University Associates Limited Partnership HUD Project No.:

Transcription

1 Financial Statements (With Supplementary Information) and Independent Auditor s Report December 31, 2012

2 Index Page Mortgagor s Certification 4 Managing Agent s Certification 5 Independent Auditor s Report 6 Financial Statements Balance Sheet 9 Statement of Operations 11 Statement of Partners Equity (Deficit) 12 Statement of Cash Flows 13 Notes to Financial Statements 15 Supplementary Information Balance Sheet Data 25 Statement of Operations Data 27 Statement of Partners Equity (Deficit) Data 31 Statement of Cash Flows Data 32 Reserve for Replacements 34 Residual Receipts Reserve 34 Computation of Surplus Cash, Distributions and Residual Receipts 35 Changes in Fixed Asset Accounts 36 Detail of Accounts - Balance Sheet 37 Detail of Accounts - Statement Of Operations 38 Other Information 39 Independent Auditor s Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards 40

3 Index - Continued Page Independent Auditor s Report on Compliance with Requirements that Could Have a Direct and Material Effect on Each Major HUD-Assisted Program and on Internal Control over Compliance in Accordance with Consolidated Audit Guide for Audits of HUD Programs 42

4 Independent Auditor s Report To the Partners University Associates Limited Partnership Report on the Financial Statements We have audited the accompanying financial statements of University Associates Limited Partnership, which comprise the balance sheet as of December 31, 2012, and the related statements of operations, partners equity (deficit) and cash flows for the year then ended, and the related notes to the financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements

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7 We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of University Associates Limited Partnership as of December 31, 2012, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Report on Supplementary Information Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying supplementary information on pages 25 through 39 is presented for purposes of additional analysis as required by the Consolidated Audit Guide for Audits of HUD Programs issued by the U.S. Department of Housing and Urban Development, Office of the Inspector General, and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated March 5, 2013, on our consideration of University Associates Limited Partnership s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to - 7 -

8 provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering University Associates Limited Partnership s internal control over financial reporting and compliance. Baltimore, Maryland Taxpayer Identification Number: March 5, Lead Auditor: Richard G. Schaefer, CPA - 8 -

9 Balance Sheet December 31, 2012 Assets Current assets Cash - operations $ 236,336 Tenant accounts receivable 6,410 Prepaid expenses 54,482 Total current assets 297,228 Deposits held in trust - funded Tenant deposits 48,549 Restricted deposits and funded reserves Escrow deposits $ 37,037 Reserve for replacements 286,603 Rental property Land 491,594 Buildings 9,303,094 Furniture for project/tenant use 491,146 Miscellaneous fixed assets 291,224 10,577,058 Less accumulated depreciation (3,564,526) Other assets Deferred financing costs, net of accumulated amortization of $221, ,930 Miscellaneous other assets 3, ,640 7,012, ,497 $ 8,136,446 (continued) - 9 -

10 Balance Sheet - Continued December 31, 2012 Liabilities and Partners Equity (Deficit) Current liabilities Accounts payable - operations $ 17,959 Accrued management fee payable 5,560 Accrued interest payable - first mortgage 30,938 Accrued interest payable - other loans/notes 21,546 Mortgage payable - first mortgage, current maturities 89,939 Miscellaneous current liabilities 3,980 Total current liabilities 169,922 Deposits liability Tenant deposits held in trust (contra) 35,287 Long-term liabilities Mortgage payable - first mortgage, net of current maturities $ 5,414,843 Other mortgages payable, net of current maturities 925,000 Other loans/notes payable - surplus cash, net of current maturities 324,796 Accrued interest payable - other mortgages payable (long-term) 495,944 Miscellaneous long-term liabilities 1,229,453 8,390,036 Total liabilities 8,595,245 Partners equity (deficit) (458,799) (458,799) $ 8,136,446 See notes to financial statements

11 Statement of Operations Year ended December 31, 2012 Revenue Rental $ 1,475,344 Vacancies (18,819) Net rental revenue 1,456,525 Financial 143 Other 15,649 Total revenue 1,472,317 Expenses Administrative 232,161 Utilities 107,306 Operating and maintenance 331,222 Taxes and insurance 174,381 Financial (including interest of $363,583) 391,187 Total cost of operations before depreciation and amortization 1,236,257 Income (loss) before depreciation and amortization 236,060 Depreciation and amortization 289,779 Operating income (loss) (53,719) Mortgagor entity expenses 75,951 Net income (loss) $ (129,670) See notes to financial statements

