), which is not an affiliate of the Partnership or
WRHC.
Pursuant to the Partnership's prospectus dated May 13, 1988, (the
"Prospectus"), the Partnership offered $19,280,000 of units of limited
partnership interest in the Partnership (the "Units") at an offering price of
$24,100 per Unit. The Units were registered under the Securities Act of 1933
pursuant to a Registration Statement on Form S-11 (Registration No. 33-19646).
The Prospectus is incorporated herein by reference.
The closing of the offering of Units (the "Offering") occurred on July 15,
1988. At such closing, 800 Units were sold, representing $19,280,000 in gross
proceeds. After payment of $674,800 of organization and offering expenses,
$674,800 in an origination fee and $1,349,600 of selling commissions, the net
proceeds available for investment were $16,580,800. Of such net proceeds,
$16,388,000 was allocated to the investment in the Operating Partnerships, which
included investments in guaranteed investment contracts. The remainder of
$192,800 was designated as working capital to be used for operating expenses of
the Partnership.
Financial Information About Industry Segments
Registrant is engaged solely in the business of owning a limited
partnership interest in each of the Operating Partnerships. A presentation of
information regarding industry segments is not applicable and would not be
material to an understanding of the Partnership's business taken as a whole. See
Item 8 below for a summary of Registrant's operations.
Working Capital Reserves
As of February 28, 2002, Registrant had working capital reserves of
approximately $119,000, which were substantially invested in interest-bearing
deposits. See Item 7 - "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Competition
Information regarding competition, general risks, tax risks and
partnership risks is set forth under the heading "RISK FACTORS" at pages 37 - 57
of the Prospectus.
2
Employees of Registrant
Registrant employs no personnel and incurs no payroll costs. An affiliate
of the General Partner employs individuals who perform accounting, secretarial,
transfer and other services on behalf of Registrant as are necessary in the
ordinary course of business. Such individuals also perform similar services for
other affiliates of the General Partner.
Tax Reform Act of 1986, Revenue Act of 1987, Technical and Miscellaneous
Revenue Act of 1988, Omnibus Budget Reconciliation Act of 1989, Omnibus
Budget Reconciliation Act of 1990, Tax Extension Act of 1991, Omnibus
Budget Reconciliation Act of 1993, Uruguay Round Agreements Act, Tax and
Trade Relief Extension Act of 1998, Tax and Trade Relief Extension Act of
1999, Community Renewal Tax Relief Act of 2000, Economic Growth and Tax
Relief Reconciliation Act of 2001 and Job Creation and Worker Assistance
Act of 2002 (collectively the "Tax Acts")
Registrant is organized as a limited partnership and is a pass through tax
entity which does not, itself, pay Federal income tax. However, the partners of
Registrant who are subject to Federal income tax may be affected by the Tax
Acts. Registrant will consider the effect of certain aspects of the Tax Acts on
the partners when making decisions regarding its investment. Registrant does not
anticipate that the Tax Acts will currently have a material adverse impact on
Registrant's business operations, capital resources and plans or liquidity.
Item 2. Properties
The Complex consists of approximately 34 historic mill buildings built
between 1847 and 1932, all of which are certified historic structures that have
been converted and substantially rehabilitated into a 433 unit luxury apartment
complex that has received financing exempt from Federal income taxation under
Internal Revenue Code Section 103(b)(4)(A). As a consequence of this tax exempt
financing, the Operating Partnerships are required to rent at least 15% of the
dwelling units ("D.U.'s") in the Complex to individuals or families of low or
moderate income as determined under such Code Section, currently based on their
income not exceeding 80% of the median income for the area as determined by the
United States Department of Housing and Urban Development ("HUD"). These income
limits are subject to increases pursuant to HUD guidelines. In the Complex, 68
studio and efficiency D.U.'s and 17 one-bedroom D.U.'s are set aside for rental
to low or moderate income persons. There are no rent ceilings on those D.U.'s
set aside for low or moderate income persons. Because such tax exempt financing
consists of bonds sold in 1985, the 80% of median income limit is not required
to be adjusted based on family size as would be required under the Tax Reform
Act of 1986.
The Complex is located on a 4-acre site in Jersey City, New Jersey. In
addition, one new five-story building, approximately 20 feet by 50 feet, was
built on the site. The Complex is located in the Dixon Crucible Redevelopment
Area, an area so designated pursuant to a redevelopment plan adopted in
September 1983 by ordinance of the City of Jersey City. The actual development
entails three Phases with each Phase owned by a separate New Jersey limited
partnership, respectively Dixon Mill I, Dixon Mill II and Dixon Mill III. Phase
I consists of seven industrial buildings which have been rehabilitated to
provide 134 D.U.'s, 55 underground and 77 surface parking spaces and
approximately 1,550 square feet of commercial space. Phase II consists of 11
industrial buildings which have been rehabilitated to provide 191 D.U.'s and 62
underground and 124 surface parking spaces. Phase III consists of four
industrial buildings which have been rehabilitated to provide 108 D.U.'s, 35
underground and 73 surface parking spaces and approximately 2,230 square feet of
commercial space.
The Complex features gardens, elevated walkways and brick paved walkways.
The Complex also has its own electronic security system and a free shuttle
service to the Grove Street PATH station is being provided. In addition, the
residents of the Complex have access to a private fitness facility. The
Complex's commercial space is designated for retail stores and/or professional
offices.
3
As of December 31, 2001 and 2000, the occupancy and rental rates were as
follows:
December 31, 2001 December 31, 2000
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Occupancy Rate 97% 98%
Monthly Rental Rates:
Studio $ 628 - $1,117 $ 615 - $1,095
One-Bedroom $ 730 - $1,807 $ 779 - $1,771
Two-Bedroom $1,365 - $2,284 $ 1,365 - $2,239
Three-Bedroom $1,928 - $2,647 $ 1,890 - $2,595
The rental rates reflect significant ranges because the apartments vary as
to size and floor plans (i.e., square footage, duplex, triplex, penthouse) and
due to the low-moderate tenant income restrictions for 15% to 20% of the D.U.'s
resulting from the tax-exempt financing described above.
Item 3. Legal Proceedings
Three complaints were filed against the Operating Partnerships, among
others, by a former employee, a former part-time rental agent and a
security person employed by a private non-affiliated security company which
provided service to the Property, alleging, among other things,
discrimination in connection with advancement, hiring and termination. All
three complaints were settled in 2001 and the results are included in the
Operating Partnerships' financial statements for the year ended December
31, 2001.
Registrant is not aware of any other material legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of the limited partners of
Registrant during the fourth quarter of the fiscal year covered by this report.
4
PART II
Item 5. Market for Registrant's Common Equity and Related Unit Matters
a) Market
There is no developed public market for the purchase and sale of Units and
Registrant does not anticipate that such a market will develop.
b) Holders
As of February 28, 2002, there were approximately 736 record holders of
Units holding an aggregate of 800 Units in the Partnership.
c) Distributions
The Agreement of Limited Partnership of the Registrant provides that cash
available for distribution, if any, be distributed annually to the partners in
specified proportions. As a result of the mortgage modification on June 11,
1992, certain cash flow restrictions were placed on the Operating Partnerships.
Such restrictions no longer apply as a result of the refinancing in April 2001.
See Item 7 - "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Note 3 to the Dixon Mills Financial Statements
included herein.
Item 6. Selected Financial Data
Year End
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February February February February February
28, 2002 28, 2001 29, 2000 28, 1999 28, 1998
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Total revenues
(Interest income) $ 4,674 $ 11,890 $ 54,009 $ 52,660 $ 55,276
Equity in income (loss) of
investment in Operating
Partnerships $ 701,964 $ 83,937(b) $ 128,830 $ (508,146)(a) $ (358,875)
Net income (loss) $ 669,086 $ 66,898 $ 146,652 $ (488,061) $ (333,793)
Net income (loss) per unit of
limited partnership interest $ 828 $ 83 $ 181 $ (604) $ (413)
At year end:
Total assets $ 2,205,490 $ 1,573,577 $ 1,511,679 $ 2,314,027 $ 2,787,088
(a) Includes extraordinary loss of $321,753 in connection with litigation
settlement. See Management's Discussion and Analysis of Financial Condition
and Results of Operations.
(b) Includes extraordinary loss of $304,842 in connection with refinancing of
mortgages of Operating Partnerships. See Management's Discussion and
Analysis of Financial Condition and Results of Operations.
