ITEM 1. BUSINESS
Associated Planners Realty Growth Fund (the "Partnership"), was organized in March 1987, under the California Revised Limited Partnership Act. West Coast Realty Advisors, Inc. ("WCRA"), a California corporation, and W. Thomas Maudlin Jr., an individual, are general partners (collectively referred to herein as the "General Partner").
The Partnership was organized for the purpose of investing in, holding, and managing improved, leveraged income-producing property, such as residential property, office buildings, commercial buildings, industrial properties, mini- warehouse facilities, and shopping centers ("Properties"), which are believed to have potential for cash flow and capital appreciation. The Partnership intends to own and operate such Properties for investment over an anticipated holding period of approximately five to ten years. At December 31, 1995, the Partnership had no employees.
The Partnership's principal investment objectives are to invest the net proceeds in real properties which will:
1. Preserve and protect the Partnership's invested capital; 2. Provide for cash distributions from operations; 3. Provide gains through potential appreciation; and 4. Generate federal income tax deductions so that a portion of cash distributions may be treated as a return of capital for tax purposes and, therefore, may not represent taxable income to the Limited Partners.
On November 17, 1989, the Partnership acquired a 100% interest in a office building located in Santa Ana, California which was financed with $1,553,102 in cash and $1,675,000 in long-term debt. On January 9, 1990, the Partnership, together with Associated Planners Realty Income Fund (an affiliate), purchased a one-story building located in San Marcos, California. The acquisition was paid for entirely in cash totaling $3,118,783 of which $311,878 was provided by the Partnership and $2,806,905 by the affiliate. The Partnership owns a 10% undivided interest in the property.
The ownership and operation of any leveraged, income-producing real estate is subject to those risks inherent in all real estate investments. These include national and local economic conditions, the supply of and demand for similar types of real property, competitive marketing conditions, zoning changes, possible casualty losses, and increases in real estate taxes, assessments, and operating expenses, as well as others. In addition, the real estate market at this date is in a general state of uncertainty, and there is no assurance as to how long it might continue or its possible effect on the Partnership.
This uncertainty is evidenced by the following conditions:
1. Downtrends in the real estate market in various areas of the country as evidenced by high vacancy rates in the commercial sector, and a large unsold inventory of new homes, particularly in California.
2. Economic recession, as evidenced by higher unemployment, slow consumer spending, and low increases in gross national product figures.
3. The effect of current or proposed tax reform legislation which has slowed the level of sale and development of real estate and the formation of real estate partnerships, in many areas of the country.
4. Availability and cost of financing to allow for the purchase and sale of properties and to maintain overall real estate values.
There is a potential for these factors to have a material effect on the Partnership's operations over the long-term.
The Partnership is subject to competitive conditions that exist in the local markets where it operates rental real estate. These conditions are discussed in ITEM 2
ITEM 2 - - "PROPERTIES".
The Partnership is operated by the General Partner, subject to the terms of the Amended and Restated Agreement of Limited Partnership. The Partnership has no employees, and all administrative services are provided by West Coast Realty Advisors Inc.(" WCRA") the co-General Partner.
On August 29, 1988, the Partnership attained its minimum funding requirement with the initial release of escrow funds totaling $1,205,650 and terminated its offering on September 5, 1989. As of December 31, 1989, gross proceeds from sales of Partnership units totaled $2,061,000 and $1,823,953 net of syndication costs and sales commissions.
ITEM 2. PROPERTIES
PARKCENTER OFFICE BUILDING
On November 17, 1989, the Partnership purchased the Parkcenter Office Building, located in Santa Ana, California.
The office building, constructed in 1978, provides 24,090 rentable square feet located on a 1.32 acre parcel of land. As of December 31, 1995, the building was 66% leased to seven tenants. Roselinsky, Gerrick, et al. accounted for 26% of the occupied space in the building as of December 31, 1995. The tenants rent space on a full-service gross lease basis, including utilities and janitorial.
The building and improvements are depreciated over 31.5 to 40 years using a straight-line method for both financial and income tax reporting purposes. The financial and income tax basis for the property are the same. In the opinion of the General Partner, the property is adequately insured. The property is managed by West Coast Realty Management, Inc. ("WCRM"), an affiliate of the corporate General Partner.
The center is dependent upon the vitality of the consumer market in the general area. A drop in occupancy levels among buildings located in the general area of the office building has required the Partnership's management to lower rental rates that it has been charging to tenants in order to maintain an acceptable occupancy level at the property. This has resulted in a significant drop in operating cash flow that has been generated by the building. See further discussion under Item 7 - "Management Discussion And Analysis of Financial Condition and Results of Operations."
Tenants occupying 10% or more of rentable square footage:
Roselinsky, Gerrick, et al (a law firm): 26% of rentable square footage; $99,185 rent per year; lease expires 1/31/97. Renewal options: No renewal option.
Note: The tenants of this building consist are primarily service oriented companies such as mortgage lenders, real estate agents, lawyers, and escrow companies.
