Item 1. Business.
Southeastern Income Properties Limited Partnership (the "Registrant") was organized under the Virginia Uniform Limited Partnership Act on November 21, 1985 for the purpose of acquiring, owning, operating, and ultimately selling existing residential apartment complexes located primarily in the southeastern United States. The general partner of the Registrant is Winthrop Southeast Limited Partnership, a Delaware limited partnership ("WSLP" or the "Managing General Partner"), whose general partner is Eight Winthrop Properties, Inc., a Delaware corporation ("Eight Winthrop") (See "Item 1, Business Change in Control.")
The Registrant was initially capitalized with contributions of $100 from the Original General Partner and $100 from SIP Assignor Corporation, a Virginia corporation (the "Assignor Limited Partner"). On September 26, 1986, the Registrant filed a Registration Statement on Form S-11 (Registration No. 33-9085, the "Registration Statement") with the Securities and Exchange Commission (the "Commission") with respect to the public offering of assignee units of limited partnership interest ("Units") in the Registrant. The Registration Statement, covering the offering of 50,000 Units at a purchase price of $500 per Unit (an aggregate of $25,000,000), was declared effective on January 7, 1987. The offering concluded on June 29, 1987, at which time all 50,000 Units had been sold to limited partners (the "Limited Partners").
The Registrant's only business is acquiring, owning, operating and ultimately selling residential apartment complexes. The Registrant's investment objectives and policies are described on pages 31-38 under the caption "Investment Objective and Policies" of the Registrant's Prospectus dated January 7, 1987 as filed pursuant to Rule 424(b) on January 12, 1987 (the "Prospectus"), which description is incorporated herein by this reference. WSLP does not intend to change the business or the investment objectives of the Registrant.
The Registrant invested $20,593,101 of the original offering proceeds (net of sales commissions and sales and organizational costs, but including acquisition fees and expenses) in four
residential properties. All four properties were acquired by the Registrant directly.
The following tables set forth certain information regarding the properties which the Registrant acquired. For a further description of the properties, see pages 14 through 18 of the 1991 Solicitation of Consents, which is incorporated herein by reference.
See "Item 8, Financial Statements and Supplementary Data Note C" for further information concerning the mortgages encumbering the properties.
The Registrant maintains property and liability insurance on it properties which the Registrant believes to be adequate.
Employees
The Registrant does not have any employees.
Until March 18, 1996, management services were performed for the Registrant at its properties by on-site personnel all of whom were employees of Winthrop Management, an affiliate of the Managing General Partner, which directly managed the Registrant's
properties. All payroll and associated expenses of such on-site personnel were fully reimbursed by the Registrant to Winthrop Management. Pursuant to a management agreement, Winthrop Management provided certain property management services to the Registrant in addition to providing on-site management. Winthrop Management is a Massachusetts general partnership whose managing general partner is First Winthrop Corporation, the parent of Eight Winthrop.
On March 18, 1996, Registrant appointed an unaffiliated management company to assume management of its properties. (See "Item 3, Legal Proceedings.") The provisions of the new management agreement are substantially similar to those of the Winthrop Management agreement. The term is for one year, renewable annually.
Competition
The real estate business is highly competitive and the Registrant's properties have active competition from similar properties in the vicinity including, in certain instances, properties owned by affiliates of the Registrant. Furthermore, various limited partnerships controlled by the Managing General Partner and/or its affiliates are also engaged in business which may be competitive with the Registrant. The Registrant is also competing for potential buyers with respect to the ultimate sale of its properties. See "Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operation."
Change in Control
The original general partner of the Registrant was K-A Southeastern Income Properties Limited Partnership, a Virginia Limited Partnership (the "Original General Partner"). The general partners of the Original General Partner were Glade M. Knight, Ben T. Austin, III and Southeast Real Properties Corporation.
On February 12, 1992, WSLP was admitted as the general partner of the Registrant, while the Original General Partner's interest in the Registrant was converted to a special limited partnership interest. The substitution of WSLP as the general partner, and the conversion of the status of the Original General Partner to that of a limited partner, was previously approved by the limited partners of Registrant pursuant to the 1991
Solicitation of Consents. The general partner of WSLP is Eight Winthrop, which is wholly-owned by First Winthrop Corporation, a Delaware corporation, which in turn is wholly-owned by Winthrop Financial Associates, A Limited Partnership, a Maryland limited partnership ("WFA").
Until December 22, 1994, Arthur J. Halleran, Jr. was the sole general partner of Linnaeus Associates Limited Partnership ("Linnaeus"), the general partner of WFA. On December 22, 1994, pursuant to an Investment Agreement entered into among Nomura Asset Capital Corporation ("NACC"), Mr. Halleran and certain other individuals who comprised the senior management of WFA, the general partnership interest in Linnaeus was transferred to W.L. Realty, L.P. ("W.L. Realty"). W.L. Realty is a Delaware limited partnership, the general partner of which was, until July 18, 1995, A.I. Realty Company, LLC ("Realtyco"). The equity securities of Realtyco were held by certain employees of NACC.
On July 18, 1995 Londonderry Acquisition II Limited Partnership, a Delaware limited partnership ("Londonderry II"), an affiliate of Apollo Real Estate Advisors, L.P. ("Apollo"), acquired, among other things, Realtyco's general partner interest in W.L. Realty and a sixty four percent (64%) limited partnership interest in W.L. Realty. WFA owns the remaining thirty-five percent (35%) limited partnership interest.
As a result of the foregoing acquisitions, Londonderry II is the sole general partner of W.L. Realty which is the sole general partner of Linnaeus, which in turn is the sole general partner of WFA. As a result of the foregoing, effective July 18, 1995, Londonderry II became the controlling entity of the Managing General Partner. In connection with the transfer of control, the officers and directors of WFA resigned and Londonderry II appointed new officers and directors. See "Item 10, Directors and Executive Officers of the Registrant."