5
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
The operating results of the Complex for 2001 were favorable compared to
2000. During 1992, the mortgages of the Operating Partnerships were modified,
resulting in an interest rate decrease from approximately 9.6% to approximately
6.74%, thereby improving the financial viability of the Complex. The Operating
Partnerships again refinanced their respective outstanding mortgage liabilities
as of April 28, 2000 (the "Refinancing"). The total new indebtedness in the
amount of $28,600,000, for a term of 30 years, was provided by (a) variable-rate
tax-exempt bonds in the amount of $26,435,000 and (b) variable-rate taxable
bonds in the amount of $2,165,000. The initial interest rates on the tax-exempt
and taxable bonds were 5.1% and 6.15%, respectively. The Operating Partnerships
purchased an interest cap, which would limit the interest rates to 6.97% for
five years on the tax-exempt portion, and 9.15% for five and one-half years on
the taxable portion. Proceeds from the new bond issue were used to create a
reserve for capital improvements of approximately $1,365,000. In addition, the
balance in the replacement reserve at the date of the Refinancing (approximately
$903,000) was transferred to the capital improvement reserve (collectively, the
"Capital Improvements Escrow").
As a result of the reduction of the mortgage interest rate, there may
be greater potential for the Operating Partnerships to generate cash flow.
However, the Operating Partnerships' ability to make distributions will depend
on the level of interest rates and future operating results of the Complex,
which will be extremely dependent on competition, market conditions and needed
capital improvements and repairs. Accordingly, there can be no assurance as to
whether or not the Partnership may be able to make distributions, nor the timing
or amount of any potential distributions to Limited Partners. The Operating
General Partner and the General Partner plan to periodically assess the possible
resumption of cash flow distributions, based on the results of operations, the
physical condition of the Property (see discussion below), the then current
interest rates, and local market conditions, among other things. To the extent
cash flow is generated by the Operating Partnerships, such cash flow may be
retained by the Operating Partnerships or may be distributed at the discretion
of management, pursuant to the terms of the limited partnership agreements of
the Operating Partnerships. To the extent there are net proceeds from a future
sale or refinancing of the Complex, the Partnership will receive 100% of any
such proceeds available for distribution until the 7% cumulative preferred
distribution has been achieved. Through December 2001, the cumulative preferred
distribution is approximately $14,903,000.
The Property reported cash flow for the year ended December 31, 2001
(see Results of Operations, below) and the Operating Partnerships' cash and cash
equivalents and investments in bonds as of December 31, 2001 have increased by
approximately $1,408,000 as compared to December 31, 2000, while accounts
payable and accrued expenses have decreased by approximately $123,000. The
Capital Improvement Escrow and replacement reserve accounts, which are
controlled by the lender, are approximately $2,142,000 and $122,000,
respectively as of December 31, 2001. The principal reserve, which is controlled
by the lender for purposes of amortizing the debt, is approximately $518,000 as
of December 31, 2001. Each of the foregoing reserves and escrows are reflected
in the Operating Partnerships' balance sheet under the caption mortgage escrow
deposits. Although the planned improvements have been primarily funded from
operating cash through December 31, 2001, the Operating General Partner has
requested to have the funds transferred to the operating account from the
Capital Improvements Escrow. As of May 2002, approximately $1,322,000 has been
released from the Capital Improvements Escrow. During the year ended February
28, 2002, the Partnership's investment in Operating Partnerships increased by
$669,691 as a result of the equity in income of investment in Operating
Partnerships. The annual investor service fees are payable from the operations
of the Operating Partnerships and from reserves of the Partnership. As of
February 28, 2002, due to affiliates reflected on the Partnership's balance
sheet includes $160,000 of accrued investor service fees.
Because the rehabilitation of the Property was completed more than ten
years ago, management has been addressing the need for extensive capital
improvements. As a result of the Refinancing, significant capital improvements
were scheduled for the Complex throughout 2000 and 2001. The improvements that
were contemplated as part of the Refinancing include roof replacement,
replacement of the fire/smoke alarm system, elevator repairs, new entry doors
and other repairs throughout the Complex. In addition, the Operating General
Partner has identified other potential significant capital improvements and
repairs throughout the Complex, which it intends to address over the next few
years. Such capital improvements and repairs would significantly reduce the
Operating Partnerships' cash flow available for distribution. Furthermore, the
local rental market has softened due to the recent economic recession and the
events of September 11, 2001; as a result, the local competition has reduced
their rental rates. Management has implemented rental reductions and concessions
in order to maintain its position in the market, which will adversely affect
cash flow; such affect may be offset (or exacerbated) by changes in the low
floater mortgage interest rates. Depending on market conditions, rents may need
to be further adjusted. Accordingly, although the Property's current economic
condition is stable, the Operating General Partner has determined that the
Operating Partnerships will not make a cash flow distribution for the year ended
December 31, 2001. The Operating General Partner and the General Partner plan to
periodically assess the feasibility of cash flow distributions based on the
results of operations, the physical condition of the Property, the then current
interest rates and local market conditions, among other things.
6
As a result of the cumulative preferred return and the time that Units have
been held, the Partnership has agreed with the Operating General Partner to hire
a national brokerage and marketing firm to privately solicit offers to purchase
the Property from major apartment owners on a confidential basis in order to
determine the current market value of the Property. The Operating General
Partner and the Partnership believe it is appropriate to maintain a confidential
process since the public release of information could have a negative impact on
the operations of the Property. The Partnership and the Operating General
Partner intend to review such offers and then evaluate alternatives.
Results of Operations
The Partnership's operating results are dependent upon the operating
results of the Operating Partnerships and are significantly impacted by the
policies of the Operating Partnerships. Registrant accounts for its investment
in Operating Partnerships in accordance with the equity method of accounting,
under which the investment is carried at cost and is adjusted for Registrant's
share of the Operating Partnerships' results of operations and by any cash
distributions received. Equity in loss of each investment in Operating
Partnership allocated to Registrant is recognized to the extent of Registrant's
investment balance in each Operating Partnership. Any equity in loss in excess
of Registrant's investment balance in an Operating Partnership is allocated to
other partners' capital in each such Operating Partnership. As a result, the
equity in loss of investment in Operating Partnerships is expected to decrease
as Registrant's investment balances in the respective Operating Partnerships
become zero.
Cumulative losses and cash distributions in excess of investment in
Operating Partnerships may result from a variety of circumstances, including the
Operating Partnerships' accounting policies, debt structure and operating
deficits, among other things. Accordingly, cumulative losses and cash
distributions in excess of the investment are not necessarily indicative of
adverse operating results of the Operating Partnerships.
Year Ended February 28, 2002
During the year ended February 28, 2002 the Partnership earned interest of
approximately $4,700 which was lower than the previous fiscal period mainly as a
result of the reduction in interest rates. The Partnership's operating expenses
were slightly higher compared to the year ended February 28, 2001 and are not
expected to vary significantly in the near future. Registrant's equity in income
in Operating Partnerships does not include a 99% allocation of the income
reported by the Operating Partnerships due to the nonrecognition of previous
years' losses in excess of Registrant's investment in Dixon Mills I in
accordance with the equity method of accounting.
The Operating Partnerships reported net income from operations for the year
ended December 31, 2001 in the amount of approximately $922,000, inclusive of
depreciation and amortization of approximately $1,524,000. The Operating
Partnerships generated cash flow after required debt service payments and
required replacement reserve deposits of approximately $1,843,000 during 2001,
which considers payments to the principal reserve fund under the mortgages
(approximately $336,000), net deposits to the replacement reserve (approximately
$76,000) and capital expenditures (approximately $150,000), but does not include
costs incurred in connection with the planned capital improvements to be covered
by the Capital Improvements Escrow (discussed above) and interest earned on the
Capital Improvements Escrow (approximately $39,000). The Operating Partnerships'
results of operations include the settlement of previously pending litigation
matters in the aggregate amount of approximately $412,000, including plaintiffs'
legal fees, plus the Operating Partnerships' legal fees. The Operating
Partnerships' results of operations for the year ended December 31, 2001 were
significantly enhanced by the Refinancing, as interest expense declined by
approximately $524,000 as compared to the year ended December 31, 2000. The
interest rates on the low floater mortgages began January 2001 at 3.95% and
6.60, respectively, and ended the year at 1.24% and 2.14% , respectively. The
average interest rates for the year were approximately 2.9% and 4.5%,
respectively. The Operating Partnerships did not utilize any replacement
reserves during 2001.
Although the results of operations have steadily improved, management
continues to examine methods to maintain healthy occupancy rates while steadily
increasing rental rates and to closely monitor its operating costs. As of
December 31, 2001, the occupancy rate was approximately 97%. The future
operating results of the Complex will be extremely dependent on market, the
regional economy and the low floater interest rates (which were very favorable
in 2001), and therefore may be subject to significant volatility. There can be
no assurance that the Operating Partnerships will continue to generate cash flow
at the level reported in 2001.