SAN MARCOS INDUSTRIAL BUILDING
On January 9, 1990, the Partnership, together with Associated Planners Realty Income Fund (a 10%/90% interest, respectively), purchased an Industrial Building, located in San Marcos, California.
The building, constructed in 1986, consists of 40,720 rentable square feet, including 6,000 square feet of office area, plus 1,300 square feet of mezzanine storage above the office area. It is located on a 2.66 acre parcel of land. The building was 100% occupied by Professional Care Products, Inc. through January 8, 1995, on a triple net lease. The lease required the tenant to pay insurance, taxes, maintenance and all other operating costs.
On February 13, 1995, a new lease was executed with No Fear, Inc., which runs through June 30, 1998. This is also a triple net lease, and the beginning monthly revenue is approximately 70% of the Professional Care Products lease's ending monthly revenue.
The building and improvements are depreciated over 31.5 to 40 years using a straight-line method for both financial and income tax reporting purposes. The financial and income tax basis for the property are the same. In the opinion of the General Partner, the property is adequately insured. The property is managed by WCRM.
The building is located in North San Diego County, in an area of increasing population and desirability for San Diego area professional and skilled workers and significant employers. It is expected the building will benefit from projected growth of the North San Diego County area.
Tenants occupying 10% or more of rentable square footage:
PROCARE (Professional Care Products, Inc.): 100% of rentable square footage; $30,024 rental per year (10% of total rent). Lease expired 1/8/95. Renewal options: None (tenant vacated building prior to lease expiration).
No Fear, Inc.: 100% of rentable square footage; Rent is $21,989 per year (10% of total rent). Lease expires on June 30, 1998. Tenant began occupying the building on February 13, 1995. Renewal option: $21,598 per year in the first year, increasing 104% per year thereafter for a maximum of five years.
Note: PROCARE was involved in the assembly of medical instruments. No Fear, Inc. (the current tenant) is involved in the manufacture and sale of clothing.
SUMMARY
As of December 31, 1995, the combined occupancy rate of all the Partnership's properties was 71%. In the opinion of the General Partner, all properties are adequately covered by insurance. Although the Partnership's 10% interest in the San Marcos Building is generating positive cash flow, this amount is not sufficient to offset the negative cashflow resulting from the Partnership's interest in the Santa Ana Office Building.
The total acquisition cost to the Partnership of each property and the dates of acquisition are as follows:
DESCRIPTION ACQUISITION ACQUISITION COST DATES
PARKCENTER OFFICE BUILDING $3,228,102 11/17/89
SAN MARCOS INDUSTRIAL BUILDING (10% $311,878 01/09/90 INTEREST)
Noted below are some key data pertaining to the operations of improved property that is operated by the Partnership:
Average annual occupancy rate as a percentage of square feet:
Santa Ana Building:
1991: 84% 1992: 87 1993: 85 1994: 73 1995: 66
San Marcos Building (10% interest by the Partnership):
1991: 100% 1992: 100 1993: 100 1994: 100 1995: 88
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4.
ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
At December 31, 1995, there were 2,061 limited partnership units outstanding and 180 unit holders of record. The units sold are not freely transferable and no public market for the sold units presently exists or is likely to develop. There are no unissued units available for sale as of December 31, 1995.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data should be read in conjunction with the financial statements and related notes and ITEM 7.
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Partnership began offering for sale limited partnership units in October 1987. On August 29, 1988, the Partnership reached its minimum offering level of $1,200,000 and funds were released from escrow, to the Partnership. The Partnership sold units throughout the remainder of 1988, and had raised $1,362,000 in gross proceeds or $1,219,262 net of syndication costs and sales commissions as of December 31, 1988. As of December 31, 1989, gross proceeds from sales of partnership units totaled $2,061,000 or $1,823,953 net of syndication costs and sales commissions.
In reading the discussion of operations, the reader should understand that the Partnership has a 100% interest in an office building in Santa Ana, California, and a 10% interest in a commercial building in San Marcos, California. The results of the Partnership's operations have been dominated by the results of operations for the Santa Ana building; thus, the discussion of the Partnership's results of operations will emphasize the operations of that building.
Due to the recurring losses from operations and a net capital deficiency of $800,058 at December 31, 1995, the Partnership's independent certified public accountants have included an explanatory paragraph in their report stating that these factors raise substantial doubt as to Partnership ability to continue as a going concern.
From 1992 to 1994, the overall operations of the Partnership gradually improved; however, the Partnership continued to generate unacceptable net losses and negative cash flows. (These negative cash flows first started appearing in calendar 1991). For example, the net loss for 1993 of $123,357 was $17,737 (13%) less than the $141,094 net loss for 1992, while the negative cash flow (net loss excluding depreciation and amortization) dropped from $70,738 to $54,276--a $16,462 (23%) decrease. Progress continued in 1994, with the net loss of $115,143 that year being $8,214 (7%) less than that for 1993, and the negative cash flow dropping to $47,779--a $6,497 (12%) decrease from 1993's level. Despite these improvements, the fact remained that the Partnership's operations were still insufficient to support the Company without cooperation from the General Partner in deferring collection of various management fees, interest expense, and overhead cost allocations.