Item 2.
Item 2. Properties.
For a discussion of the Registrant's properties, see "Item 1, Business."
Item 3.
Item 3. Legal Proceedings.
Except as disclosed below, the Registrant is not a party, nor are any of its properties subject, to any material pending legal proceedings.
RTC Commercial Loan Trust 1995 - NP1A, a Delaware business trust, Plaintiff v. Winthrop Management, a Massachusetts general partnership, Defendant, United States District Court for the Eastern District of Virginia; Case No. 3:96CV177.
This action arises in connection with the transfer of the general partnership interest in 1992 from the Original General Partner to WSLP at which time WLSP entered into certain agreements with Investors Savings Bank, F.S.B. ("ISB"), including the delivery of a promissory note to ISB, which was secured by an assignment of rights of Winthrop Management in the management agreements for the Registrant's properties, and the partnership interests acquired by WSLP. (See the 1991 Solicitation of Consents which is incorporated by reference herein.) The RTC Commercial Loan Trust 1995-NP1A (the "RTC Loan Trust") has succeeded to the rights of ISB. In February 1996, the RTC Loan Trust filed an action against Winthrop Management, alleging Winthrop Management was in default under its obligations set forth in the security agreement, and sought to have a receiver appointed to control Winthrop Management's management of the properties. On March 15, 1996, the Registrant terminated Winthrop Management as the managing agent for its properties effective March 18, 1996, and appointed an unaffiliated managing agent to assume management of the properties. On March 20, 1996, the court appointed a receiver to assume the rights of Winthrop Management under the management agreements, including the right to pursue the Registrant for breach of contract. On March 21, 1996, the court stayed its own order appointing the receiver pending a motion to dismiss for lack of jurisdiction. The Managing General Partner believes that any claim, if brought by the receiver, is without merit, and will vigorously defend any action.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of security holders during the period covered by this report.
PART II
Item 5.
Item 5. Market Price of and Dividends on the Registrant's Common Equity and Related Stockholder Matters.
The Registrant is a partnership and thus has no common stock. There is currently no established public market in which the Units are traded, nor is it anticipated that a public market will develop. Trading in the Units is sporadic and occurs solely through private transactions.
As of March 15, 1996 there were 2,656 holders of Units.
No cash distributions were made to the holders of Units during the years ended December 31, 1994 and 1993. Cash distributions to holders of Units amounted to approximately $300,000 in the aggregate, or $6.00 per Unit through December 1995. An additional cash distribution of $150,000, or $3.00 per Unit, was made in January 1996. See "Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations," for information relating to the Registrant's future distributions.
Item 6.
Item 6. Selected Financial Data.
The following represents selected financial data for the Registrant for the years ended December 31, 1995, 1994, 1993, 1992 and 1991. The data should be read in conjunction with the financial statements included elsewhere herein. This data is not covered by the independent auditors' report.
(1) The 1992 numbers in this year's financial statements have been revised from prior years' presentation to provide a more consistent presentation from year to year. Specifically, bad debt and rental concessions are now reflected as an offset to revenue rather than as an expense. There was no effect on 1991.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Liquidity and Capital Resources
The Registrant receives rental income from its properties and is responsible for operating expenses, administrative expenses, capital improvements and debt service payments. The Registrant's properties are leased to tenants who are subject to leases of up to one year.
During the year ended December 31, 1995, rental revenue and other income from the properties, along with interest income from the Registrant's short-term investments, was sufficient to cover: (i) all operating expenses and debt service of the properties and all administrative expenses of the Registrant; as well as (ii) all capital improvements made to the properties during 1995. As of December 31, 1995 the Registrant's unrestricted cash balance had increased to $575,510 from $248,928 at the end of 1994.
The Registrant budgeted approximately $1.5 to $2.0 million to be spent on capital improvements between 1992 and 1995. In that time period, approximately $1,885,000 has been spent on capital improvements, of which approximately $571,000 was expended in 1995. A considerable amount of capital work was performed at each property during 1995. At Season's Chase, capital improvements consisted of landscaping, balcony repairs, kitchen upgrades including new appliances and renovation of the club house. A fire occurred at Season's Chase, damaging the rental office and 16 apartment units. Restoration of the office and apartment units is nearly complete with the majority of the costs associated with the restoration and lost revenue to be covered by the property's insurance. At Sterlingwood, 1995 improvements consisted mainly of roof replacements. Capital improvements completed at Pelham Ridge and Forestbrook in 1995 included exterior repairs and painting and roof replacement. Forestbrook also underwent paving repairs in 1995. While the renovation program has been substantially completed (with the exception of Forestbrook), additional capital improvements have been identified, along with recurring capital improvements, which will be performed in 1996. Implementation of Forestbrook's capital improvement program was delayed because management did not believe the improvements would sufficiently impact revenue due to a weak local economy. Since the local economy has
improved, improvements have begun at the property. In 1996, the Registrant plans to spend an additional $750,000 on capital improvements, which would include additional exterior painting and repairs at Forestbrook, exterior painting and repairs at Sterlingwood, balcony and exterior siding repairs at Seasons Chase, and paving repairs and carpet and appliance replacement at all four properties.
It is expected that future rental revenue and other income from the Registrant's properties will continue to be sufficient to cover all administrative expenses of the Registrant and all operating expenses and debt service of the properties, as well as the capital improvement program described on pages 14-18 in the 1991 Solicitation of Consents, which description is incorporated herein by reference. As a result of the Registrant's improved operating results, the Registrant resumed making cash distributions to limited partners in April 1995. The cash distributions amounted to approximately $300,000 in the aggregate, or $6.00 per investment Unit through December 31, 1995. The Registrant intends to continue to limit cash distributions to fund the capital improvement program. However, the performance of the Registrant's properties and its distribution policy will continue to be reviewed on a quarterly basis.