7
Year Ended February 28, 2001
During the year ended February 28, 2001 the Partnership earned interest of
approximately $12,000 which was lower than the previous fiscal period as a
result of the distribution to limited partners at the end of the prior fiscal
period resulting in lower average cash balances. The Partnership's operating
expenses were comparable to the year ended February 29, 2000 and are not
expected to vary significantly in the near future. Registrant's equity in income
in Operating Partnerships does not include a 99% allocation of the income
reported by the Operating Partnerships due to the nonrecognition of previous
years' losses in excess of Registrant's investment in Dixon Mills I in
accordance with the equity method of accounting.
The Operating Partnerships reported net income from operations for the year
ended December 31, 2000 in the amount of approximately $623,000, inclusive of
depreciation and amortization of approximately $1,420,000. The Operating
Partnerships generated cash flow after required debt service payments and
required replacement reserve deposits of approximately $1,684,000 during 2000,
which considers principal amortization under the mortgages (approximately
$278,000) and net deposits to the replacement reserve (approximately $82,000),
but does not consider the planned capital improvements. Occupancy remained
consistently high throughout 2000, while management steadily increased rental
rates, resulting in an increase in rental revenues of approximately $524,000
compared to 1999. The Operating Partnerships did not utilize any replacement
reserves during 2000. As of December 31, 2000, the occupancy rate was
approximately 98%.
Year Ended February 29, 2000
During the year ended February 29, 2000 the Partnership earned interest of
approximately $54,000 which was comparable to the previous fiscal period. The
Partnership's operating expenses were comparable to the year ended February 28,
1999. Registrant's equity in income in Operating Partnerships does not include a
99% allocation of the income reported by the Operating Partnerships due to the
nonrecognition of previous years' losses in excess of Registrant's investment in
Dixon Mills I and II in accordance with the equity method of accounting.
The Operating Partnerships reported net income from operations for the year
ended December 31, 1999 in the amount of approximately $240,000, inclusive of
depreciation and amortization of approximately $1,386,000. The Operating
Partnerships generated cash flow after required debt service payments and
required replacement reserve deposits of approximately $1,293,000 during 1999,
which considers principal amortization under the mortgages (approximately
$272,000) and net deposits to the replacement reserve (approximately $65,000).
Occupancy remained consistently high throughout 1999, while management steadily
increased rental rates, resulting in an increase in rental revenues of
approximately $436,000 compared to 1998. The Operating Partnerships did not
utilize any replacement reserves during 1999. As of December 31, 1999, the
occupancy rate was approximately 98%.
Inflation
Inflation is not expected to have a material adverse impact on Registrant's
revenues during its period of equity ownership in the Operating Partnerships
except as discussed below under Quantitative and Qualitative Disclosures About
Market Risk.
Critical Accounting Policies and Estimates
The financial statements are prepared in accordance with accounting principles
generally accepted in the United States of America, which requires Registrant to
make certain estimates and assumptions. A summary of significant accounting
policies is provided in Note 2 to the financial statements. The following
section is a summary of certain aspects of those accounting policies that may
require subjective or complex judgments and are most important to the portrayal
of Registrant's financial condition and results of operations. Registrant
believes that there is a low probability that the use of different estimates or
assumptions in making these judgments would result in materially different
amounts being reported in the financial statements.
o Registrant accounts for its investment in local partnerships in
accordance with the equity method of accounting since Registrant
cannot control the operations of a Local Partnership.
8
Recent Accounting Pronouncement Not Yet Adopted
In August 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, which is effective for financial
statements issued for fiscal years beginning after December 15, 2001, and
interim periods within those fiscal years, with early application encouraged.
SFAS No. 144 supersedes and provides additional clarification under the
guidelines established by SFAS No. 121. Registrant does not anticipate that the
adoption of SFAS No. 144 will have a material impact on its financial
statements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Partnership has market risk sensitivity with regard to financial
instruments concerning potential interest rate fluctuations in connection with
the low floater rates associated with the Operating Partnerships' mortgages as
refinanced as of April 28, 2000. Although an interest rate cap has been
purchased, a change in the low-floater interest rates of .25% would have an
annualized impact of approximately $70,000 on the Operating Partnerships'
results of operations.
Item 8. Financial Statements and Supplementary Data
The financial information required in response to this Item 8 is submitted
as part of Item 14(a) of this report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
9
PART III
Item 10. Directors and Executive Officers of the Registrant
The Partnership has no directors or executive officers.
The General Partner was incorporated in Delaware on November 24, 1986. As
described below, its principals have had significant experience in various
facets of the real estate business including the development of multi-family
rental housing. The directors and officers of the General Partner, who have
served as such since inception, are as follows:
Name Age Office
---- --- ------
Richard Paul Richman 54 President and Director
Robert H. Wilder, Jr. 56 Executive Vice President, Assistant
Secretary, Treasurer and Director
Gina S. Dodge 46 Secretary
Richard Paul Richman, 54 years old, is President and Director of WRHC. Mr.
Richman graduated from the Columbia University Law School with a Juris Doctor
degree, the Columbia University Graduate School of Business Administration with
a Master of Business Administration degree and Syracuse University with a
Bachelor of Arts degree in Political Science. Mr. Richman has over ten years of
extensive experience in both the development and management of residential
properties. From 1973 until 1979, Mr. Richman practiced corporate law in New
York City with the law firm of Greenbaum, Wolff & Ernst and then as a partner of
Shipley, Richman & Nierenberg. For over six years, Mr. Richman acted as a lawyer
in connection with the development, syndication and tax issues relating to real
estate. Since 1988, Mr. Richman has been the President and majority stockholder
of The Richman Group, Inc. and is the managing partner of The Richman Group of
Connecticut, L.L.C. In recent years, Mr. Richman has devoted full time to the
syndication and development of real estate. Mr. Richman was a vice president and
shareholder of Related Housing Companies Incorporated, New York, New York from
1978 until mid-1979 with responsibility for that company's project acquisition
and syndication activities. Mr. Richman has been a member of the National
Advisory Board of the Housing and Development Reporter, a bi-weekly publication
of the Bureau of National Affairs, Inc., a frequent speaker on real estate
syndication, and a member of the New York State Historic Credit Task Force, the
National Leased Housing Association, the Coalition to Preserve the Low-Income
Tax Credit and the Minority Developer Assistance Corporation (which was
established by the New York State Battery Park Commission).
Robert H. Wilder, Jr., 56 years old, is Executive Vice President,
Assistant Secretary, Treasurer and Director of WRHC. Mr. Wilder graduated from
the University of Michigan with a Bachelor of Arts degree in Economics and from
the Columbia University Graduate School of Business with a Master of Business
Administration degree. After graduation in 1968, Mr. Wilder joined James D.
Landauer Associates, Inc., a national real estate consulting firm, where his
account responsibilities included feasibility studies, market analyses, land use
studies, portfolio valuations and appraisals of industrial, office, commercial
and multi-family properties. From 1973 until mid-1979, Mr. Wilder was executive
vice president and shareholder of Related Housing Companies Incorporated, New
York, New York, and was responsible for mortgage financing and construction loan
placement and the supervision of the development of the company's projects.
Since 1988, Mr. Wilder has been the President and sole shareholder of Wilder
Property Companies Inc. Mr. Wilder is also a licensed real estate broker in New
York and Connecticut.
Gina S. Dodge, 46 years old, is Secretary of WRHC. Ms. Dodge, a Vice
President and Secretary of The Richman Group, Inc. and Secretary of Wilder
Richman Corporation ("WRC"), joined WRC in 1984 as a special assistant to the
President, and has been the Director of Investor Services with responsibility
for communications with investors since 1986.
10
Item 11. Executive Compensation
The Partnership is not required to pay the officers, directors or partners
of the General Partner any direct compensation, and no such compensation was
paid during the year ended February 28, 2002.
Item 12. Security Ownership of Certain Beneficial Owners and Management
No person or group is known by the Partnership to be the owner of record
of more than 5% of the outstanding Units as of February 28, 2002.
Item 13. Certain Relationships and Related Transactions
The financial interests in Registrant of the General Partner and Special
Limited Partner are set forth under the heading "PROFITS, LOSSES and
DISTRIBUTIONS" at pages 117 - 124 of the Prospectus.
Transactions with Affiliates of Management
The General Partner and certain of its affiliates are entitled to receive
certain compensation, fees and reimbursement of expenses during the offering,
operational and termination or refinancing stages of the Partnership.