12 Statement of Partners Equity (Deficit) Year ended December 31, 2012 General partner Limited partner Special limited partner Total Partners equity (deficit) December 31, 2011 $ 498,729 $ (827,867) $ 9 $ (329,129) Net income (loss) (129) (129,411) (130) (129,670) Partners equity (deficit) December 31, 2012 $ 498,600 $ (957,278) $ (121) $ (458,799) Partners percentage of losses 0.10% 99.80% 0.10% % See notes to financial statements

13 Statement of Cash Flows Year ended December 31, 2012 Cash flows from operating activities Rental receipts $ 1,447,848 Interest receipts 143 Other operating receipts 15,649 Total receipts 1,463,640 Administrative expenses paid (49,205) Management fees paid (72,859) Utilities paid (104,840) Salaries and wages paid (223,854) Operating and maintenance paid (278,666) Real estate taxes paid (32,376) Property insurance paid (41,949) Miscellaneous taxes and insurance paid (3,638) Net tenant security deposits received (paid) (4,338) Other operating expenses paid (43,091) Interest paid on first mortgage (363,583) Mortgage insurance premium paid (27,604) Total disbursements (1,246,003) Net cash provided by operating activities 217,637 Cash flows from investing activities Net withdrawals from mortgage escrows 6,554 Net deposits to reserve for replacements (29,215) Net cash used in investing activities (22,661) Cash flows from financing activities Mortgage principal payments - first mortgage (84,270) Net cash used in financing activities (84,270) Net increase in cash 110,706 Cash, beginning 125,630 Cash, end $ 236,336 (continued)

14 Statement of Cash Flows - Continued Year ended December 31, 2012 Reconciliation of net income (loss) to net cash provided by operating activities Net income (loss) $ (129,670) Adjustments to reconcile net income (loss) to net cash provided by operating activities Depreciation 275,278 Amortization 14,501 Changes in asset and liability accounts (Increase) decrease in assets Tenant accounts receivable (2,466) Prepaid expenses (4,299) Tenant security deposits funded (5,054) Increase (decrease) in liabilities Accounts payable (67,482) Accrued liabilities (345) Accrued interest payable 10,375 Tenant security deposits held in trust 716 Other adjustments (include detail) Accrued real estate taxes $ 57,626 Accrued asset management fee 18,138 Accrued expenses 2,881 Accrued interest - second mortgage 47, ,083 Total adjustments 347,307 Net cash provided by operating activities $ 217,637 See notes to financial statements

15 Notes to Financial Statements December 31, 2012 Note 1 - Organization University Associates Limited Partnership (the Partnership) was formed as a limited partnership under the laws of the State of Maryland on February 1, 1999, for the purpose of acquiring, rehabilitating, and operating a residential rental housing project. The project consists of 117 units located in Langley Park, Maryland, and began operations on September 9, The project is currently operating under the name of University Landing. The Partnership consists of one general partner, Stavrou at University, which owns a 0.10% interest, one limited partner, SunAmerica Housing Fund 741, which owns a 99.89% interest and one special limited partner, SLP Housing I, LLC, which owns a 0.01% interest. All profits, losses and credits, except those gains and losses referred to in Sections 11.03, and of the partnership agreement, shall be allocated to the Partners in accordance with their percentage interests. Cash distributions are limited by agreements between the Partnership and HUD to the extent of surplus cash as defined by HUD. Each building of the project has been allocated low-income housing tax credits pursuant to Internal Revenue Code Section 42 (Section 42), which regulates the use of the project as to occupant eligibility and unit gross rent among other requirements. Each building of the project must meet the provisions of these regulations during each of 15 consecutive years in order to remain qualified to receive the tax credits. In addition, University Associates Limited Partnership has executed a regulatory agreement which requires the utilization of the project pursuant to Section 42 for a minimum of 20 years, even if disposition of the project by the Partnership occurs. Note 2 - Summary of Significant Accounting Policies Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates

