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.
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.
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.
As of December 31, 2001 and 2000, the occupancy and rental rates were as follows:
December 31, 2001 December 31, 2000 ----------------- -----------------
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.
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.
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.
PART II
Item 5.
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.
Item 6. Selected Financial Data
(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.
Item 7.
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.
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.
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.
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.
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.
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.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
PART III
Item 10.
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.
Item 11.
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.
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.
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.
PART IV
Item 14.
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 .
(ii) The list of Financial Statements of the Operating Partnerships appears on page.
(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;**
(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.
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
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
FINANCIAL STATEMENTS:
Balance sheets
Statements of operations
Statements of partners' equity and comprehensive income
Statements of cash flows
Notes to financial statements -
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
See notes to financial statements
See notes to financial statements
See notes to financial statement
See notes to financial statement
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.
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:
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.
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.
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:
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.
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:
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
COMBINED FINANCIAL STATEMENTS:
Combined balance sheets
Combined statements of operations
Combined statements of partners' equity and comprehensive income
Combined statements of cash flows
Notes to combined financial statements -
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
See notes to combined financial statements
See notes to combined financial statements
See notes to combined financial statements
See notes to combined financial statements
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.
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.
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.
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 ============ ============
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:
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.