Wilder Richman Management Corporation ("WRMC"), an affiliate of the
General Partner, is a co-management agent of the Complex. In connection with
these services, WRMC earned management fees of $118,488 in 2001 and received
payment of $118,488.
Richman Asset Management, Inc. an affiliate of the General Partner, earned
compensation in the amount of $60,000 in 2002 for its performance in connection
with investor services for the Partnership and the Operating Partnerships and
received payment of $65,000, which includes accrued fees.
Indebtedness of Management
No officer or director of the General Partner or any affiliate of the
foregoing was indebted to Registrant at any time during the years ended February
28, 2002 and February 28, 2001.
11
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
a) Financial Statements
(i) The list of Financial Statements of Registrant appears on page
F-1.
(ii) The list of Financial Statements of the Operating Partnerships
appears on page F-15.
(3) Exhibits:
--------
(3A) Certificate of Limited Partnership of Wilder Richman Historic
Properties II, L.P., as filed with the Secretary of State of
Delaware on October 15, 1987;*
(3B) Form of Agreement of Limited Partnership of Wilder Richman
Historic Properties II, L.P. (attached to Prospectus as Exhibit
A);
(4) Form of Subscription Agreement (attached to Prospectus as
Exhibit B);
(10A) Previously executed and filed Certificate of Limited
Partnership and Amended and Restated Certificate of Limited
Partnership of (x) Dixon Mill Associates I (Phase One), Limited
Partnership, (y) Dixon Mill Associates II (Phase Two), Limited
Partnership and (z) Dixon Mill Associates III (Phase Three),
Limited Partnership;*
(10B) Form of Amended and Restated Agreement and Certificate of
Limited Partnership of the Dixon Mill Partnerships:
(1) Dixon Mill Associates I (Phase One), Limited Partnership
Amended and Restated Agreement and Certificate of Limited
Partnership;**
(2) Dixon Mill Associates II (Phase Two), Limited Partnership
Amended and Restated Agreement and Certificate of Limited
Partnership;** and
(3) Dixon Mill Associates III (Phase Three), Limited
Partnership Amended and Restated Agreement and Certificate of
Limited Partnership;**
(10C) Dixon Mill Complex Financing Documents;*
(10D) Administrative Consent Order with New Jersey Department of
Environmental Protection ("NJDEP") and NJDEP Non-Applicability
Letter as to Dixon Mill Partnerships;*
(10E) Master Services Agreement, dated June 18, 1986, between Varick
Construction Corp. and IT Corporation;*
(10F) Documents related to Dixon Mill Complex historic
certification;*
(10G) Form of Operating Deficit Guarantee Agreement;*
(10H) Form of Repurchase Agreement;**
(10I) Form of Investor Services Agreement;**
(10J) Form of Escrow Agreement among Wilder Richman Historic
Properties II, L.P., Wilder Richman Historic Corporation,
Shearson Lehman Hutton Inc. and FirsTier Bank, N.A., as escrow
agent;**
12
(10K) Form of Financial Development Consulting Agreement between
Wilder Richman Corporation and the Operating Partnerships;**
(10L) Form of Annuity Issuance Agreement between Wilder Richman
Historic Properties II, L.P. and the Issuer;**
(10M) Form of Guaranteed Investment Contract Escrow Agreement among
Wilder Richman Historic Properties II, L.P., the Dixon Mill
Partnerships and the escrow agent;**
(10N) Form of Assignment between the Dixon Mill Partnership, as
Assignor, and Wilder Richman Historic Properties II, L.P., as
Assignee;**
(10O) Form of Letter from The Dixon Venture to Wilder Richman
Historic Properties II, L.P. and the Dixon Mill Partnerships,
as to The Dixon Venture's agreement to bear all costs of
compliance with the New Jersey Environmental Cleanup
Responsibility Act;**
(10P) Amendment No. 1 to Agreement of Limited Partnership; ***
(10Q) Reinstatement and Modification Agreement; ***
(10R) Operating Deficit Escrow Agreement; ***
(10S) Priority Operating Deficit Escrow Agreement; ***
(10T) Amended and Restated Achievement Escrow Agreement; ***
(10U) Default Avoiding Loan Agreement; ***
(10V) Management Agreement; ***
(10W) Chase Note; ***
(10X) Letter of Intent to Reinstate and Modify the Mortgages; ****
* Incorporated by Reference to Registrant's Form S-11 Registration Statement
as filed with the Securities and Exchange Commission on January 15, 1988.
** Incorporated by Reference to Amendment No.1 to Registrant's Form S-11
Registration Statement as filed with the Securities and Exchange Commission
on May 9, 1988.
*** Submitted as exhibit to Form 10-K for the fiscal year ended February 29,
1992.
**** Incorporated by Reference to Proxy dated March 23, 1992.
b) Reports on Form 8-K
None.
13
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized on the 3rd day of July, 2002.
Wilder Richman Historic Properties II, L.P.
By: Wilder Richman Historic Corporation,
General Partner
By: /s/ Richard Paul Richman
------------------------------
Richard Paul Richman
President and Director
14
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
FINANCIAL STATEMENTS FOR THE
YEARS ENDED FEBRUARY 28, 2002, FEBRUARY 28, 2001 AND FEBRUARY 29, 2000
AND INDEPENDENT AUDITORS' REPORT
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
Financial Statements for the
Years Ended February 28, 2002, February 28, 2001 and February 29, 2000
and Independent Auditors' Report
C O N T E N T S
Page
----
INDEPENDENT AUDITORS' REPORT F-2
FINANCIAL STATEMENTS:
Balance sheets F-3
Statements of operations F-4
Statements of partners' equity and comprehensive
income F-5
Statements of cash flows F-6
Notes to financial statements F-7 - F-13
F-1
INDEPENDENT AUDITORS' REPORT
Partners
Wilder Richman Historic Properties II, L.P.
Greenwich, Connecticut
We have audited the accompanying balance sheets of Wilder Richman Historic
Properties II, L.P. as of February 28, 2002 2001, and the related statements of
operations, partners' equity and comprehensive income, and cash flows for the
years ended February 28, 2002, and 2001 and February 29, 2000. 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 auditing standards generally accepted
in the United States of America. Those 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 Wilder Richman Historic
Properties II, L.P. as of February 28, 2002 and 2001 and the results of its
operations, changes in partners' equity and cash flows for the years ended
February 28, 2002and 2001 and February 29, 2000 in conformity with accounting
principles generally accepted in the United States of America.
/s/ Rosenberg, Neuwirth & Kuchner
Certified Public Accountants, P.C.