In addition, the ability of the Registrant's properties to improve operations may affect the liquidity of the Registrant. Inflation and changing economic conditions in the future could affect vacancy levels, rental payment defaults and operating expenses of the Registrant's properties, and thus, could affect the Registrant's revenue, net income and liquidity.
As of December 31, 1995 the Registrant has $575,510 in unrestricted cash. The Registrant has invested, and expects to continue to invest, such amounts in money market instruments until required for partnership purposes. In addition, the Registrant has replacement reserves of $460,161 held by the mortgage lenders for Forestbrook and Sterlingwood Apartments. These funds are restricted under the terms of the mortgage loans for those two properties. The Registrant's total cash balance, both restricted and unrestricted, as of December 31, 1995, was therefore $1,035,671, which is expected to be sufficient to satisfy working capital requirements set forth in the Registrant's partnership agreement. The Registrant's partnership
agreement requires the Registrant to retain reserves in an amount equal to at least 1% of capital contributions of unit holders.
Results of Operations
1995 Compared to 1994: The Registrant's total revenue increased by 8.9% in 1995 to $4,208,409 from $3,863,083 in 1994, due primarily to an 8.9% increase in rental income to $3,958,054. Revenue increased at all four of the Registrant's properties, reflecting continued stabilization of the local apartment markets and the positive effects of the capital improvement programs. Average rental rates and occupancy were stable or higher at all properties. Overall, average rents for the Registrant's properties increased by 4.2%, to $444 in 1995 from $426 in 1994 and average occupancy increased to 94.0% in 1995 from 91.2% in 1994. The most significant increase in revenue occurred at Forestbrook, where average rents increased to $472 in 1995 from $453 in 1994 and average occupancy rose to 93.4% in 1995 from 87.3% in 1994.
The Registrant's operating expenses decreased by 4.1% in 1995, to $2,170,951 in 1995 from $2,264,757 in 1994, due primarily to a decrease in repairs and maintenance expense as well as leasing expenses. Other expenses of the Registrant (including depreciation and amortization expense, interest expenses and partnership administrative expenses) increased 7.8% in 1995 to $1,769,780 from $1,641,445 in 1994 due to a 19.6% increase depreciation expense, reflecting the Registrant's on-going investment in capital improvements. The Registrant's interest expense remained relatively constant from 1994 to 1995.
1994 Compared to 1993: The Registrant's total revenue increased by 11.3% in 1994 compared to 1993, primarily due to a 12.0% increase in rental income to $3,633,607. Revenue at all four of the Registrant's properties increased reflecting the stabilization of the local apartment markets and the effects of the Registrant's renovation programs. Average rental rates and occupancies were higher at each property. Overall, average rents for the Registrant's properties increased by 2.4%, from $416 to $426, and average occupancy increased from 84.9% in 1993 to 91.2%. The most notable improvement occurred at Forestbrook, where average rents increased from $445 per apartment unit to $453, and average occupancy improved from 77.5% in 1993 to 87.3% in 1994. Interest and other income (including revenues from laundry, vending, late fees and corporate units) increased by 1.3% to $229,476.
The Registrant's expenses declined significantly (by 36.9%) in 1994 as a result of the investment property writedown taken in 1993. Excluding the writedown, the Registrant's expenses were 3.3% lower in 1994. Direct operating expenses increased by 4.3% to $2,264,757 as a result of a further increase in repair and maintenance costs as well as an increase in utilities and insurance. The Registrant's interest expense remained relatively constant, while depreciation and amortization expense declined by 24.3%, reflecting the writedown of the Registrant's assets taken in 1993.
As a result of higher income and lower expenses, the Registrant's net loss decreased significantly to $43,119.
In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS No. 121 is effective for financial statements issued for fiscal years beginning after December 15, 1995, with earlier application permitted. SFAS No. 21 addresses the intangibles to be held and used by an entity to be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Registrant's will adopt SFAS No. 121 on January 1, 1996, as required. Adopting SFAS No. 121 is not expected to have a significant effect on the Registrant's consolidated financial statements.
Item 8.
Item 8. Financial Statements and Supplementary Data.
See the Financial Statements of the Partnership, listed in the Index on page 28, included as part of the Annual Report on Form 10-K.
FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT
SOUTHEASTERN INCOME PROPERTIES LIMITED PARTNERSHIP
For the years ended December 31, 1995, 1994 and 1993
INDEPENDENT AUDITORS' REPORTS
FINANCIAL STATEMENTS
BALANCE SHEETS
STATEMENTS OF OPERATIONS
STATEMENTS OF PARTNERS' CAPITAL
STATEMENTS OF CASH FLOWS
NOTES TO FINANCIAL STATEMENTS
INDEPENDENT AUDITORS REPORT
To the Partners and Unit Holders of Southeastern Income Properties Limited Partnership
We have audited the accompanying balance sheets of Southeastern Income Properties Limited Partnership as of December 31, 1995 and 1994, and the related statements of operations, partners' capital, and cash flows for the years then ended. 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. The financial statements of Southeastern Income Properties Limited Partnership for the year ended December 31, 1993 were audited by other auditors whose report, dated February 4, 1994, expressed an unqualified opinion on those statements.
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 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 Southeastern Income Properties Limited Partnership as of December 31, 1995 and 1994, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles.
/s/ REZNICK FEDDER & SILVERMAN
Bethesda, Maryland January 19, 1996
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners and Unit Holders of Southeastern Income Properties Limited Partnership:
We have audited the statements of operations and cash flows for the year ended December 31, 1993 Southeastern Income Properties Limited Partnership (the "Partnership"). 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 audit.
We conducted our audit 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 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 results of operations and cash flows of the Partnership for the year ended December 31, 1993 in conformity with generally accepted accounting principles.