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT.)
1995 was a turning point in terms of the viability of the Partnership. Although the general economy in which the Santa Ana building is located was generally poor from 1990 to 1994, the operations of the Partnership's building were still somewhat stable (if not overly profitable) as explained above. However, in December of 1994, the County of Orange (in which the Santa Ana Building is located) declared bankruptcy due to large losses in connection with unauthorized derivative and bond investment activity. The County's problems had a trickle down effect on the entire area as a large number of small businesses dependent upon County purchases went out of business or moved away. This put further pressure on all commercial property owners to further lower rents to attract or retain tenants. The Partnership saw the negative cash flow situation on the Santa Ana building worsen as a result of these problems. On July 31, 1995, at the Partnership's request, the holder of the first deed of trust on the Santa Ana property agreed to provide relief to the Partnership by deferring collection of debt payments due on the loan for September 1995 to January 1996. The General Partner used this opportunity to improve the liquidity of the Partnership, and to allow for the implementation of necessary capital improvements to the Property. However, the relief offered by the lender in the latter part of 1995 was not sufficient to improve the operating results for the Partnership. Largely as a result of the economic problems in Orange County, the net loss from operations for the Partnership increased to $189,168-- a $74,025 (64%) increase in loss. Cash basis loss (net loss from operations less depreciation expense) increased from $47,779 to $122,772--a $74,993 (157%) increase. In addition, during the fourth quarter, despite the Partnership's best efforts to enhance the value of the property with tenant improvements and greater occupancy, it was determined that the surrounding economic conditions of the area dictated a thorough review of the carrying value of the property. Using recent comparative building sales data for the general area in which the building is located, it was determined that a $1,912,727 impairment loss in the value of the building should be recorded on the Partnership's Statement of Loss for 1995. This loss is unrealized, and thus does not flow through to the partners for tax purposes, and may not flow through until the ParkCenter Office Building is sold or otherwise disposed of. This allowance, in itself, does not directly affect the liquidity of the Partnership, which as previously set forth, is extremely poor. This impairment in value means that the equity of the Partnership is now a deficit, and the sale of the Santa Ana property would probably result in less proceeds than what is currently outstanding on the first deed of trust attached to the building.
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT.)
In February 1996, the Partnership failed to make the first payment due following the debt relief period granted by the holder of the first deed of trust. The Partnership again approached the holder of the first deed of trust to attempt to obtain additional debt relief. The holder of the note declined to provide additional relief, and demanded immediate payment of the installment due to prevent immediate foreclosure of the property. The Partnership met this demand and default provisions were not instituted. The Partnership projects that additional cash advances will be necessary from the General Partner, or one of its affiliates, in order to prevent an additional liquidity crisis in April 1996 when property taxes become due on the property. The General Partner has made no commitment at this time concerning the availability of future cash advances to the Partnership. The Partnership will continue to seek relief from the debt holder, while at the same time seeking to enhance the value of the property by increasing occupancy and contracting long term leases. Failure to obtain additional funding from the General Partner, relief from the lender, or significantly improved operations could result in the eventual loss of the building through foreclosure proceedings.
During the year ended December 31, 1995, the Partnership did not make distributions to limited partners or pay General Partner management fees, in an attempt to rebuild cash reserves. Distributions are determined by management based on cash flow and the liquidity position of the Partnership.
Management uses cash as its primary measure of a partnership's liquidity. The amount of cash that represents adequate liquidity for a real estate limited partnership depends on several factors. Among them are:
1. Relative risk of the partnership; 2. Condition of the partnership's properties; 3. Time in the partnership's life cycle (e.g., money-raising, acquisition, operating or disposition phase); and 4. Partner distributions.
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT.)
Due to the large amount of vacancies, general economic problems in the area, and an increase in maintenance and repair expenses at the Santa Ana Property, the 3% reserve remained depleted during 1995. In addition, the General Partner has made loans to the Partnership and deferred collection of miscellaneous amounts owed to it by the Partnership. For this reason, there were no distributions made to the limited partners during the year. It is the Partnership's intention to eliminate partner distributions until such time as the reserves are built back up to acceptable levels and various deferred liabilities due to the Advisor and its affiliates are paid. It is uncertain at this point how long it will take the Partnership to rebuild cash reserves and operate profitably on a cash basis; however, the possibility of partners receiving future cash distributions or a significant portion of their original investment back is considered remote. The Partnership's ability to meet cash requirements in the short-run is dependent upon the willingness of the General Partner and its affiliates to defer collection of amounts due for property management fees and overhead allocations, advance cash as needed for ongoing operating expenses, and the stabilization of the tenant base and rental rates at the Santa Ana property. The ability of the General Partner to make advances to the Partnership is dependent upon the liquidity of the Parent company of the General Partner. The General Partner is a wholly owned subsidiary of Associated Financial Group (the "Parent"), which consolidated, as of December 31, 1995, had $6.2 million in assets, $2.1 million in cash and cash equivalents, and $3.3 million in equity, and had net income of $.2 million for the year ended December 31, 1995. In addition, the General Partner must be willing to make advances, and as of December 31, 1995, the General Partner has no future commitments to do so.