April 25, 2002
New York, New York
F-2
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
BALANCE SHEETS
February 28, February 28,
A S S E T S 2002 2001
----------- ------------- ------------
INVESTMENTS IN OPERATING PARTNERSHIPS
(Notes 2, 3, 4 and 5) $ 2,075,294 $ 1,405,503
CASH AND CASH EQUIVALENTS (Note 2) 119,417 157,990
OTHER ASSETS 10,779 10,084
----------- -----------
$ 2,205,490 $ 1,573,577
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES:
Other liabilities $ 10,000 $ 10,000
Due to related parties (Note 4) 174,201 179,201
----------- -----------
184,201 189,201
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 4 and 5)
PARTNERS' EQUITY (Note 5):
Partners' equity 2,053,462 1,384,376
Accumulated other comprehensive loss (32,173) --
----------- -----------
2,021,289 1,384,376
$ 2,205,490 $ 1,573,577
=========== ===========
See notes to financial statements
F-3
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
STATEMENTS OF OPERATIONS
Year Ended
----------------------------------------------------
February 28, February 28, February 29,
2002 2001 2000
------------- ------------ ------------
Revenues:
Interest income $ 4,674 $ 11,890 $ 54,009
Expenses:
Operating 37,552 28,929 36,187
--------- --------- ---------
Income (loss) from operations (32,878) (17,039) 17,822
--------- --------- ---------
Equity in income of Operating Partnerships
from operations 701,964 388,779 128,830
Extraordinary item - operating partnerships:
Write-off of unamortized deferred costs -- (304,842) --
--------- --------- ---------
Net income from operating partnerships 701,964 83,937 128,830
--------- --------- ---------
NET INCOME $ 669,086 $ 66,898 $ 146,652
========= ========= =========
Net income attributable to:
Limited partners $ 662,395 $ 66,229 $ 145,185
General partner 6,691 669 1,467
--------- --------- ---------
$ 669,086 $ 66,898 $ 146,652
========= ========= =========
Net income per unit of limited
partnership interest $ 828 $ 83 $ 181
========= ========= =========
See notes to financial statements
F-4
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
STATEMENTS OF PARTNERS' EQUITY AND COMPREHENSIVE INCOME
YEARS ENDED FEBRUARY 28, 2002, FEBRUARY 28, 2001 AND FEBRUARY 29, 2000
Limited General
Total partners partners
----------- ----------- -----------
Partners' equity (deficit), March 1, 1999 $ 2,134,826 $ 2,279,787 $ (144,961)
Net income, year ended February 29, 2000 146,652 145,185 1,467
Distributions (964,000) (964,000) --
----------- ----------- -----------
Partners' equity (deficit), February 29, 2000 1,317,478 1,460,972 (143,494)
Net income, year ended February 28, 2001 66,898 66,229 669
----------- ----------- -----------
Partners equity (deficit), February 28, 2001 1,384,376 1,527,201 (142,825)
----------- ----------- -----------
Net income, year ended February 28, 2002 669,086 662,395 6,691
Unrealized loss on marketable securities
from operating partnerships (32,173) (31,851) (322)
----------- ----------- -----------
Comprehensive income, year ended February 28, 2002 636,913 630,544 6,369
----------- ----------- -----------
Partners equity (deficit), February 28, 2002 $ 2,021,289 $ 2,157,745 $ (136,456)
=========== =========== ===========
Limited partnership units outstanding at February 28,
2002 and 2001 and February 29, 2000 800
===
See notes to financial statement
F-5
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
STATEMENTS OF CASH FLOWS
Year Ended
---------------------------------------------------
February 28, February 28, February 29,
2002 2001 2000
------------ ----------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 669,086 $ 66,898 $ 146,652
--------- --------- ---------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Equity in income of Operating Partnerships (701,964) (83,937) (128,830)
Changes in assets and liabilities:
Decrease in accrued interest receivable -- -- 140,083
Increase in other assets (695) (96) (9,988)
Increase (decrease) in due to related parties (5,000) (5,000) 15,000
--------- --------- ---------
Total adjustments (707,659) (89,033) 16,265
--------- --------- ---------
Net cash provided by (used in) operating activities (38,573) (22,135) 162,917
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions to partners -- -- (964,000)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease in note receivable -- -- 317,713
--------- --------- ---------
NET DECREASE IN CASH AND CASH
EQUIVALENTS (38,573) (22,135) (483,370)
CASH AND CASH EQUIVALENTS, beginning of year 157,990 180,125 663,495
--------- --------- ---------
CASH AND CASH EQUIVALENTS, end of year $ 119,417 $ 157,990 $ 180,125
========= ========= =========
See notes to financial statement
F-6
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 28, 2002, FEBRUARY 28, 2001 AND FEBRUARY 29, 2000
1. ORGANIZATION
Wilder Richman Historic Properties II, L.P. (the "Partnership") was
formed under the Delaware Revised Uniform Limited Partnership Act on
October 15, 1987 to acquire all of the limited partnership interest in
Dixon Mill Associates I (Phase One), Limited Partnership ("Dixon Mill
I"), Dixon Mill Associates II (Phase Two), Limited Partnership ("Dixon
Mill II") and Dixon Mill Associates III (Phase Three), Limited
Partnership ("Dixon Mill III") (together herein referred to as the
"Operating Partnerships") which, collectively, constructed,
rehabilitated and own and operate a 433-unit apartment complex (the
"Complex") located in Jersey City, New Jersey. Wilder Richman Historic
Corporation (the "General Partner") is the General Partner of the
Partnership. The general partner of the Operating Partnerships is Dixon
Venture Corp. (the "Operating General Partner").
The Partnership filed a Form S-11 registration statement with the
Securities and Exchange Commission, which became effective May 9, 1988,
covering an offering (the "Offering") of 800 limited partnership units
at $24,100 per unit.
On July 15, 1988, the Partnership admitted 754 limited partners
representing 800 units of limited partnership interest (the "Closing")
for $19,280,000 in cash and notes. Immediately following the Closing,
the Partnership acquired a 99% limited partnership interest in the
Operating Partnerships. The Partnership acquired its limited partnership
interest for $16,388,000, which was paid in installments.
2. SIGNIFICANT ACCOUNTING POLICIES
Financial statements
The financial statements of the Partnership are prepared on the accrual
basis of accounting and include only those assets, liabilities and
results of operations related to the business of the Partnership.
Investments in Operating Partnerships
The Partnership accounts for its investment in the Operating
Partnerships on the equity method of accounting. Under the equity method
of accounting, the investment cost is adjusted by the Partnership's
share of the Operating Partnerships' results of operations, which are
limited to the respective investment balances and by distributions
received or accrued. The statements of operations include the
Partnership's equity in the earnings of the Operating Partnerships on a
calendar year basis.
Syndication costs
Syndication costs of $2,639,200 were charged against limited partners'
capital upon the closing of the public offering, in accordance with
prevalent industry practice.
Income taxes
No provisions have been made for federal, state and local income taxes,
as they are the personal responsibility of the partners.
Cash and cash equivalents
For purposes of the statement of cash flows, the Partnership considers
all highly liquid debt instruments purchased with a maturity of three
months or less to be cash equivalents. Cash and cash equivalents are
recorded at cost, which approximates fair value.
F-7
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED FEBRUARY 28, 2002, FEBRUARY 28, 2001 AND FEBRUARY 29, 2000
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Fiscal year
The Partnership's fiscal year ends on the last day in February.
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 revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Recently issued accounting standards
Recently the Financial Accounting Standards Board ("FASB") issued the
following statements:
In August 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets,
which is effective for financial statements issued for fiscal years beginning
after December 15, 2001, and interim periods within those fiscal years, with
early application encouraged. SFAS No. 144 supersedes and provides additional
clarification under the guidelines established by SFAS No. 121. The Partnership
does not anticipate that the adoption of SFAS No. 144 will have a material
impact on its financial statements.
3. INVESTMENTS IN OPERATING PARTNERSHIPS
The Investments in Operating Partnerships are as follows:
Dixon Dixon Dixon
Mill I Mill II Mill III Total
----------- ----------- ----------- -----------
Balance, March 1, 1999 $ -- $ -- $ 1,192,736 $ 1,192,736
Equity in income of Operating Partnerships -- 33,326 95,504 128,830
----------- ----------- ----------- -----------
Balance, February 29, 2000 -- 33,326 1,288,240 1,321,566
Equity in income of Operating Partnerships -- 2,520 81,417 83,937
----------- ----------- ----------- -----------
Balance, February 28, 2001 -- 35,846 1,369,657 1,405,503
Equity in income of Operating Partnerships 119,529 291,050 291,385 701,964
Comprehensive income - unrealized loss on
marketable securities from Operating
Partnerships (10,944) (13,257) (7,972) (32,173)
----------- ----------- ----------- -----------
Balance, February 28, 2002 $ 108,585 $ 313,639 $ 1,653,070 $ 2,075,294
=========== =========== =========== ===========
F-8
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED FEBRUARY 28, 2002, FEBRUARY 28, 2001 AND FEBRUARY 29, 2000
3. INVESTMENTS IN OPERATING PARTNERSHIPS (CONTINUED)
In accordance with the Operating Partnership Agreement, income and
losses are to be allocated 1% and 99% to the Operating General Partner
and the Partnership, respectively. Losses are not allocable to the
Partnership if the losses reduce its equity basis below zero. Losses in
excess of the Partnership's investment are allocated to the Operating
General Partner. Accordingly, the Operating Partnerships did not
allocate 99% of the income reported in 2001 and 2000 to the Partnership
due to the non-allocation of previous years' losses in excess of the
Partnership's investment.
F-9
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED FEBRUARY 28, 2002, FEBRUARY 28, 2001 AND FEBRUARY 29, 2000
3. INVESTMENTS IN OPERATING PARTNERSHIPS (CONTINUED)
-------------------------------------------------
The combined balance sheets of the Operating Partnerships at December
31, 2001 and 2000 are shown below.