16 Notes to Financial Statements - Continued December 31, 2012 Accounts Receivable and Bad Debts Tenant receivables are charged to bad debt expense when they are determined to be uncollectible based upon a periodic review of the accounts by management. Accounting principles generally accepted in the United States of America require that the allowance method be used to recognize bad debts; however, the effect of using the direct write-off method is not materially different from the results that would have been obtained under the allowance method. Rental Property Rental property is stated at cost. Depreciation, which began on September 9, 1999, is recorded using the following method and estimated useful lives: Method Estimated Useful Lives Buildings Straight-line 40 years Miscellaneous fixed asset Straight-line 15 years Furniture for project/tenant use Straight-line 5-7 years Impairment of Long-Lived Assets The Partnership reviews its rental property for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. For assets held and used, if the undiscounted cash flows estimated to be generated by those assets are less than their carrying amounts, an impairment loss has occurred. The amount of the impairment loss is equal to the excess of the asset s carrying value over its estimated fair value. No impairment loss has been recognized for the year ended December 31, Deferred Loan Fees Loan fees related to the construction and permanent mortgage are being amortized using the effective yield method. As of December 31, 2012, accumulated amortization was $221,

17 Notes to Financial Statements - Continued December 31, 2012 Annual amortization expense for each of the next five years following December 31, 2012, and thereafter is as follows: Rental Revenue Year Amortization 2013 $ 15, , , , ,170 Thereafter 370,074 Total $ 450,930 Rental income is recognized as rentals 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 The Partnership has elected to be treated as a pass-through entity for income tax purposes and, as such, is not subject to income taxes. Rather, all items of taxable income, deductions and tax credits are passed through to and are reported by its owners on their respective income tax returns. The Partnership s federal tax status as a pass-through entity is based on its legal status as a partnership. Accordingly, the Partnership is not required to take any tax positions in order to qualify as a passthrough entity. The Partnership is required to file and does file tax returns with the Internal Revenue Service and other taxing authorities. Accordingly, these financial statements do not reflect a provision for income taxes and the Partnership has no other tax positions which must be considered for disclosure. Income tax returns filed by the Partnership are subject to examination by the Internal Revenue Service for a period of three years. While no income tax returns are currently being examined by the Internal Revenue Service, tax years since 2009 remain open. Note 3 - Mortgages Payable The Partnership has a first mortgage in the original amount of $6,228,900 payable to Reilly Mortgage Group, Inc. which was financed by tax-exempt bonds issued by the Housing Authority of Prince George s County, Maryland. The mortgage is evidenced by a deed of trust note secured by a first lien deed of trust on the rental property and is insured by the Federal Housing Administration (FHA) pursuant to Section

18 Notes to Financial Statements - Continued December 31, (d)(4) of the National Housing Act. The mortgage bears interest at the rate of 6.55% per annum payable in monthly installments of principal and interest and will mature on December 1, The balance of the first mortgage and accrued interest were $5,504,782 and $30,938, respectively, as of December 31, Under agreements with the mortgage lender and FHA, the Partnership is required to make monthly escrow deposits for taxes, insurance and replacement of project assets, and is subject to restrictions as to operating policies, rental charges, operating expenditures and distributions to Partners. The liability of the Partnership under the mortgage is limited to the underlying value of the real estate collateral plus other amounts deposited with the lender. Aggregate annual maturities of the mortgage payable for five years and thereafter following December 31, 2012 are as follows: Note 4 - Note Payable Note Payable 2013 $ 89, , , , ,795 Thereafter 4,990,138 Total 5,504,782 Less current maturities (89,939) Net long-term portion $ 5,414,843 The Partnership also received a second mortgage from Prince George's County, Maryland, in the amount of $925,000. The mortgage is secured by a second mortgage on the rental property, and bears interest at the rate of 6.25% per annum. The mortgage matures on December 1, Beginning on December 1, 2001, the mortgage is payable in equal annual installments of principal and interest from surplus cash sufficient to fully amortize the then outstanding balance plus accrued interest by the maturity date. During 2012, no amounts were paid from 2011 surplus cash. As of December 31, 2012, the outstanding principal and interest balance was $925,000 and $517,490, respectively. As of December 31, 2012, $21,546 of accrued interest is currently payable from 2012 surplus cash