In the long run, the Partnership's cash requirements will be further affected by the need to pay off the Deed of Trust that secures the Santa Ana property. This note is due on January 1, 2000, and is projected to have a balance of approximately $1,550,000 at that time. A sale or refinance of the property will be necessary prior to that date.
The San Marcos property has no debt financing and their are currently no plans by the Partnership or Associated Planners Realty Income Fund to seek financing on that jointly owned property. In the short-term, the fact that this property has a quality tenant and operates under a triple net lease, allows the Partnership to collect a nominal amount of cash from the operations of this Property. In the long-run, the Partnership expects to benefit from the sale of this property when it is sold. The General Partner anticipates that the San Marcos property will be sold prior to the year 2000.
The condition of the properties is relatively good, therefore there are no unusually large capital improvements or repair costs that would severely deplete the cash reserves.
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT.)
As previously discussed, the Partnership has a 10% interest in a building in San Marcos, California. Subsequent to year-end, the building was leased to a tenant at a rate 70% of the previous rental rate. Because the Partnership has such a small percentage interest in this property, the decrease in rent results in only a $750 per month decrease in cash flow. This particular decrease is not expected to have a material impact on operations.
The Tax Reform Acts of 1986 and 1987 and the Revenue Reconciliation Acts of 1990 and 1993 did not have a material impact on the Partnership's operations.
During the years of the Partnership's existence, inflationary pressures in the U.S. economy have been minimal, and this has been consistent with the experience of the Partnership in operating rental real estate in California. The Partnership has several clauses in its leases with some of its properties' tenants that will help alleviate some of the negative impact of inflation. However, the lack of inflation is hurting the Partnership due to the stagnation of office rental rates.
There are currently no plans for any material renovation, improvement or further development of the properties.
RESULTS OF OPERATIONS - 1995 VS. 1994
Operations for the years ended December 31, 1995 and 1994 reflect full years of rental activities for the Partnership's properties. For the year ended December 31, 1995, the return on funds invested in property was (1.8%) vs. (.2%) in calendar 1994.
As previously discussed, poor economic conditions resulted in a $27,729 (10.2%) decrease in rental revenue. As a result of the debt relief received, interest expense increased $19,312 (11.4%). However, the provisions of the debt relief did not require an increase in the use of cash as a result of this. Operating expenses increased $24,027 (25.4%) due to increased maintenance expenses incurred in order to improve the appearance of the Santa Ana Building.
The cash basis loss for 1995 was $122,772 vs. $47,779 in 1994. This $74,993 (157%) increase pushed the Partnership close to default on its ability to meet its current loan and property tax obligations. As previously discussed, continual support from the lender and/or the General Partner and its affiliates will be necessary to avoid foreclosure of the Partnership's primary real estate asset.
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT.)
During the year ended December 31, 1995, $4,468 in cash was provided by operating activities. This resulted from an increase in accounts payable of $70,899 (primarily resulting from an increase in the deferral of payment of amounts due to the General Partner and affiliates) plus the $71,954 increase in accrued interest on notes payable (resulting from the relief the Partnership received in making payments on the debt from September 1995 through January 1996), offset by the net cash basis loss of $122,772 from operations (net loss plus depreciation expense and impairment loss), and the $16,409 net increase in receivables and other assets (primarily work in progress pertaining to certain capital improvements to the Santa Ana Building). There were no investing activities during the year by the Partnership; in recent years, some cash had been used for capital improvements to the properties. Financing activities resulted in a use of cash of $10,125 in connection with the Partnership's debt on the Santa Ana Building. Cash decreased a net $5,657 as a result of the net cash used by operating activities and financing activities. As a result, the net cash at the end of the year was zero.
The number of limited partnership units outstanding remained at 2,061.
RESULTS OF OPERATIONS - 1994 VS. 1993
Operations for the years ended December 31, 1994 and 1993 reflect full years of rental activities for the Partnership's properties. For the year ended December 31, 1994, the return on funds invested in property was (.2%) vs. (.1%) in calendar 1993. As has been the case for several years, the Partnership realized an overall cash basis net loss due to the administrative costs of operating the Partnership (cash basis is net income plus an addback of depreciation expense). Rental income fell $17,298 (6%) due to continuing rental rate and occupancy problems at the Santa Ana Building. Of the $17,298 decrease in rental revenue from 1993, we would estimate that $12,000 was due to increased vacancy at the Santa Ana property, with the balance due to lower overall rental rates in the area.
Operating expense decreased $22,400 (19%) as a result of less maintenance and ongoing operating costs due to lower vacancy at the Santa Ana property and lower property taxes due to some relief granted by the County of Orange in 1994.