December 31,
--------------------------------
2001 2000
------------ ------------
Assets:
Land $ 1,150,473 $ 1,150,473
Buildings (net of accumulated depreciation
of $16,721,225 and $15,245,400 in 2001 and
2000, respectively) 37,687,449 38,655,465
Investment in bonds 1,348,817 --
Cash and cash equivalents 2,018,814 1,959,906
Deferred costs 846,439 876,139
Mortgage escrow deposits 3,126,650 2,854,409
Tenant security deposits 870,216 852,014
Other assets 146,898 92,372
------------ ------------
Total assets $ 47,195,756 $ 46,440,778
============ ============
Liabilities:
Mortgages payable $ 28,600,000 $ 28,600,000
Accounts payable and accrued expenses 77,031 199,935
Accrued interest payable 14,902 45,040
Tenants' security deposits payable 870,216 852,014
Due to general partner and affiliates 976,571 976,571
------------ ------------
Total liabilities 30,538,720 30,673,560
COMMITMENTS AND CONTINGENCIES
PARTNERS' EQUITY:
Partners' equity 16,689,534 15,767,218
Accumulated other comprehensive loss (32,498) --
------------ ------------
16,657,036 15,767,218
Total liabilities and partners' equity $ 47,195,756 $ 46,440,778
============ ============
F-10
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED FEBRUARY 28, 2002, FEBRUARY 28, 2001 AND FEBRUARY 29,2000
3. INVESTMENTS IN OPERATING PARTNERSHIPS (CONTINUED)
The combined statements of operations of the Operating Partnerships for the
years ended December 31, 2001, 2000 and 1999 are as follows:
Year Ended December 31,
----------------------------------------------
2001 2000 1999
----------- ----------- -----------
Revenues:
Rent $ 7,423,632 $ 7,043,881 $ 6,519,761
Interest 95,850 98,318 82,374
----------- ----------- -----------
7,519,482 7,142,199 6,602,135
----------- ----------- -----------
Expenses:
Administrative 1,487,160 1,116,592 993,470
Operating 2,581,957 2,472,392 2,009,050
Management fees 280,389 261,828 189,194
Interest 723,635 1,248,387 1,784,654
Depreciation and amortization 1,524,025 1,420,236 1,386,082
----------- ----------- -----------
6,597,166 6,519,435 6,362,450
----------- ----------- -----------
Income (loss) before extraordinary item 922,316 622,764 239,685
Extraordinary item:
Write-off of unamortized deferred costs -- (449,912) --
----------- ----------- -----------
NET INCOME (LOSS) $ 922,316 $ 172,852 $ 239,685
=========== =========== ===========
Income (loss) before extraordinary item allocated to
Wilder Richman Historic Properties II, L.P. $ 701,964 $ 388,779 $ 128,830
Extraordinary items -- (304,842) --
----------- ----------- -----------
Net income (loss) allocated to Wilder Richman Historic
Properties II, L.P. $ 701,964 $ 83,937 $ 128,830
=========== =========== ===========
Income (loss) before extraordinary items allocated to
Dixon Venture Corp. $ 220,352 $ 233,985 $ 110,855
Extraordinary items -- (145,070) --
----------- ----------- -----------
Net income (loss) allocated to Dixon Venture Corp. $ 220,352 $ 88,915 $ 110,855
=========== =========== ===========
F-11
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED FEBRUARY 28, 2002, FEBRUARY 28, 2001 AND FEBRUARY 29, 2000
4. RELATED PARTY TRANSACTIONS
An annual investor services fee is payable to an affiliate of the General
Partner in the amount of $15,000 from the Partnership and each of the
Operating Partnerships. At February 28, 2002 and February 28, 2001, due to
related parties includes $160,000 and $165,000, respectively of investor
services fees payable from the Partnership and the Operating Partnerships.
At February 28, 2002 and February 28, 2001, due to related parties includes
$9,846 due to the Operating Partnerships.
An affiliate of the General Partner is the co-management agent of the
properties owned by the Operating Partnerships. The affiliated management
agent earned management fees of $118,488 and $107,353 in the years ended
December 31, 2001 and 2000, respectively and $118,488 and $405,782 of
accumulated accrued fees were paid in 2001 and 2000, respectively.
5. PARTNERS' EQUITY
The General Partner, the special limited partner and the investor limited
partners were allocated 1%, .01% and 98.99%, respectively, of income and
losses.
Distributions
Cash flow of the Partnership available annually for distribution after
payment of Partnership expenses will be distributed 98.99% to the investor
limited partners, .01% to the special limited partner and 1.00% to the
General Partner.
Net cash proceeds resulting from a sale or refinancing by the Operating
Partnerships, to the extent available (after the discharge of debts and
obligations of the Operating Partnerships and the Partnership, including
outstanding loans from partners or affiliates), will be distributed
generally as follows:
- 98.99% to the investor limited partners, .01% to the special limited
partner and 1.00% to the General Partner, until the investor limited
partners have received an amount equal to their adjusted
contributions;
- 98.99% to the investor limited partners, .01% to the special limited
partner and 1.00% to the General Partner, until the investor limited
partners have received an amount equal to the accrued cumulative,
non-compounded rate of 7% per annum (see preferred return below).
- The balance of adjusted capital contributions of the General Partner
and special limited partner, and
- The balance, if any, 97.99% to the investor limited partners, .01% to
the special limited partner and 2.00% to the General Partner.
Preferred Return
Pursuant to the Partnership Agreement, the investor limited partners are
entitled to an annual preferred return in the amount of 7% of the investor
limited partners' adjusted contributions outstanding from time to time,
subject to cash flow available for distribution (including lender
restrictions). As of December 31, 2001, the cumulative preferred amount due
from the Operating Partnerships is $14,903,047. Any cumulative shortfall
not recovered out of future cash flow distributions will be payable from
sale of refinancing proceeds, to the extent available.
F-12
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED FEBRUARY 28, 2002, FEBRUARY 28, 2001 AND FEBRUARY 29, 2000
6. TAXABLE LOSS
A reconciliation of the financial statement income of the Partnership
for the years ended February 28, 2002 and 2001 and February 29, 2000 to
the net loss as shown on the tax returns for the years ended December
31, 2001, 2000 and 1999 is as follows:
Year ended
December 31,
--------------------------------------------------
2001 2000 1999
----------- ----------- -----------
Financial statement income for the years ended
February 28, 2002, February 28, 2001 and
February 29, 2000, respectively $ 669,086 $ 66,898 $ 146,652
Interest income and other transactions due to timing
differences resulting from different fiscal year
ends for tax purposes v. financial reporting purposes 5,676 (298) (6,739)
Fees to related party deductible to the extent
paid under Internal Revenue Code Section 267 -- (5,000) 15,000
----------- ----------- -----------
674,762 61,600 154,913
Financial statement to tax return difference arising
from investments in Operating Partnerships:
Adjustment due to non-allocation of loss in
excess of limited partners investment 211,129 87,189 108,458
Fees to related parties not deductible under
Internal Revenue Code Section 267 (30,458) (274,417) (720,068)
Municipal bond interest (17,659)
Litigation settlement -- -- (495,000)
Excess of depreciation expense of the operating
partnerships for income tax purposes over
financial reporting purposes (1,125,700) (1,167,704) (1,194,853)
----------- ----------- -----------
Taxable loss $ (287,926) $(1,293,335) $(2,146,550)
=========== =========== ===========
F-13
DIXON MILLS ASSOCIATES
COMBINED FINANCIAL STATEMENTS FOR THE
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
AND INDEPENDENT AUDITORS' REPORT
DIXON MILLS ASSOCIATES
Combined Financial Statements for the
Years Ended December 31, 2001, 2000 and 1999
and Independent Auditors' Report
C O N T E N T S
Page
----
INDEPENDENT AUDITORS' REPORT F-16
COMBINED FINANCIAL STATEMENTS:
Combined balance sheets F-17
Combined statements of operations F-18
Combined statements of partners' equity and
comprehensive income F-19
Combined statements of cash flows F-20
Notes to combined financial statements F-21 - F-25
F-15
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Dixon Venture Corp.
Secaucus, New Jersey
and
Partners
Wilder Richman Historic Properties II, LP
Greenwich, Connecticut
We have audited the accompanying combined balance sheets of Dixon Mills
Associates as of December 31, 2001 and 2000, and the related statements of
operations, partners' equity and cash flows for the years ended December 31,
2001, 2000 and 1999. These financial statements are the responsibility of the
Partnerships' management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits 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 Dixon Mills Associates as of
December 31, 2001 and 2000, and the results of its operations, changes in
partners' equity and cash flows for the years ended December 31, 2001, 2000 and
1999 in conformity with accounting principles generally accepted in the United
States of America.
/s/ Rosenberg, Neuwirth & Kuchner
Certified Public Accountants, P.C.