19 Notes to Financial Statements - Continued December 31, 2012 Note 5 - Related Party Transactions Incentive Management Fee The Partnership has entered into an incentive management fee agreement with the general partner for its services in administering and directing the business of the Partnership, maintaining the books and records, and reporting to the Partners and the lender. The fee is payable only from the net cash flow of the Partnership as defined in the partnership agreement. The annual fee is limited to $150,000. As of December 31, 2012, no fees have been charged to the Partnership. Asset Management Fee The Partnership agreed to pay an affiliate of the limited partner a fee of $5,000 for an annual review of the operations of the Partnership and the apartment complex. Interest shall accrue on any portion of the asset management fee on which payment has been deferred at an annual rate of 12%. For the year ended December 31, 2012, $18,138 has been charged to operations for the current fee, of which $13,138 is interest. As of December 31, 2012, $127,623 of accrued fees is due and payable from future surplus cash and included in miscellaneous long-term liabilities (see note 10). Net Cash Flow Net cash flow as defined in the partnership agreement is to be distributed as follows: 1. Annual payment under the note payable with Prince George s County; 2. Annual payment under the PILOT agreement with Prince George s County; 3. To the payment of any accrued asset management fee; 4. Until the deferred development fee has been paid in full, in the following percentages: (A) the NCF percentage (60%) to the payment of the deferred development fee; (B) 60% minus the NCF percentage to the special limited partner as a distribution; and (C) 40% to be distributed among the Partners, pro rata, in accordance with their percentage interests; 5. If there are any outstanding operating deficit loans, until such operating deficit loans have been paid in full, net cash flow under this clause 11.1 (a) (iii) shall be paid and distributed in the following percentages: (A) the NCF percentage to the payment of the outstanding operating deficit loans; (B) 60% minus the NCF percentage to the special limited partner as distribution; and (C) 40% to

20 Notes to Financial Statements - Continued December 31, 2012 be distributed among the Partners, pro rata, in accordance with their percentage interests; 6. If the general partner s account is less than or equal to zero, then to the payment of the incentive management fee for the preceding year and the balance distributed to the Partners in accordance with their percentage interests. If the general partner s capital account is greater than zero, then 60% to the general partner as a distribution and the balance distributed to the Partners in accordance with their percentage interest; 7. Any remaining amounts to the Partners according to their percentage interests. The total amount of net cash flow that may be distributed in any year is limited to surplus cash as defined by HUD. Operating Deficit Guarantee The general partner has agreed to make any necessary advances to fund operating deficits of up to $409,500 in the aggregate to the Partnership during the period commencing upon the conversion date of the first mortgage, March 12, 2001, and ending on the fifth anniversary of the closing. Operating deficit loans are to be noninterest bearing and are payable from net cash flow in the order of priority provided in the partnership agreement. As of December 31, 2012, $324,796 has been funded for prior year s operating deficits. Note 6 - Management Fee The property is managed by HAI Management, Inc., an unrelated party, pursuant to a management agreement approved by HUD. The current management agreement provides for a management fee of 5.00% of gross operating revenue. Such fees charged to operations for 2012 were $72,514. Note 7 - Payment in Lieu of Taxes Effective September 30, 1999, the Partnership entered into a payment in lieu of taxes (PILOT) agreement with Prince George s County, Maryland. Under the terms of the agreement, the Partnership received a deferral of county real estate taxes for the period ending on the earlier of the 25 th anniversary of the date of substantial completion of the project (the Conversion Date ) or the date on which HUD no longer is either the insurer or the holder of the first mortgage (the HUD Release Date ). Under the PILOT agreement the Partnership is required to pay the Normal Annual Tax as defined in the agreement subject to available surplus cash, as

21 Notes to Financial Statements - Continued December 31, 2012 defined in the HUD Regulatory Agreement, as adjusted per the PILOT agreement each year. All unpaid amounts are deferred and accrue interest at the rate of 2% per annum. All annual surplus cash as defined in the PILOT agreement will be applied first to the current year s Normal Annual Tax and then to the cumulative deferred tax liability plus accrued interest thereon. On or after either the Conversion Date or the HUD Release Date, the Partnership will no longer be exempt from Prince George s County real estate taxes. In addition, following the Conversion Date, the Partnership will be required to make additional annual payments each year to the extent of surplus cash equal to the deferred tax liability plus accrued interest thereon through the Conversion Date. If the first mortgage is refinanced, the County in its sole discretion may either extend the term of the PILOT agreement or demand payment from all available funds not otherwise required by HUD, the State of Maryland Department of Housing and Community Development or the County. Finally, the project may not be sold by the Partnership during the term of the PILOT agreement without either all Normal Annual Tax and all Deferred Amounts, together with interest and penalties thereon being paid or the County in its sole discretion agreeing to the conveyance to the new owner. As of December 31, 2012, deferred real estate taxes payable plus accrued interest and penalties were $1,101,830 all of which is included in miscellaneous long-term liabilities. Note 8 - Commitments and Contingencies The project s low-income housing tax credits are contingent on its ability to maintain compliance with applicable sections of Section 42. Failure to maintain compliance with occupant eligibility and/or gross rent, or to correct noncompliance within a specified time period, could result in recapture of previously taken tax credits plus interest. In addition, such potential noncompliance may require an adjustment to the contributed capital by the investor limited partner. The Partnership entered into various construction contracts with unrelated parties to rehabilitate the project in a total amount of $169,614. As of December 31, 2012, no amounts have been incurred under the contract, but the commitment has been reflected in the Computation of Surplus Cash, Distributions and Residual Receipts in accrued expenses (not escrowed) as these amounts are anticipated to be paid out of operating cash in Note 9 - Concentration of Credit Risk The partnership maintains its cash balances in several accounts in one bank. At times, these balances may exceed the federal insurance limits; however, the partnership has not experienced any losses with respect to its bank balances in excess of government provided insurance. The Partnership also has escrows and