The cash basis loss decreased from $54,276 in 1993 to $47,779 in 1994. Although this did represent a $6,497 (12.0%) decrease, the viability of the Partnership was dependent upon the General Partner and affiliates waiving collection of certain fees and reimbursements that it was entitled to. Coupled with prior year (1991-1993) losses, the cash loss for 1994 continued to put the Partnership in a mode of extremely low liquidity.
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT.)
During the year ended December 31, 1994, $9,443 in cash was used in operating activities. This resulted from a net cash basis loss of $47,779 (net loss plus depreciation expense), plus the $11,486 decrease in security deposits and prepaid rents (primarily resulting decrease in occupancy from 85% in 1993 to 73% in 1994), offset by a increase in accounts payable of $46,235 (primarily resulting from an increase in the deferral of payment of amounts due to the General Partner and affiliates), and the $3,887 net increase in receivables and other assets (primarily work in progress pertaining to certain capital improvements to the Santa Ana Building). There were no investing activities during the year by the Partnership; in recent years, some cash had been used for capital improvements to the properties. Financing activities resulted in a use of cash of $14,464 in connection with the Partnership's debt on the Santa Ana Building. Cash decreased a net $23,907 as a result of the net cash used by operating activities and financing activities. As a result, the net cash at the end of the year was $5,657.
The number of limited partnership units outstanding remained at 2,061.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PAGE
Report of Independent Certified Public Accountants................ 16
Balance Sheets -- December 31, 1995 and 1994 ..................... 17
Statements of Loss for the years ended December 31, 1995, 1994, and 1993 .......................... 18
Statements of Partners' Equity (Deficit) for the years ended December 31, 1995, 1994, and 1993 .......................... 19
Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993 ........................... 20
Summary of Accounting Policies .................................. 21-22
Notes to Financial Statements ................................... 23-28
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Associated Planners Realty Growth Fund (a California limited partnership) Los Angeles, California
We have audited the accompanying balance sheets of Associated Planners Realty Growth Fund (a California limited partnership) as of December 31, 1995 and 1994 and the related statements of loss, partners' equity (deficit), and cash flows for each of the three years in the period ended December 31, 1995. We have also audited the schedules listed in the accompanying index. These financial statements and schedules are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and schedules are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and schedules. 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 Associated Planners Realty Growth Fund (a California limited partnership), at December 31, 1995 and 1994, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles.
Also, in our opinion, the schedules present fairly, in all material respects, the information set forth therein.
As discussed in Note 8 to the financial statements, the Partnership changed its method of accounting for the impairment of long-lived assets in 1995. The accompanying financial statements and schedules have been prepared assuming that the Partnership will continue as a going concern. As discussed in the summary of accounting policies, the Partnership has suffered recurring losses from operations and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in the summary of accounting policies. The financial statements and schedules do not include any adjustments that might result from the outcome of this uncertainty.
BDO SEIDMAN, LLP
Los Angeles, California February 12, 1996
[FN] See accompanying summary of accounting policies and notes to financial statements.
[FN] See accompanying summary of accounting policies and notes to financial statements.
[FN]
See accompanying summary of accounting policies and notes to financial statements.
[FN] See accompanying summary of accounting policies and notes to financial statements.
ASSOCIATED PLANNERS REALTY GROWTH FUND SUMMARY OF ACCOUNTING POLICIES
BUSINESS Associated Planners Realty Growth Fund (the "Partnership"), a California limited partnership, was formed on March 9, 1987 under the Revised Limited Partnership Act of the State of California. The Partnership met its minimum funding of $1,200,000 on August 29, 1988 and terminated its offering on September 5, 1989. The Partnership was formed to acquire income- producing real property throughout the United States with emphasis on properties located in California and southwestern states. The Partnership intends to purchase such properties by borrowing up to an aggregate of fifty percent of the purchase price of such properties and intends to own and operate such properties for investment over an anticipated holding period of approximately five to ten years.
BASIS OF The financial statements do not give effect to any assets PRESENTATION that the partners may have outside of their interest in the partnership, nor to any personal obligations, including income taxes, of the partners.
The Partnership's financial statements for the year ended December 31, 1995 have been prepared on a going concern basis which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The Partnership has suffered recurring losses from operations and has a net capital deficiency of $800,058 at December 31, 1995. The deficiency is attributable to a $1,912,727 impairment loss recognized on the difference between the carrying amount of rental real estate and the fair value less cost to sell. The Partnership plans to seek relief from the debt holder, while at the same time seeking to enhance the value of the property by increasing occupancy and contracting long-term leases. Failure to obtain additional funding from the General Partner, relief from the lender, or significantly improved operations could result in the eventual loss of the building through foreclosure proceedings.
ASSOCIATED PLANNERS REALTY GROWTH FUND SUMMARY OF ACCOUNTING POLICIES
RENTAL REAL Assets are stated at cost. Depreciation is computed ESTATE AND using the straight-line method over estimated useful DEPRECIATION lives ranging from 31.5 to 40 years for financial reporting and income tax reporting purposes.