February 26, 2002
New York, New York
F-16
DIXON MILLS ASSOCIATES
COMBINED BALANCE SHEETS
December 31,
-------------------------------
A S S E T S 2001 2000
----------- ------------ ------------
LAND (Notes 2 and 5) $ 1,150,473 $ 1,150,473
BUILDINGS (net of accumulated depreciation
of $16,721,225 and $15,245,400 in 2001 and 2000,
respectively) (Notes 2 and 5) 37,687,449 38,655,465
INVESTMENTS IN BONDS (Note 6) 1,348,817 --
CASH AND CASH EQUIVALENTS (Note 2) 2,018,814 1,959,906
DEFERRED COSTS (Notes 2 and 5) 846,439 876,139
MORTGAGE ESCROW DEPOSITS (Note 5) 3,126,650 2,854,409
TENANT SECURITY DEPOSITS 870,216 852,014
OTHER ASSETS 146,898 92,372
------------ ------------
$ 47,195,756 $ 46,440,778
============ ============
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES:
Mortgages payable (Note 5) $ 28,600,000 $ 28,600,000
Accounts payable and accrued expenses 77,031 199,935
Accrued interest payable (Note 5) 14,902 45,040
Tenants' security deposits payable 870,216 852,014
Due to general partner and affiliates (Note 4) 976,571 976,571
------------ ------------
30,538,720 30,673,560
PARTNERS' EQUITY (Note 3):
Partners' equity 16,689,534 15,767,218
Accumulated other comprehensive loss (32,498) --
------------ ------------
16,657,036 15,767,218
$ 47,195,756 $ 46,440,778
============ ============
See notes to combined financial statements
F-17
DIXON MILLS ASSOCIATES
COMBINED STATEMENTS OF OPERATIONS
Year ended
December 31,
-------------------------------------------------------
2001 2000 1999
------------ ----------- -----------
Revenues:
Rent $ 7,423,632 $ 7,043,881 $ 6,519,761
Interest 95,850 98,318 82,374
----------- ----------- -----------
7,519,482 7,142,199 6,602,135
----------- ----------- -----------
Expenses:
Administrative (Note 7) 1,487,160 1,116,592 993,470
Operating 2,581,957 2,472,392 2,009,050
Management fees (Note 4) 280,389 261,828 189,194
Interest (Note 5) 723,635 1,248,387 1,784,654
Depreciation and amortization 1,524,025 1,420,236 1,386,082
----------- ----------- -----------
6,597,166 6,519,435 6,362,450
----------- ----------- -----------
Income before extraordinary item 922,316 622,764 239,685
Extraordinary item:
Write-off of unamortized deferred costs
(Notes 5 and 8) -- (449,912) --
----------- ----------- -----------
NET INCOME $ 922,316 $ 172,852 $ 239,685
=========== =========== ===========
Income before extraordinary item allocated to
Wilder Richman Historic Properties II, L.P. $ 701,964 $ 388,779 $ 128,830
Extraordinary item (Note 8) -- (304,842) --
----------- ----------- -----------
Net income allocated to Wilder Richman Historic
Properties II, L.P. $ 701,964 $ 83,937 $ 128,830
=========== =========== ===========
Income before extraordinary item allocated to
Dixon Venture Corp. $ 220,352 $ 233,985 $ 110,855
Extraordinary items -- (145,070) --
----------- ----------- -----------
Net income allocated to Dixon Venture Corp. $ 220,352 $ 88,915 $ 110,855
=========== =========== ===========
See notes to combined financial statements
F-18
DIXON MILLS ASSOCIATES
COMBINED STATEMENTS OF PARTNERS' EQUITY AND COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
Limited General
Total partner partner
------------- ------------ ------------
Partners' equity, January 1, 1999 $ 15,354,681 $ 1,192,736 $ 14,161,945
Net income, year ended December 31, 1999 239,685 128,830 110,855
------------ ------------ ------------
Partners' equity, December 31, 1999 15,594,366 1,321,566 14,272,800
Net income, year ended December 31, 2000 172,852 83,937 88,915
------------ ------------ ------------
Partners' equity, December 31, 2000 15,767,218 1,405,503 14,361,715
Net income, year ended December 31, 2001 922,316 701,964 220,352
Unrealized loss on marketable securities (32,498) (32,173) (325)
------------ ------------ ------------
Comprehensive income, year ended
December 31, 2001 889,818 669,791 220,027
------------ ------------ ------------
Partners' equity, December 31, 2001 $ 16,657,036 $ 2,075,294 $ 14,581,742
============ ============ ============
See notes to combined financial statements
F-19
DIXON MILLS ASSOCIATES
COMBINED STATEMENTS OF CASH FLOWS
Year Ended December 31,
------------------------------------------------------
2001 2000 1999
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 922,316 $ 172,852 $ 239,685
------------ ------------ ------------
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,524,025 1,420,236 1,386,082
Write-off of unamortized deferred costs -
(extraordinary) -- 449,912 --
Change in assets:
(Decrease) Increase in mortgage escrow deposits 45,162 (34,210) (64,903)
Increase in tenant security deposits (18,202) (62,186) (64,656)
Increase in other assets (54,526) (15,685) (40,093)
Change in liabilities:
Increase (decrease) in accounts payable and
accrued expenses (122,904) 40,928 (517,705)
Increase (decrease) in accrued interest payable (30,138) (87,258) (136,841)
Increase in tenants security deposits 18,202 62,186 64,656
Increase (decrease) in due to general partner and
affiliates -- (307,953) (744,431)
------------ ------------ ------------
Total adjustments 1,361,619 1,465,970 (117,891)
------------ ------------ ------------
Net cash provided by operating activities 2,283,935 1,638,822 121,794
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (507,809) (855,822) (144,485)
Purchase of investments (1,381,315) -- --
------------ ------------ ------------
Net cash used in investing activities (1,889,124) (855,822) (144,485)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of mortgages payable -- (26,249,814) (272,332)
Payment of note payable -- -- (317,713)
Proceeds of mortgage financing -- 28,600,000 --
Payments to principal reserve fund (335,903) (182,499) --
Deposits into mortgage escrow accounts at closing -- (1,438,058) --
Payment of deferred costs -- (890,989) --
------------ ------------ ------------
Net cash used in financing activities (335,903) (161,360) (590,045)
------------ ------------ ------------
INCREASE (DECREASE) IN CASH 58,908 621,640 (612,736)
CASH AND CASH EQUIVALENTS, beginning of year 1,959,906 1,338,266 1,951,002
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of year $ 2,018,814 $ 1,959,906 $ 1,338,266
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during year for interest $ 753,773 $ 1,335,645 $ 1,921,495
============ ============ ============
See notes to combined financial statements
F-20
DIXON MILLS ASSOCIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
1. COMBINATION AND ORGANIZATION
The combined financial statements include the accounts of Dixon Mill
Associates I (Phase One), Limited Partnership ("DM I"), Dixon Mill
Associates II, (Phase Two), Limited Partnership ("DM II") and Dixon Mill
Associates III, (Phase Three), Limited Partnership ("DM III") after
elimination of all significant intercompany balances and transactions.
Description of the business
The partnerships are collectively known as "Dixon Mills Associates" or the
"Operating Partnerships", each of which owns one phase of an aggregate 433
units of residential apartments located in Jersey City, New Jersey, that
consist of buildings that are designated as "certified historic structures"
by the U.S. Department of the Interior. The Operating Partnerships have
constructed, rehabilitated, and own and operate the complex. In accordance
with the tax exempt financing of the complex, the Operating Partnerships
are required to rent 15% to 20% of the apartment units to individuals of
low or moderate income.
On July 15, 1988, the Operating Partnerships transferred their 99% limited
partnership interests to Wilder Richman Historic Properties II, L.P. (the
"Limited Partner") in connection with that limited partnership's public
offering. The remaining 1% interest remained with the Operating General
Partner, Dixon Venture Corp. ("DVC").
2. SIGNIFICANT ACCOUNTING POLICIES
Financial statements
The financial statements of the Operating Partnerships are prepared on the
accrual basis of accounting and include only those assets, liabilities and
results of operations related to the business of the Operating
Partnerships.
Combined financial statements are presented as the Operating Partnerships
are under common control, ownership, and management.
Land and buildings
Land and buildings are stated at lower of cost or net realizable value,
("NRV"). NRV is the net cash flow necessary to recover costs exclusive of
debt service. Depreciation on buildings is computed on the straight-line
method. The depreciable lives assigned is 40 years for the real property.
Income taxes
No provisions have been made for federal, state and local income taxes, as
they are the responsibility of the partners.
The partners of the Operating Partnerships were entitled to a 25% historic
rehabilitation tax credit on eligible costs as a reduction of their tax
liabilities. In addition, the tax basis of the property has been reduced by
one-half of the historic rehabilitation tax credit for income tax purposes
only.