22 Notes to Financial Statements - Continued December 31, 2012 reserves held by the lender. Investment options of these deposits are limited to those provided by the lender. Management believes that no significant concentration of credit risk exists with respect to these cash balances at December 31, Note 10 - Mortgagor Entity Expenses Mortgagor entity expenses included in the statement of operations do not represent operating expenses of the project and, accordingly, cannot be paid and are not paid out of project operations. Rather, they are entity expenses, which can only be paid out of surplus cash or mortgagor entity funds. Such expenses have been segregated from project operations in the statement of operations for that reason. Unpaid mortgagor entity expenses included in the statement of operations represent accruals only and are recorded only where required under accounting principles generally accepted in the United States of America. These accruals result only in increased liabilities in the balance sheet. The liability that results from any accrual is also subject to surplus cash restrictions and is payable only to the extent of surplus cash or mortgagor entity funds. The statement of cash flows reflects those mortgagor entity expenses actually paid during the current period from either surplus cash or from partner contributions. Below is a summary of mortgagor entity expenses expensed and paid: Expensed Paid Unpaid Beginning Ending Description amount amount amount liability liability Accrued interest - second mortgage $ 57,813 $ - $ 57,813 $ 459,677 $ 517,490 Asset management fees 18,138-18, , ,623 Total $ 75,951 $ - $ 75,951 $ 569,162 $ 645,113 Note 11 - Current Vulnerability Due to Certain Concentrations The Partnership s principal asset is a 117-unit apartment project. The Partnership s operations are concentrated in the multifamily real estate market. In addition, the Partnership operates in a heavily regulated environment. The operations of the Partnership are subject to the administrative directives, rules and regulations of federal agencies, including, but not limited to, HUD. Such administrative directives, rules and regulations are subject to change by an act of Congress or an administrative change mandated by HUD. Such changes may occur with little notice or inadequate funding to pay for the related cost, including the additional administrative burden, to comply with a change

23 Notes to Financial Statements - Continued December 31, 2012 Note 12 - Subsequent Events Events that occur after the balance sheet date but before the financial statements were available to be issued must be evaluated for recognition or disclosure. The effects of subsequent events that provide evidence about conditions that existed at the balance sheet date are recognized in the accompanying financial statements. Subsequent events which provide evidence about conditions that existed after the balance sheet date require disclosure in the accompanying notes. Management evaluated the activity of the Partnership through March 5, 2013 (the date the financial statements were available to be issued) and concluded that no subsequent events have occurred that would require recognition in the financial statements or disclosure in the notes to the financial statements

24 Supplementary Information Supporting Data Required by HUD

25 Supplementary Information Balance Sheet Data December 31, 2012 Assets Account No. Current assets 1120 Cash - operations $ 236, Tenant accounts receivable 6, Prepaid expenses 54, T Total current assets 297,228 Deposits held in trust - funded 1191 Tenant deposits 48,549 Restricted deposits and funded reserves 1310 Escrow deposits $ 37, Reserve for replacements 286, T Total deposits 323,640 Rental property 1410 Land 491, Buildings 9,303, Furniture for project/tenant use 491, Miscellaneous fixed assets 291, T Total fixed assets 10,577, Less accumulated depreciation (3,564,526) 1400N Net fixed assets 7,012,532 Other assets 1520 Deferred financing costs, net of accumulated amortization of $221, , Miscellaneous other assets 3, T Total other assets 454, T Total assets $ 8,136,