/s/ COOPERS & LYBRAND L. L. P.
Boston, Massachusetts February 4, 1994
Southeastern Income Properties Limited Partnership
BALANCE SHEETS
December 31, 1995 and 1994
LIABILITIES AND PARTNERS' CAPITAL
See notes to Financial Statements.
Southeastern Income Properties Limited Partnership
STATEMENTS OF OPERATIONS
Years ended December 31, 1995, 1994 and 1993
See notes to Financial Statements.
Southeastern Income Properties Limited Partnership
STATEMENTS OF PARTNERS' CAPITAL
Years ended December 31, 1995, 1994, and 1993
See notes to Financial Statements.
Southeastern Income Properties Limited Partnership
STATEMENTS OF CASH FLOWS
Years ended December 31, 1995, 1994 and 1993
See notes to Financial Statements.
Southeastern Income Properties Limited Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Southeastern Income Properties Limited Partnership (the "Partnership") is a Virginia limited partnership formed in November 1985 for the purpose of acquiring, managing and ultimately selling existing apartment communities. At that time, K-A Southeastern Income Properties Limited Partnership ("K-A SIP") was the general partner. Glade M. Knight is the principal general partner of K-A SIP. Knight Austin Corporation ("Knight Austin"), a management firm controlled by Knight, served as the management agent for the Partnership's properties until August 1, 1991.
The Partnership Agreement provided for a public offering of up to 50,000 assignee units of limited partnership interest ("Units") at $500 per unit. Purchasers of Units ("Unit Holders") are assignees of the Limited Partner and are entitled to all the rights and economic benefits of a limited partner. During 1987, the Partnership sold all 50,000 Units.
In contemplation of this public offering, the Partnership acquired two apartment communities - Sterlingwood in Roanoke, Virginia in November 1985; and Forestbrook in Charlotte, North Carolina in August 1986- with borrowed funds. The Partnership used a portion of the proceeds of the public offering to repay all the mortgages payable related to Sterlingwood and Forestbrook and to pay for a portion of the cost of acquiring Seasons Chase in Greensboro, North Carolina and Pelham Ridge in Greenville, South Carolina (See Note B).
The Partnership Agreement provided that upon/and after the initial closing of the public offering both taxable loss and taxable income would be allocated 15% to K-A SIP and 85% to the Unit Holders. Further, K-A SIP would be allocated 1% of the distributable cash from operations until the Unit Holders had received a noncompounded, noncumulative annual cash return equal to 10% of their capital contribution, as adjusted for certain capital transactions, and 15% of the distributable cash from operations thereafter. However, distributions to K-A SIP through any date could not exceed 10% of the total amount of cash distributed through such date.
Upon liquidation of the Partnership, after payment of, or adequate provision for, the debts and obligations of the Partnership, the remaining assets of the Partnership would be distributed to all partners and Unit Holders with positive capital accounts in the proportion that the positive balance in each partner's or Unit Holder's capital account bore to the aggregate of such positive balances, after taking into account all capital account adjustments for the Partnership's taxable year during which such liquidation occurred.
In early 1992, the Unit Holders approved certain changes in (and amendments to) the Partnership Agreement, which converted K-A SIP to a special limited partner and admitted Winthrop Southeast Limited Partnership ("WSLP") as the sole general partner, effective February 12, 1992. K-A SIP retained its current capital account and adjusted capital contribution upon its conversion to special limited partner status. Under the revised Partnership Agreement, taxable income and loss was to be allocated 85% to Unit Holders, 14% to K-A SIP and 1% to WSLP. Federal tax regulations, however, limit allocations of net losses due to considerations as provided in Internal Revenue Section 704(b). As a result, the Partnership's 1993 federal tax return reflect a reallocation of losses only to the limited partners and WSLP. The revised Partnership Agreement also provides for K-A SIP and WSLP to receive .99% and .01%, respectively, of distributable cash from operations for the five-year period commencing February 12, 1992 and .88% and .12%, respectively, thereafter, until the Unit Holders have received their preferred return. After the Unit Holders have received a noncompounded, noncumulative annual cost return on their capital contributions, as adjusted for certain capital transactions, K-A SIP and WSLP will receive 14% and 1%, respectively, of distributable cash from operations for the five-year period commencing February 12, 1992 and 12.32% and 2.68%, respectively, thereafter. Winthrop Management (Winthrop), an affiliate of WSLP, has served as the management agent for the properties since August 1, 1991.
Southeastern Income Properties Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995, 1994 and 1993
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Investment in Rental Property
The investment in rental property is recorded at cost, not in excess of net realizable value, which includes acquisition fees paid to Knight Austin. Depreciation is determined by the straight-line method over the estimated useful lives of the various assets. Estimated useful lives are 30 years for buildings and building improvements and 5 years for personal property.
Loan Costs
Loan costs of $304,147, which were incurred in connection with obtaining financing on Forestbrook and Sterlingwood, are being amortized over 84 months.
Replacement Reserves
Replacement Reserves (included in other assets) are comprised of Partnership funds held by the Partnership's mortgage lenders, the use of which are limited to specific capital or other costs, which are included in other assets and total $460,161 in 1995, and $386,432 in 1994. The Partnership Agreement requires the General Partner to maintain cash and reserves in an amount equal to at least 1% of the capital contributions of the Unit Holders.
Rental Income
Rental income is recognized as rents become due. Rental payments received in advance are deferred until earned. All leases between the partnership and the tenants of the property are operating leases.
Income Taxes
No provision or benefit for income taxes has been included in these financial statements since taxable income or loss passes through to, and is reportable by, the partners individually.
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.
Net Loss Allocated to Each Unit
Net loss allocable to each Limited Partner's Unit is computed using the weighted average number of units outstanding in each year.