In the event that facts and circumstances indicate that the cost of an asset may be impaired, an evaluation of recoverability would be performed. If an evaluation is required, the estimated future undiscounted cash flows associated with the asset would be compared to the carrying amount to determine if a write-down to market value is required.
LOAN ORIGINATION Loan origination fees are capitalized and amortized over FEES the life of the loan.
LEASE COMMISSIONS Lease commissions which are paid to real estate brokers for locating tenants are capitalized and amortized over the life of the lease.
RENTAL REVENUE Rental revenue is recognized on a straight-line basis to the extent that rental revenue is deemed collectible.
STATEMENTS OF For purposes of the statements of cash flows, the CASH FLOWS Partnership considers cash in the bank and all highly liquid investments purchased with original maturities of three months or less to be cash and cash equivalents.
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.
ASSOCIATED PLANNERS REALTY GROWTH FUND NOTES TO FINANCIAL STATEMENTS
1. NATURE OF The Partnership began accepting subscriptions in October PARTNERSHIP 1987 and closed the offering on September 5, 1989. The Partnership began operations in September 1988.
Under the terms of the partnership agreement, the General Partners (West Coast Realty Advisors, Inc., and W. Thomas Maudlin, Jr.) are entitled to cash distributions from 10% to 15%. The General Partners are also entitled to net income (loss) allocations varying from 1% to 15% in accordance with the partnership agreement. Further, the General Partners will receive acquisition fees for locat- ing and negotiating the purchase of rental real estate, management fees for operating the Partnership and a commission on the sale of the partnership properties.
2. RENTAL REAL The Partnership owns the following two rental real estate ESTATE properties, one wholly-owned and the second, a 10% undivided interest:
Acquisition Location (Property Name) Date Purchased Cost
Santa Ana, California November 17, 1989 $3,228,102
San Marcos, California January 9, 1990 311,878
The major categories of rental real estate are:
December 31, 1995 1994
Land $519,777 $1,349,900 Buildings and improvements 806,468 2,241,600
1,326,245 3,591,500 Less accumulated depreciation 40,800 336,449
Rental real estate, net $1,285,445 $3,255,051
ASSOCIATED PLANNERS REALTY GROWTH FUND NOTES TO FINANCIAL STATEMENTS
2. RENTAL REAL A significant portion of the Partnership's rental revenue ESTATE was earned from tenants whose individual rents represent (CONTINUED) more than 10% of total rental revenue. Specifically:
Two tenants accounted for 14% and 41% in 1995; Two tenants accounted for 11% and 43% in 1994; Two tenants accounted for 11% and 43% in 1993.
During 1995, the property tax assessment on the Santa Ana, California office building was significantly reduced. It is the intention of the General Partner to sell the Santa Ana property when it is reasonably feasible. The Partnership determined that the total expected future cash flows from operations and disposition of the property are less than the carrying value of the property. Therefore the property was deemed to be impaired. As a result, an impairment loss of $1,912,727 was recorded, measured as the amount by which the carrying amount of the asset exceeded its fair value less cost to sell. Fair value was determined based on comparable sales. The Partnership intends to continue to annually assess the carrying values of its long-lived assets.
3. FUTURE As of December 31, 1995, future minimum rental income MINIMUM under existing leases, excluding month to month rental RENTAL INCOME agreements, that have remaining noncancelable terms in excess of one year are as follows:
Amount
1996 $179,124 1997 48,930 1998 10,383
$238,437
Future minimum rental income does not include lease renewals or new leases that may result after a noncancelable lease expires.
ASSOCIATED PLANNERS REALTY GROWTH FUND NOTES TO FINANCIAL STATEMENTS
4. RELATED PARTY (a) In accordance with the partnership agreement, TRANSACTIONS compensation earned by or services reimbursed to the corporate General Partner consisted of the following:
Years ended December 31, 1995 1994 1993
Administrative services: Data processing $5,645 $5,680 $5,669 Postage 710 640 662 Investor processing 2,258 2,272 2,268 Duplication 1,129 1,136 1,134 Investor communications 1,693 1,704 1,701 Miscellaneous 565 568 566
$12,000 $12,000 $12,000
(b) The Partnership owns a 10% undivided interest in the property located in San Marcos, California. The 90% interest is owned by Associated Planners Realty Income Fund, an affiliate.
(c) Property management fees incurred in accordance with the partnership agreement with West Coast Realty Management, Inc., totaled $10,393, $12,045 and $12,422 for the years ended December 31, 1995, 1994 and 1993.
(d) The Partnership has a note payable of $150,000 at December 31, 1995 and December 31, 1994 which is payable on demand to the corporate General Partner and bears interest of 7.5%.