26 Supplementary Information - Continued Balance Sheet Data - Continued December 31, 2012 Liabilities and Partners Equity (Deficit) Account No. Current liabilities 2110 Accounts payable - operations $ 17, Accrued management fee payable 5, Accrued interest payable - first mortgage 30, Accrued interest payable - other loans/notes 21, Mortgage payable - first mortgage, current maturities 89, Miscellaneous current liabilities 3, T Total current liabilities 169,922 Deposits liability 2191 Tenant deposits held in trust (contra) 35,287 Long-term liabilities 2320 Mortgage payable - first mortgage, net of current maturities $ 5,414, Other mortgages payable, net of current maturities 925, Other loans/notes payable - surplus cash, net of current maturities 324, Accrued interest payable - other mortgages payable (long-term) 495, Miscellaneous long-term liabilities 1,229, T Total long-term liabilities 8,390, T Total liabilities 8,595, Partners equity (deficit) (458,799) 2033T Total liabilities and partners equity (deficit) $ 8,136,

27 Supplementary Information - Continued Statement of Operations Data Year ended December 31, 2012 Account No. Rental revenue 5120 Rent revenue - gross potential $ 1,462, Tenant assistance payments 12, T Total rental revenue $ 1,475,344 Vacancies 5220 Apartments (15,415) 5250 Rental concessions (3,404) 5200T Total vacancies (18,819) 5152N Net rental revenue 1,456,525 Financial revenue 5410 Financial revenue - project operations T Total financial revenue 143 Other revenue 5910 Laundry and vending Tenant charges 9, Miscellaneous revenue 5, T Total other revenue 15, T Total revenue $ 1,472,

28 Supplementary Information - Continued Statement of Operations Data - Continued Year ended December 31, 2012 Account No. Administrative expenses 6250 Other renting expenses 13, Office salaries 39, Office expenses 8, Management fee 72, Manager or superintendent salaries 64, Legal expense - project 2, Auditing expense 11, Bad debts 6, Miscellaneous administrative expenses 13, T Total administrative expenses 232,161 Utilities expense 6450 Electricity 28, Water 77, Gas 1, T Total utilities expense 107,306 Operating and maintenance expenses 6510 Payroll 113, Supplies 44, Contracts 145, Garbage and trash removal 16, Security payroll/contract 6, Heating/cooling repairs and maintenance 1, Snow removal Miscellaneous operating and maintenance expenses 2, T Total operating and maintenance expenses 331,

29 Supplementary Information - Continued Statement of Operations Data - Continued Year ended December 31, 2012 Account No. Taxes and insurance 6710 Real estate taxes 88, Payroll taxes 20, Property and liability insurance 38, Workmen s compensation 4, Health insurance and other employee benefits 17, Miscellaneous taxes, licenses, permits and insurance 3, T Total taxes and insurance 174,381 Financial expenses 6820 Interest on first mortgage payable 363, Mortgage insurance premium/service charge 27, T Total financial expenses 391, T Total cost of operations before depreciation and amortization 1,236, T Income (loss) before depreciation and amortization 236,060 Depreciation and amortization 6600 Depreciation expense 275, Amortization expense 14,501 Total depreciation and amortization 289, N Operating income (loss) (53,719) Corporate or mortgagor entity revenue and expenses 7141 Interest on notes payable 57, Other expenses 18, T Net entity expenses 75,951 Total expenses 1,601, Net income (loss) $ (129,670)

30 Supplementary Information - Continued Statement of Operations Data - Continued Year ended December 31, 2012 Account No. S Total first mortgage (or bond) principal payments required during the audit year (12 monthly payments). Applies to all direct loans and HUD-held and fully-insured first mortgages. $ 84,270 S Total of 12 monthly deposits in the audit year made to the replacement reserve account, as required by the regulatory agreement, even if payments may be temporarily suspended or reduced. $ 29,215 S Replacement reserve, or residual receipts and releases which are included as expense items on the statement of operations. $ - S Project improvement reserve releases under the flexible subsidy program which are included as expense items on the statement of operations. $ - S Mortgage payable note detail (Section 236 only) Interest reduction payments from subsidy. $

31 Supplementary Information - Continued Statement of Partner s Equity (Deficit) Data Year ended December 31, 2012 Account No. General partner Limited partner Special limited partner Total S Partners equity (deficit) December 31, 2011 $ 498,729 $ (827,867) $ 9 $ (329,129) 3250 Net income (loss) (129) (129,411) (130) (129,670) Partners equity (deficit) 3130 December 31, 2012 $ 498,600 $ (957,278) $ (121) $ (458,799) Partners percentage of losses 0.10% 99.80% 0.10% %