Reclassification of Certain Revenue and Expenses
Certain revenue and expenses in the 1993 Statement of Operations were reclassified to conform to the presentation in 1995 and 1994.
Cash Equivalents
For purposes of the statement of cash flows, the partnership considers all highly liquid investments consisting of a money market fund to be cash equivalents. The carrying amount as of December 31, 1995 of $465,697 approximates fair value because of the short maturity of this instrument.
Southeastern Income Properties Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995, 1994 and 1993
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recent Accounting Statements Not Yet Adopted
In March, 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment of Long-Live Assets and for Long-Lived Assets to be Disposed Of." SFAS No. 121 is effective for financial statements issued for fiscal years beginning after December 15, 1995, with earlier application permitted. SFAS No. 121 addresses the accounting for long-lived assets and certain identifiable intangibles to be held and used by an entity to be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The partnership will adopt SFAS No. 121 on January 1, 1996, as required. Adopting SFAS No. 121 is not expected to have a significant effect on the partnership's financial statements.
NOTE B - INVESTMENT IN RENTAL PROPERTY
On November 27, 1985, the Partnership acquired Sterlingwood, a 162-unit apartment complex in Roanoke, Virginia. The total cost of the acquisition was $4,227,000. The Partnership financed the acquisition and used a portion of the proceeds from the public offering of the Units to repay the outstanding debt.
On August 28, 1986, the Partnership acquired Forestbrook, a 262-unit apartment complex in Charlotte, North Carolina. The total cost of the acquisition was $5,894,000. The Partnership financed the acquisition and used a portion of the proceeds from the public offering of the Units to extinguish the outstanding debt.
On August 18, 1987, the Partnership acquired Seasons Chase, a 225-unit apartment complex in Greensboro, North Carolina. The total cost of the acquisition of $4,650,000, which included a rental guarantee agreement of $200,000, which was funded by a portion of the proceeds from the public offering of the Units.
On August 22, 1988, the Partnership acquired Pelham Ridge, a 184-unit apartment complex in Greenville, South Carolina. The total cost of the property of $4,100,000, which included a rental guarantee agreement of $100,000, which was funded by a portion of the proceeds from the public offering of the Units.
NOTE C - MORTGAGES PAYABLE
During 1989, the partnership financed Forestbrook by obtaining a $5,726,600 mortgage. The existing mortgage with a balance of $5,564,046 at December 31, 1995 and $5,598,280 at December 31, 1994 is collateralized by the apartment community in Charlotte, North Carolina and is payable in monthly installments totalling $47,050 of principal and interest at 9.50% per annum through January 1, 1997. The unpaid principal balance and interest is due and payable in full on January 1, 1997. Prepayment during the initial five years of the loan term carries a penalty based upon the yield rate on a 7.75% U.S. Treasury security due February, 1995. Prepayment after five years carries a penalty of 1% of the outstanding loan balance.
During 1990, the partnership financed Sterlingwood by obtaining a $2,570,900 mortgage. The existing mortgage with a balance of $2,505,688 at December 31, 1995 and $2,519,947 at December 31, 1994 is collateralized by the apartment community in Roanoke, Virginia and is payable in monthly installments totalling $21,611 of principal and interest at 9.75% per annum through April 1, 1997. The unpaid principal balance, in the amount of $8,012,216, and interest is due and payable in full on April 1, 1997. Prepayment during the initial five years of the loan term carries a penalty based upon the yield rate on a 7.75% U.S. Treasury Security due February 1995. Prepayment after five years carries a penalty of 1% of the outstanding loan balance.
Southeastern Income Properties Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995, 1994 and 1993
NOTE C - MORTGAGES PAYABLE (Continued)
Based on the interest rates of loans with similar maturities currently available to the partnership, the estimated fair value of the mortgages payable is $8,228,482.
The liability of the partnership under the mortgages is limited to the underlying value of the real estate collateral, plus other amounts deposited with the lender.
Aggregate maturities of the mortgage notes payable for the years following December 31, 1995 are as follows:
1996 $ 53,345 1997 8,016,389
NOTE D - RELATED-PARTY TRANSACTIONS
The Partnership has incurred management fees, accounting fees and investor servicing fees resulting from transactions with WSLP and Winthrop Management. The investor servicing fees for 1993, 1994 and part of 1995 were paid to First Winthrop Corporation.
After the approval of the amendments to the Partnership Agreement (see Note A), the Partnership entered into new management agreements with Winthrop which provide for a management fee of 5% of gross revenues, as defined. The accounting fees are included in general and administrative expenses and investor servicing fees are included in management fees on the Statements of Operations.
Southeastern Income Properties Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995, 1994 and 1993
NOTE E - INCOME TAXES AND PARTNERS' CAPITAL
The following is a reconciliation of the net loss and partners' capital for financial statement purposes with the net loss and partners' capital for income tax purposes:
NOTE F - INVESTMENT PROPERTY WRITEDOWN
Annually, management of the Partnership reviews the carrying value of properties in order to determine if an impairment to the asset value has occurred. Properties are then written down to management's estimate of net realizable value if necessary. For the year ended December 31, 1993, a provision for investment property writedown of $1,350,000 for Seasons Chase and $800,000 for Pelham Ridge was recorded. The reserve is reflected as a component of accumulated depreciation in the accompanying balance sheets.
NOTE G - CONCENTRATION OF CREDIT RISK
At December 31, 1995, the partnership has cash in the amount of $460,161 held by the mortgage lenders. The account is insured by the Federal Deposit Insurance Corporation up to $100,000. The uninsured portion of this balance at December 31, 1995 is $360,161.
Southeastern Income Properties Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995, 1994 and 1993
SCHEDULE
INVESTMENT IN RENTAL PROPERTY
(1) Depreciation of buildings for federal income tax purposes is determined over the following useful lives: Sterlingwood - 19 years; Forestbrook - 19 years; Seasons Chase - 27.5 years; and Pelham Ridge - 27.5 years.