ASSOCIATED PLANNERS REALTY GROWTH FUND NOTES TO FINANCIAL STATEMENTS
(e) Related party accounts payables are as follows:
December 31, 1995 1994
Associated Planners Realty Income Fund $ - $ 2,173 West Coast Realty Advisors 108,408 73,158 West Coast Realty Management 81,056 70,663 Associated Financial Group, Inc. 50,631 41,813
$ 240,095 $187,807
ASSOCIATED PLANNERS REALTY GROWTH FUND NOTES TO FINANCIAL STATEMENTS
5. NOTE PAYABLE The Partnership has a 9.75% promissory note payable secured by a Deed of Trust. This note is due January 1, 2000, and provides significant prepayment penalties. Payments are made in monthly installments of $15,088 including principal and interest. The outstanding balance is $1,676,385 and $1,614,884 at December 31, 1995 and 1994.
The carrying amount is a reasonable estimate of fair value of notes payable because the interest rates approximate the borrowing rates currently available for mortgage loans with similar terms and average maturities.
The aggregate annual future maturities at December 31, 1995 are as follows:
Amount
1996 $16,811 1997 20,129 1998 22,182 1999 24,443 2000 1,592,820
Total $1,676,385
6. NET LOSS The Net Loss per Limited Partnership Unit was computed in AND CASH accordance with the partnership agreement using the DISTRIBUTIONS weighted average number of outstanding Limited PER LIMITED Partnership Units of 2,061 for 1995, 1994 and 1993. PARTNERSHIP UNIT No distributions were made in 1995, 1994 or 1993.
7. FOURTH In the fourth quarter of 1995 the Partnership recorded an QUARTER adjustment to the carrying value of rental real estate to ADJUSTMENT recognize an impairment loss of $1,912,727 as discussed in Note 2.
ASSOCIATED PLANNERS REALTY GROWTH FUND NOTES TO FINANCIAL STATEMENTS
8. SUPPLEMENTAL Cash paid during the years ended December 31, 1995, 1994 DISCLOSURES and 1993 for interest was $117,044, $168,731 and OF CASH FLOW $159,565. INFORMATION Noncash investing and financing activities:
Notes payable was increased by $71,954 of accrued interest relating to a deferral of loan payments during 1995.
9. NEW Statement of Financial Accounting Standards No. 121, ACCOUNTING "Accounting for the Impairment of Long-Lived Assets and PRONOUNCE- for Long-Lived Assets to Be Disposed of" (SFAS No. 121) MENTS issued by the Financial Accounting Standards Board (FASB) is effective for financial statements for fiscal years beginning after December 15, 1995. The new standard establishes new guidelines regarding when impairment losses on long-lived assets, which include plant and equipment, and certain identifiable intangible assets, should be recognized and how impairment losses should be measured. The Partnership has elected the early adoption of SFAS No. 121. An impairment loss of $1,912,727 was recorded in the statement of loss for the year ended December 31, 1995.
A reconciliation of mortgage loans payable for the year ended December 31, 1993, 1994, 1995 follows:
Balance at December 31, 1992 $1,642,473 .................................. 1993 Additions - 1993 Paydowns (13,125) .................................. ............................... Balance at December 31, 1993 1,629,348 .................................. ...... 1994 Additions - 1994 Paydowns (14,464) .................................. ............................... Balance at December 31, 1994 1,614,884 .................................. ...... 1995 Additions 71,954 1995 Paydowns (10,453) .................................. ............................... Balance at December 31, 1995 $1,676,385 .................................. ......
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 is managed by the General Partner and the Limited Partners have no right to participate in the management of the Partnership or its business.
Resumes of the General Partners' principal officers and directors and a description of the General Partner are set forth in the following paragraphs.
WEST COAST REALTY ADVISORS, INC.
West Coast Realty Advisors, Inc. ("WCRA") is a California corporation formed on May 10, 1983 for the purpose of structuring real estate programs and to act as general partner of such programs. It is a subsidiary of Associated Financial Group, Inc.
PHILIP N. GAINSBOROUGH (Born 1938) is Chairman and a Director of West Coast Realty Advisors, Inc. He is also currently the President of Associated Financial Group, Inc., Associated Securities Corp., Associated Planners Insurance Services, Inc., and Associated Planners Investment Advisory, Inc. In addition, from January 1981 to the present, he has served as President of Gainsborough Financial Consultants, Inc., a financial planning firm located in Los Angeles, California. From January 1981 to December 1982, Mr. Gainsborough served as a Registered Principal of Private Ledger Financial Services, Inc. From January 1977 to December 1980, he was employed by E.F.Hutton & Co. as a Registered Representative.
W. THOMAS MAUDLIN JR. (Born 1936) is a Director and President of West Coast Realty Advisors, Inc. ("WCRA"). He is also co-General Partner (with WCRA) of the Partnership. Mr. Maudlin has been active in the real estate area for over 30 years, serving as co-developer of high-rise office buildings and condominiums. He has structured transactions for syndicators in apartment housing, including sale leasebacks, all-inclusive trust deeds, buying and restructuring transactions to suit a particular buyer, and as a buyer acting as a principal. Mr. Maudlin was co-developer of the Gateway Los Angeles office building, a 165,000 square foot, fourteen-story office building located in West Los Angeles. Form 1980 to 1985, in partnership with the Muller Company, he developed eleven acres in San Bernardino which included a 42,000-square foot office building, a six-plex movie theater and two restaurants. From 1980 to 1985, Mr. Maudlin was involved in building in San Bernardino, California, a 134- unit condominium development, a shopping center, and a restaurant in Ventura. He is a graduate of the University of Southern California.