32 Supplementary Information - Continued Statement of Cash Flows Data Year ended December 31, 2012 Account No. Cash flows from operating activities S Rental receipts $ 1,447,848 S Interest receipts 143 S Other operating receipts 15,649 S Total receipts 1,463,640 S Administrative expenses paid (49,205) S Management fees paid (72,859) S Utilities paid (104,840) S Salaries and wages paid (223,854) S Operating and maintenance paid (278,666) S Real estate taxes paid (32,376) S Property insurance paid (41,949) S Miscellaneous taxes and insurance paid (3,638) S Net tenant security deposits received (paid) (4,338) S Other operating expenses paid (43,091) S Interest paid on first mortgage (363,583) S Mortgage insurance premium paid (27,604) S Total disbursements (1,246,003) S Net cash provided by operating activities 217,637 Cash flows from investing activities S Net withdrawals from mortgage escrows 6,554 S Net deposits to reserve for replacements (29,215) S Net cash used in investing activities (22,661) Cash flows from financing activities S Mortgage principal payments - first mortgage (84,270) S Net cash used in financing activities (84,270) S Net increase in cash 110,706 S Cash, beginning 125,630 S1200T Cash, end $ 236,

33 Supplementary Information - Continued Statement of Cash Flows Data - Continued Year ended December 31, 2012 Account No. Reconciliation of net income (loss) to net cash provided by operating activities 3250 Net income (loss) $ (129,670) Adjustments to reconcile net income (loss) to net cash provided by operating activities 6600 Depreciation 275, Amortization 14,501 Changes in asset and liability accounts (Increase) decrease in assets S Tenant accounts receivable (2,466) S Prepaid expenses (4,299) S Tenant security deposits funded (5,054) Increase (decrease) in liabilities S Accounts payable (67,482) S Accrued liabilities (345) S Accrued interest payable 10,375 S Tenant security deposits held in trust 716 S Other adjustments (include detail) S Accrued real estate taxes $ 57,626 S Accrued asset management fee 18,138 S Accrued expenses 2,881 S Accrued interest - second mortgage 47, ,083 Total adjustments 347,307 S Net cash provided by operating activities $ 217,

34 Supplementary Information - Continued Year ended December 31, 2012 Reserve for Replacements Account No. 1320P Balance at December 31, 2011 $ 257, DT Total monthly deposits 29, Balance at December 31, 2012 $ 286,603 Residual Receipts Reserve None

35 Supplementary Information - Continued Year ended December 31, 2012 Computation of Surplus Cash, Distributions and Residual Receipts Account No. Part A - Compute Surplus Cash S Cash (Accounts 1120, 1170 and 1191) $ 284, Accounts receivable - HUD - S Total cash 284,885 S Accrued mortgage interest payable 30,938 S Delinquent mortgage principal payments - S Delinquent deposits to reserve for replacements - S Accounts payable (due within 30 days) 17,959 S Loans and notes payable (due within 30 days) - S Deficient tax, insurance or MIP escrow deposits - S Accrued expenses (not escrowed) 179, Prepaid revenue (Account 2210) Tenant security deposits liability (Account 2191) 35,287 S Less total current obligations 263,339 S Surplus cash (deficiency) $ 21,546 Part B - Compute Distributions to Owners and Required Deposit to Residual Receipts S S S Limited Dividend Projects Annual distribution earned during fiscal period covered by the statements Distribution accrued and unpaid as of the end of the prior fiscal period Distributions and entity expenses paid during fiscal period covered by the statements $ S Amount remaining as distribution earned but unpaid - S Amount available for distribution during next fiscal period $ 21,546 S Deposit due residual receipts reserve $

36 Supplementary Information - Continued Year ended December 31, 2012 Changes in Fixed Asset Accounts Assets Balance 12/31/11 Additions Deletions Balance 12/31/12 Land $ 491,594 $ - $ - $ 491,594 Buildings 9,303, ,303,094 Furniture for project/tenant use 491, ,146 Miscellaneous fixed assets 291, ,224 $ 10,577,058 $ - $ - $ 10,577,058 Accumulated depreciation $ 3,289,248 $ 275,278 $ - $ 3,564,526 Total net book value $ 7,012,

37 Supplementary Information - Continued Year ended December 31, 2012 Detail of Accounts - Balance Sheet Miscellaneous Other Assets (Account No. 1590) Utility deposit $ 3,567 Miscellaneous Current Liabilities (Account No. 2190) Phone line repair $ 600 Painting 875 Bathroom floor repairs 895 Door replacement 806 Miscellaneous supplies 804 $ 3,980 Accrued Interest Payable - Other Mortgages Payable (Long-Term) (Account No. 2331) Accrued interest payable - second mortgage $ 495,944 Miscellaneous Long-Term Liabilities (Account No. 2390) Accrued real estate tax liability $ 1,101,830 Accrued asset management fee 127,623 $ 1,229,