Item 9.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
Effective November 21, 1994, the Registrant dismissed its former independent auditors, Coopers & Lybrand, for economic reasons and retained as its new independent auditors, Reznick, Fedder & Silverman. The Independent Auditor's Report for the calendar year ended 1993 did not contain an adverse opinion or a disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope, or accounting principles. The decision to change independent auditors was approved by the Registrant's Managing General Partner. During the calendar year 1993 and through November 21, 1994, there were no disagreements between the Registrant and the former accountants on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure which disagreements if not resolved to the satisfaction of the former accountant, would have caused it to make reference to the subject matter of the disagreements in connection with its reports.
Effective November 21, 1994, the Registrant engaged Reznick, Fedder & Silverman as its independent auditors. The Registrant did not consult Reznick, Fedder & Silverman regarding any of the matters or events set forth in Item 304(a)(2)(i) and (ii) of Regulation S-K prior to November 21, 1994.
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant.
(a) and (b) Identification of Directors and Executive Officers.
The Registrant has no officers or directors. The Managing General Partner manages and controls substantially all of the Registrant's affairs and has general responsibility and ultimate authority in all matters affecting its business. As of March 1, 1996, the names of the directors and executive officers of Eight Winthrop, the general partner of the Managing General Partner, and the position held by each of them, are as follows:
Has served as a Director and/or Officer of the Managing Name Positions Held General Partner since
Michael L. Ashner Chief Executive January 1996 Officer and Director
Ronald Kravit Director July 1995
W. Edward Scheetz Director July 1995
Richard J. McCready Chief Operating July 1995 Officer and President
Jeffrey Furber Executive Vice January 1996 President and Clerk
Anthony R. Page Chief Financial August 1995 Officer, Vice President and Treasurer
Peter Braverman Senior Vice January 1996 President
Each director and officer of Eight Winthrop will hold office until the next annual meeting of the stockholders of Eight Winthrop and until his successor is elected and qualified.
(c) Identification of Certain Significant Employees. None.
(d) Family Relationships. None.
(e) Business Experience. Eight Winthrop was incorporated in Delaware in August 1991. The background and experience of the executive officers and directors of Eight Winthrop, described above in Items 10(a) and (b), are as follows:
Michael L. Ashner, age 44, has been the Chief Executive Officer of Winthrop Financial Associates, A Limited Partnership ("WFA") since January 15, 1996. From June 1994 until January 1996, Mr. Ashner was a Director, President and Co-chairman of National Property Investors, Inc., a real estate investment company ("NPI"). Mr. Ashner was also a Director and executive officer of NPI Property Management Corporation ("NPI Management") from April 1984 until January 1996. In addition, since 1981 Mr. Ashner has been President of Exeter Capital Corporation, a firm which has organized and administered real estate limited partnerships.
W. Edward Scheetz, age 31, has been a Director of WFA since July 1995. Mr. Scheetz was a director of NPI from October 1994 until January 1996. Since May 1993, Mr. Scheetz has been a limited partner of Apollo Real Estate Advisors, L.P. ("Apollo"), the managing general partner of Apollo Real Estate Investment Fund, L.P., a private investment fund. Mr. Scheetz has also served as a Director of Roland International, Inc., a real estate investment company since January 1994, and as a Director of Capital Apartment Properties, Inc., a multi-family residential real estate investment trust, since January 1994. From 1989 to May 1993, Mr. Scheetz was a principal of Trammel Crow Ventures, a national real estate investment firm.
Ronald Kravit, age 39, has been a Director of WFA since July 1995. Mr. Kravit has been associated with Apollo since August 1995. From October 1993 to August 1995, Mr. Kravit was a Senior Vice President with G. Soros Realty Advisors/Reichman International. Mr. Kravit was a Vice President and Chief Financial Officer of MAXXAM Property Company from July 1991 to October 1993.
Richard J. McCready, age 37, is the Chief Operating Officer of WFA and its subsidiaries. Mr. McCready previously served as a Managing Director, Vice President and Clerk of WFA and a Director, Vice President and Clerk of the Managing General Partner and all other subsidiaries of WFA. Mr. McCready joined the Winthrop organization in 1990
Jeffrey Furber, age 36, has been the Executive Vice President of WFA and the President of Winthrop Management since January 1996. Mr. Furber served as a Managing Director of WFA from January 1991 to December 1995 and as a Vice President from June 1984 until December 1990.
Anthony R. Page, age 32, has been the Chief Financial Officer for WFA since August 1995. From July 1994 to August 1995, Mr. Page was a Vice President with Victor Capital Group, L.P. and from 1990 to June 1994, Mr. Page was a Managing Director with Principal Venture Group. Victor Capital and Principal Venture are investment banks emphasizing on real estate securities, mergers and acquisitions.
Peter Braverman, age 44, has been a Senior Vice President of WFA since January 1996. From June 1995 until January 1996, Mr. Braverman was a Vice President of NPI and NPI Management. From June 1991 until March 1994, Mr. Braverman was President of the Braverman Group, a firm specializing in management consulting for the real estate and construction industries. From 1988 to 1991, Mr. Braverman was a Vice President and Assistant Secretary of Fischbach Corporation, a publicly traded, international real estate and construction firm.