Cash and cash equivalents
For purposes of the statements of cash flows, the Operating Partnerships
consider all highly liquid debt instruments purchased with a maturity of
three months or less to be cash equivalents. Cash and cash equivalents are
recorded at cost, which approximates fair value.
F-21
DIXON MILLS ASSOCIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Deferred costs
Deferred costs represent costs incurred in connection with the mortgages
(Note 5) and are being amortized over the term of the mortgages using the
straight line method.
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 revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Recently issued accounting standard
Recently the Financial Accounting Standards Board ("FASB") issued the
following statements:
FASB 141 "Business combinations"
FASB 142 "Goodwill and other Intangible Assets"
FASB 143 "Accounting for Asset Retirement Obligations"
FASB 144 "Accounting for the Impairment or Disposal of long-lived
Assets"
These statements do not have any impact on the Operating Partnerships'
financial position or results of operations.
3. PARTNERS' EQUITY
In accordance with the Partnership agreement, income and losses are to be
allocated 1% and 99% to the Operating General Partner and the Limited
Partner, respectively. Losses are not allocable to the Limited Partner if
the losses reduce its equity basis below zero. Losses in excess of the
Limited Partner's investment are allocated to the Operating General
Partner.
Accordingly, the Operating Partnerships did not allocate 99% of the income
reported in 2001 and 2000 to the Limited Partner due to the non-allocation
of previous years' losses in excess of the Limited Partner's investment .
Distributions
The partnership agreements of the Operating Partnerships provide that cash
flow from operations will be distributed 99% to the Limited Partner and 1%
to the Operating General Partner until the Limited Partner has received a
7% preferred return (the "Preference Amount") on their initial capital
contributions. The balance, if any, would be distributed 75% to the Limited
Partner and 25% to the Operating General Partner. Any cumulative shortfall
not recovered out of subsequent cash flow distributions will be payable
from sale or refinancing proceeds, to the extent available. The cumulative
preferred amount due to the Limited Partner at December 31, 2001 is
$14,903,047. There is no assurance that all or a portion of such amount
will be paid, and no amount has been accrued.
F-22
DIXON MILLS ASSOCIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
3. PARTNERS' EQUITY (CONTINUED)
Net cash proceeds resulting from a sale or refinancing, to the extent
available (after the discharge of debts and obligations of the Partnership,
including outstanding loans from partners or affiliates), will be
distributed generally as follows:
- 99% to the Limited Partner and 1% to the Operating General Partner,
until the Limited Partner has received an amount equal to its adjusted
contributions.
- 99% to the Limited Partner and 1% to the Operating General Partner,
until the Limited Partner has received an amount equal to the unpaid
cumulative Preference Amount.
- The balance of adjusted capital contributions of the General Partner.
- The balance, if any, 75% to the Limited Partner and 25% to the
Operating General Partner.
4. RELATED PARTY TRANSACTIONS
DVC has complete authority, management and control of the Operating
Partnerships. The Operating Partnerships, in the normal course of business,
have transactions with the Operating General Partner and affiliates.
Included in the balance sheets are the following items:
Due to (from):
2001 2000
---------- ----------
Morris Realty $ (5,259) $ (5,259)
DVC 936,830 936,830
Richman Asset Management, Inc. 45,000 45,000
--------- ---------
$ 976,571 $ 976,571
========= =========
The Operating Partnerships incurred annual property management fees to
Wilder Richman Management Corp. ("WRMC"), an affiliate of the Limited
Partner, in the amount of $118,488 in 2001, $107,353 in 2000 and $82,678 in
1999. WRMC received payments of $118,488 and $405,782 in 2001 and 2000,
respectively. In addition, property management fees of $161,901,
$154,475 and $106,516 were incurred in 2001, 2000 and 1999, respectively to
Morris Property Management, an affiliate of the Operating General Partner.
Morris Property Management received payments of $161,901 in 2001 and
$163,999 in 2000 for accrued management fees.
The Operating Partnerships incurred investor service fees of $45,000 to
Richman Asset Management, Inc., an affiliate of the Limited Partner in
2001, 2000 and 1999 and paid Richman Asset Management, Inc. $45,000 in 2000
and 2001, and $270,000 in 1999 for accrued investor service fees.
F-23
DIXON MILLS ASSOCIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
5. MORTGAGES PAYABLE
On June 11, 1992, the Jersey City Redevelopment Agency provided mortgage
financing for the Operating Partnerships through the issuance of tax-exempt
Bonds (the "Bonds") guaranteed and secured by the Federal National Mortgage
Association ("FNMA") mortgage pass-through certificate ("FNMA
Certificate"). The FNMA Certificate in turn was secured by mortgages given
by the Operating Partnerships in the amount of $27,545,000.
The Operating Partnerships refinanced their respective outstanding mortgage
liabilities under the $27,545,000 Jersey City Redevelopment Agency
Multifamily Housing Revenue Bonds, Series 1992 (Fannie Mae pass-through
Certificate Program/Dixon Mill Apartments Project as of April 28, 2000).
The total new indebtedness in the amount of $28,600,000 for a term of 30
years is provided by (a) variable-rate tax-exempt bonds in the amount of
$26,435,000 maturing on May 15, 2030 and (b) variable-rate taxable bonds in
the amount of $2,165,000 maturing on November 15, 2002 which are secured by
the property. The Operating Partnerships have purchased an interest rate
cap which would limit the interest rates to 6.97% for five years on the
tax-exempt portion, and 9.15% for five and one-half years on the taxable
portion.
The mortgage proceeds retired the old mortgage of $26,154,723, funded
reserves for capital improvements in the amount of $1,173,000 and covered
the costs of the transaction in the amount of $890,989, which is reflected
as deferred costs, net of accumulated amortization, in the accompanying
balance sheets. The capital improvements escrow was established from the
mortgage proceeds and the replacement reserve in the combined amount of
approximately $2,076,000 to pay for significant planned improvements (roof
replacement, smoke/fire alarm systems, elevator repairs and other repairs
throughout the complex).
The Operating Partnerships make monthly payments into a principal reserve
fund or the purpose of providing funds for retirement of the bonds issued
by the Agency. The bonds will be retired from funds in the reserve fund at
which time the mortgage balance will be reduced accordingly. At December
31, 2001 the scheduled principal reserve fund payments are as follows:
2002 $ 367,277
2003 401,620
2004 439,174
2005 473,018
2006 429,334
Thereafter 25,971,175
-------------
$ 28,081,598
============
The new mortgage terms require monthly payments of $6,326 to the
replacement reserve.
Restricted funds held in deposit in connection with the mortgage are as
follows:
2001 2000
------------ -------------
Principal reserve fund $ 518,402 $ 182,499
Capital improvements escrow 2,142,466 2,103,949
Replacement reserve 122,443 44,729
Tax and insurance escrow 294,875 212,054
Cost of issuance fund - 291,792
Other deposits 48,464 19,386
------------ ------------
$ 3,126,650 $ 2,854,409
============ ============
F-24
DIXON MILLS ASSOCIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
6. INVESTMENT IN BONDS
The Operating Partnerships carries its investments in bonds as
available-for-sale because such investments are used to facilitate and
provide flexibility for its obligations. Investments in bonds are reflected
in the accompanying balance sheets at estimated fair value.
As of December 31, 2001, certain information concerning investments in
bonds is as follows:
Amortized Unrealized Unrealized Estimated
Description and maturity cost gains losses fair value
------------------------------- ----------- ------------ ----------- -----------
Municipal Bonds
After one year through five years $ 746,992 $ -- $ 6,982 $ 740,010
After five years through ten years 217,980 -- 3,068 214,912
After ten years 416,343 -- 22,448 393,895
---------- ---------- ---------- ----------
$1,381,315 $ -- $ 32,498 $1,348,817
========== ========== ========== ==========
7. COMMITMENTS AND CONTINGENCIES
Three complaints had been filed against the Operating Partnerships and
others, by a former employee, a former part-time rental agent, and a
security person employed by a private non-affiliated security company which
provided service to the properties, alleging discrimination in connection
with advancement, hiring and termination. All three complaints were settled
in 2001 for a total for $150,000. Total legal expense incurred by the
Operating Partnerships in 2001 was approximately $412,000 (which includes
the aforementioned settlement amount), and is included in administrative
expenses in the combined statements of operations.
8. EXTRAORDINARY ITEMS
Write-off of Unamortized Deferred Costs - 2000
As a result of the refinancing (see Note 5), deferred costs of $449,912
reflected on the Operating Partnerships' balance sheet as of December 31,
1999 were written off in the year ended December 31, 2000 and are shown as
an extraordinary item on the combined statement of operations.
F-25