38 Supplementary Information - Continued Year ended December 31, 2012 Detail of Accounts - Statement of Operations Miscellaneous Other Revenue (Account No. 5990) Bad check fee $ 50 Application fee 436 Broken lease fee 551 Miscellaneous income 4,659 $ 5,696 Other Entity Expenses (Account No. 7190) Asset management fee $ 18,

39 Supplementary Information - Continued Year ended December 31, 2012 Other Information Schedule of notes payable: Account No. Creditor Lien placed on project assets? (Yes/No) Amount due S Stavrou at University, Inc. No $ 324,796 S $ 324,796 Related party transactions detail: None

40 Independent Auditor s Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards To the Partners University Associates Limited Partnership We have audited the financial statements of University Associates Limited Partnership as of and for the year ended December 31, 2012, and have issued our report thereon dated March 5, We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Internal Control over Financial Reporting Management of University Associates Limited Partnership is responsible for establishing and maintaining effective internal control over financial reporting. In planning and performing our audit, we considered University Associates Limited Partnership s internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the entity s internal control over financial reporting. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity s financial statements will not be prevented, or detected and corrected on a timely basis. Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be deficiencies, significant deficiencies, or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above

41 Compliance and Other Matters As part of obtaining reasonable assurance about whether University Associates Limited Partnership s financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. The purpose of this report is solely to describe the scope of our testing of internal control over financial reporting and on compliance and other matters, and the results of that testing, and not to provide an opinion on the effectiveness of internal control over financial reporting or on compliance and other matters. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering University Associates Limited Partnership s internal control over financial reporting and on compliance and other matters. Accordingly, this report is not suitable for any other purpose. Baltimore, Maryland March 5,

42 Independent Auditor s Report on Compliance with Requirements that Could Have a Direct and Material Effect on Each Major HUD-Assisted Program and on Internal Control over Compliance in Accordance with Consolidated Audit Guide for Audits of HUD Programs To the Partners University Associates Limited Partnership Compliance We have audited University Associates Limited Partnership s compliance with the specific program requirements governing federal financial reports; mortgage status; replacement reserve; residual receipts; distributions to owners; equity skimming; cash receipts; cash disbursements; tenant application, eligibility and recertification; units leased to extremely low-income families; tenant security deposits; management functions; unauthorized change of ownership/acquisition of liabilities and unauthorized loans of project funds applicable to University Associates Limited Partnership s Section 221(d)(4) mortgage insurance program, which is a major U.S. Department of Housing and Urban Development (HUD)-assisted program for the year ended December 31, Management s Responsibility for Compliance Compliance with the requirements referred to above is the responsibility of University Associates Limited Partnership s management. Auditor s Responsibility Our responsibility is to express an opinion on University Associates Limited Partnership s compliance based on our audit. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the Consolidated Audit Guide for Audits of HUD Programs (the Guide), issued by the HUD Office of the Inspector General. Those standards and the Guide require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the compliance requirements referred to above that could have a material effect on the major HUD-assisted programs identified above occurred. An audit includes examining, on a test basis, evidence about University Associates Limited Partnership s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe

43 that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination of University Associates Limited Partnership s compliance with those requirements. Opinion In our opinion, University Associates Limited Partnership complied, in all material respects, with the compliance requirements referred to above that are applicable to its major HUD-assisted programs identified above for the year ended December 31, Internal Control over Compliance Management of University Associates Limited Partnership is responsible for establishing and maintaining effective internal control over compliance with the compliance requirements referred to above. In planning and performing our audit, we considered University Associates Limited Partnership s internal control over compliance to determine the auditing procedures for the purpose of expressing our opinion on compliance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the University Associates Limited Partnership s internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a compliance requirement will not be prevented, or detected and corrected, on a timely basis. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be deficiencies, significant deficiencies, or material weaknesses in internal control over compliance. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses, as defined above. The purpose of this report is solely to describe the scope of our testing of compliance with the specific program compliance requirements referred to above that are applicable to each of University Associates Limited Partnership s major HUDassisted programs and our testing of internal control over compliance and the results of our testing, and to provide an opinion on University Associates Limited Partnership s compliance but not to provide an opinion on the effectiveness of University Associates Limited Partnership s internal control over compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering University Associates Limited Partnership s compliance with the specific program