One or more of the above persons are also directors or officers of a general partner (or general partner of a general partner) of the following limited partnerships which either have a class of securities registered pursuant to Section 12(g) of the Securities and Exchange Act of 1934, or are subject to the reporting requirements of Section 15(d) of such Act: Winthrop Partners 79 Limited Partnership; Winthrop Partners 80 Limited Partnership; Winthrop Partners 81 Limited Partnership; Winthrop Residential Associates I, A Limited Partnership; Winthrop Residential Associates II, A Limited Partnership; Winthrop Residential Associates III, A Limited Partnership; 1626 New York Associates Limited Partnership; 1999 Broadway Associates Limited Partnership; Indian River Citrus Investors Limited Partnership; Nantucket Island Associates Limited Partnership; One Financial Place Limited Partnership; Presidential Associates I Limited Partnership; Riverside Park Associates Limited Partnership;
Sixty-Six Associates Limited Partnership; Springhill Lake Investors Limited Partnership; Twelve AMH Associates Limited Partnership; Winthrop California Investors Limited Partnership; Winthrop Growth Investors I Limited Partnership; Winthrop Interim Partners I, A Limited Partnership; Winthrop Financial Associates, A Limited Partnership; Southeastern Income Properties II Limited Partnership; Winthrop Miami Associates Limited Partnership and Winthrop Apartment Investors Limited Partnership.
(f) Involvement in Certain Legal Proceedings. None.
Item 11.
Item 11. Executive Compensation.
The Registrant is not required to and did not pay any compensation to the officers or directors of Eight Winthrop. Eight Winthrop does not presently pay any compensation to any of its officers and directors (See "Item 13, Certain Relationships and Related Transactions").
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
(a) Security Ownership of Certain Beneficial Owners.
No person or group is known by the Registrant to be the beneficial owner of more than 5% of the outstanding Units as of March 15, 1996. Under the Registrant's partnership agreement, the voting rights of the Limited Partners are limited and, in some circumstances, are subject to the prior receipt of certain opinions of counsel or judicial decisions.
(b) Security Ownership of Management.
As of March 15, 1996, no officers, directors or partners of WFA, WSLP or Eight Winthrop own any Units of the Registrant.
(c) Changes in Control.
As of March 15, 1996, there exists no arrangement known to the Registrant the operation of which may at a subsequent date result in a change in control of the Registrant, other than the following:
In connection with the withdrawal of the Original General Partner and the substitution of WSLP as the Managing General Partner, WSLP entered into certain loan arrangements with ISB, including the pledge of its general partnership interest. (See the 1991 Solicitation of Consents which is hereby incorporated by reference, and "Item 3, Legal Proceedings.") In the event the RTC Loan Trust, successor in interest to ISB, was successful in enforcing its remedies under the security agreement, the RTC Loan Trust may claim an interest in the general partnership interest of the Registrant. WSLP disputes the validity of the security interest, and would vigorously defend any action, and raise, among other meritorious defenses, the fact that the transfer of the general partnership interest requires the consent of a majority of Unit holders.
In connection with its acquisition of control of Linnaeus, Londonderry II issued NACC a $22 million non-recourse purchase money note due 1998 (the "Purchase Money Note"), as set forth in a loan agreement, dated as of July 14, 1995, by and between NACC and Londonderry II. Initial security for the Purchase Money Note includes, among other things, the partnership interests in W.L. Realty acquired by Londonderry II and the W.L. Realty partnership interest in Linnaeus. Accordingly, if Londonderry II does not satisfy its obligations under the Purchase Money Note, NACC would have the right to foreclose upon this security and, as a result, would gain control of the Registrant.
Item 13.
Item 13. Certain Relationships and Related Transactions.
Under the Registrant's partnership agreement, the Managing General Partner and its affiliates are entitled to receive various fees, commissions, cash distributions, allocations of taxable income or loss and expense reimbursements from the Registrant.
The following tables sets forth the amounts of the fees, commissions and cash distributions which the Registrant paid to or accrued for the account of the Managing General Partner and its affiliates for the years ended December 31, 1995, 1994 and 1993:
- ---------------
(1) Equal to .01% of cash flow distributed to all partners of the Registrant. (2) Equal to 5.0% of gross collected revenues of the Registrant's properties. (3) Equal to 1.0% of gross collected revenues of the Registrant's properties. (4) Equal to $2.50 per apartment unit per month.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) The following documents are filed as part of this report:
1. Financial Statements - See Index to Financial Statements in Item 8.
2. Financial Statement Schedules - See Index to Financial Statement Schedule filed pursuant to Item 14(a)(2) in "Item 8, Financial Statements and Supplementary Data." Financial statement schedules not included in "Item 8" have been omitted because of the absence of conditions under which they are required or because the information is included elsewhere in the financial statements.
3. Exhibits - The Exhibits listed in the accompanying Index to Exhibits are filed as part of this Annual Report.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter covered by this report.
SIGNATURES
Pursuant to the requirements of Section 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.