WILLIAM T. HAAS (Born 1946 ) is a Director and Executive Vice President/Secretary of West Coast Realty Advisors, Inc., Associated Planners Insurance Services, Associated Securities Corp., and Associated Planners Investment Advisory, Inc. He is also Executive Vice President/Secretary and Director of Associated Financial Group, Inc. Mr. Haas has been affiliated with various Associated companies since 1982. From December 1977 to December 1982, Mr. Haas was employed by the National Association of Securities Dealers, Inc. in various capacities, including that of Supervisor of Examiners. From 1968 to 1977, he was associated with Merrill Lynch as a branch office operations manager, and in the home office Operations Liaison department.
MICHAEL G. CLARK (Born 1956) is Senior Vice President/Treasurer of West Coast Realty Advisors, Inc., Associated Financial Group, Inc., and Associated Securities Corp. Prior to joining AFG in 1986, he served as Controller for Quest Resources, a Los Angeles-based syndicator and operator of alternative energy projects, from October 1984 to March 1986, and Assistant Controller for Valley Cable T.V., from March 1982 through September 1984. In addition, Mr. Clark served as an auditor for Arthur Young & Co. in Los Angeles, from July 1978 to March 1982. He is a graduate of the University of California, Santa Barbara (BA) and California State University, Northridge (MS).
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
During its last calendar year, the Registrant paid no direct or indirect compensation to directors, officers, or employees of the General Partner.
The Registrant has no annuity, pension or retirement plans, or existing plan or arrangement pursuant to which compensatory payments are proposed to be made in the future to directors or officers.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Registrant is a limited partnership and has no officers or directors. The Registrant has no outstanding securities possessing general voting rights. No person owns of record, or is known by the Registrant to own beneficially, five percent or more of its units of limited partnership interest.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Registrant was organized in March 1987 as a California Limited Partnership. Its General Partners (collectively referred to herein as the "General Partner") are West Coast Realty Advisors, Inc., and W. Thomas Maudlin Jr., an individual. The Registrant has no executive officers or directors. Philip N. Gainsborough, an officer of the General Partner, made an original limited partnership contribution to the Partnership in March 1987, which was subsequently paid back to him in September 1988 when the Partnership met its minimum funding requirement. The General Partner and its affiliates will receive compensation from the Partnership for the following services rendered:
1. For Partnership management services rendered to the Partnership, the General Partner is entitled to receive up to 10% of all distributions of cash from operations. For the year ended December 31, 1995, no distributions were made to the General Partner. In addition, the General Partner is entitled to reimbursement for the cost of certain personnel employed in the organization of the Partnership, and certain administrative services performed by the General Partner. During the year ended December 31, 1995, the Partnership incurred $12,000 for these services, payable to the General Partner.
2. For property management services, the General Partner engaged West Coast Realty Management, Inc. ("WCRM"), an affiliate of the General Partner. During the year ended December 31, 1995, the Partnership incurred property management fees of $10,393 payable to WCRM.
3. The General Partner received a 1% allocation of net loss. For the year ended December 31, 1995, this resulted in a $21,018 allocation of net loss.
4. At December 31, 1995 the Partnership had a note payable to the General Partner of $150,000, bearing an interest rate of 7/ % and payable upon demand. On December 31, 1995, the Partnership was indebted to the General Partner for $258,408.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS The following financial statements of Associated Planners Realty Growth Fund, a California Limited Partnership, are included in PART II, ITEM 8:
PAGE
Report of Independent Certified Public Accountants................... 16
Balance Sheets -- December 31, 1995 and 1994 ........................ 17
Statements of Loss for the years ended December 31, 1995, 1994, and 1993 .............................. 18
Statements of Partners' Equity (Deficit) for the years ended December 31, 1995, 1994, and 1993 .............................. 19
Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993 ............................... 20
Summary of Accounting Policies ...................................... 21-22
Notes to Financial Statements ....................................... 23-28
2. FINANCIAL STATEMENT SCHEDULES
Schedule III --Real Estate and Accumulated Depreciation ............. 29
Schedule IV --Mortgage Loans on Real Estate ......................... 30
All other schedules have been omitted because they are either not required, not applicable or the information has been otherwise supplied.
(b) REPORTS ON FORM 8-K
NONE
(c) EXHIBITS NONE
SIGNATURES
Pursuant to the requirements of the 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
ASSOCIATED PLANNERS REALTY GROWTH FUND A California Limited Partnership (Registrant)
W. THOMAS MAUDLIN JR. (A General Partner)
By: WEST COAST REALTY ADVISORS, INC. (A General Partner)
WILLIAM T. HAAS (Director and Executive Vice President/Secretary)
MICHAEL G. CLARK (Vice President/Treasurer)
April 1, 1996