SOUTHEASTERN INCOME PROPERTIES LIMITED PARTNERSHIP
By: Winthrop Southeastern Limited Partnership, Its General Partner
By: Eight Winthrop Properties, Inc., Its General Partner
By: /s/ Michael L. Ashner Michael L. Ashner Chief Executive Officer
Date: March 29, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature/Name Title Date
/s/ Michael L. Ashner Chief Executive March 29, 1996 - --------------------- Michael L. Ashner Officer and Director
/s/ Ronald Kravit Director March 29, 1996 Ronald Kravit
/s/ Anthony R. Page Chief Financial Officer March 29, 1996 Anthony R. Page
Index to Exhibits
Exhibit Number Document
2.1 Agreement and Addendum to Agreement by and among Glade M. Knight ("Knight"), Ben T. Austin, II ("Austin"), Winthrop Southeast Limited Partnership ("WSLP") and Investors Savings Bank, F.S.B. ("ISB") (the "Agreement") dated as of August 8, 1991 and effective as of August 16, 1991. [The exhibits to the Agreement have been omitted from the Agreement and are listed in the Agreement.] (Exhibit 2.1)(8)
2.2 Supplemental Agreement by and among WSLP, Knight and ISB (the "Knight Agreement") dated as of August 8, 1991 and effective as of August 16, 1991. [The exhibits to the Knight Agreement have been omitted from the Knight Agreement and are listed in the Knight Agreement.] (Exhibit 2.2)(8)
2.3 Supplemental Agreement and Addendum to Supplemental Agreement by and among WSLP, Austin and ISB dated as of August 8, 1991 and effective as of August 16, 1991. (Exhibit 2.3)(8)
2.4 Employment Agreement by and between WSLP and Austin dated as of August 8, 1991 and effective as of August 16, 1991. (Exhibit 2.4)(8)
2.5 Supplemental Agreement by and between WSLP and ISB dated as of August 8, 1991 and effective as of August 16, 1991. (Exhibit 2.5)(8)
3.1 Amended and Restated Certificate and Agreement of Limited Partnership of Southeastern Income Properties Limited Partnership. (Exhibit 4.1)(1)
3.2 First Amendment to Amended and Restated Certificate and Agreement of Limited Partnership of Southeastern Income Properties Limited Partnership dated as of February 17, 1987. (Exhibit 4.2)(1)
3.3 Second Amendment to Amended and Restated Certificate and Agreement of Limited Partnership of Southeastern Income Properties Limited Partnership dated as of March 16, 1987. (Exhibit 4.3)(1)
3.4 Third Amendment to Amended and Restated Certificate and Agreement of Limited Partnership of Southeastern Income Properties Limited Partnership dated as of April 30, 1987. (Exhibit 4.4)(1)
3.5 Fourth Amendment to Amended and Restated Certificate and Agreement of Limited Partnership of Southeastern Income Properties Limited Partnership dated as of May 28, 1987. (Exhibit 4.1)(2)
3.6 Fifth Amendment to Amended and Restated Certificate and Agreement of Limited Partnership of Southeastern Income Properties Limited Partnership dated as of June 29, 1987. (Exhibit 4.2)(2)
3.7 Sixth Amendment to Amended and Restated Certificate and Agreement of Limited Partnership of Southeastern Income Properties Limited Partnership dated as of February 12, 1992. (Exhibit 3.7)(9)
3.8 Articles of Incorporation of SIP Assignor Corporation. (Exhibit 3.6)(3)
3.9 Bylaws of SIP Assignor Corporation. (Exhibit 3.7)(3)
10.1 Apartment Management Agreement (for the Sterlingwood Apartments). (Exhibit 28.1)(1)
10.2 Apartment Management Agreement (for the Forestbrook Apartments). (Exhibit 28.2)(1)
10.3 Apartment Management Agreement (for the Seasons Chase Apartments). (Exhibit 10.5)(4)
10.4 Apartment Management Agreement (for the Pelham Ridge Apartments). (Exhibit 10.4)(5)
10.5 Apartment Management Agreement, dated February 12, 1992 between the Registrant and Winthrop Management (for Pelham Ridge Apartments). (Exhibit 10.5) (9)
10.6 Apartment Management Agreement, dated February 12, 1992 between the Registrant and Winthrop Management (for Forestbrook Apartments). (Exhibit 10.6)(9)
10.7 Apartment Management Agreement, dated February 12, 1992 between the Registrant and Winthrop Management (for Seasons Chase Apartments). (Exhibit 10.7) (9)
10.8 Apartment Management Agreement, dated February 12, 1992 between the Registrant and Winthrop Management (for Sterlingwood Apartments). (Exhibit 10.8) (9)
10.9 Property Acquisition Agreement between Southeastern Income Properties Limited Partnership and Knight Austin Corporation. (Exhibit 28.3)(1)
10.10 Real Estate Consulting Agreement between Southeastern Income Properties Limited Partnership and WFS Realty Corporation. (Exhibit 28.4)(1)
10.11 Rent Guarantee and Escrow Agreement for the Seasons Chase Apartments. (Exhibit 29.2)(6)
10.12 Novation to Rent Guarantee and Escrow Agreement for the Seasons Chase Apartments. (Exhibit 19.3)(6)
10.13 Rent Guarantee Agreement for the Pelham Ridge Apartments. (Exhibit 10.3)(5)
10.14 Repair Supervisory Contract. (Exhibit 10.10)(7)
10.15 Supervisory Insurance Adjustment Contract. (Exhibit 10.11)(7)
10.16 Mortgage Brokerage and Consulting Agreement. (Exhibit 10.12)(7) - ------------------------
(1) Incorporated by reference to the exhibit shown in parentheses filed with the Commission in the Registrant's quarterly report on Form 10-Q for the quarter ended March 30, 1987.
(2) Incorporated by reference to the exhibit shown in parentheses filed with the Commission in the Registrant's quarterly report on Form 10-Q for the quarter ended June 30, 1987.
(3) Incorporated by reference to the exhibit shown in parentheses filed with the Commission in the Registrant's registration statement on Form S-11 (Registration No. 33- 9085).
(4) Incorporated by reference to the exhibit shown in parentheses filed with the Commission in the Registrant's current report on Form 8-K dated September 2, 1987.
(5) Incorporated by reference to the exhibit shown in parentheses filed with the Commission in the Registrant's current report on Form 8-K dated September 6, 1988.
(6) Incorporated by reference to the exhibit shown in parentheses filed with the Commission in the Registrant's quarterly report on Form 10-Q for the quarter ended September 30, 1987.
(7) Incorporated by reference to the exhibit shown in parentheses filed with the Commission in the Registrant's 1989 Annual Report.
(8) Incorporated by reference to the exhibit shown in parentheses filed with the Commission in the Registrant's current report on Form 8-K on September 3, 1991.
(9) Incorporated by reference to the exhibit shown in parentheses filed with the Commission in the Registrant's annual report on Form 10-K for the year ended December 31, 1991.
(10) Incorporated by reference to the exhibit shown in parentheses filed with the Commission in the Registrant's annual report on Form 10-K for the year ended December 31, 1992.