FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS REPORT WINDSOR FAMILY ASSOCIATES LIMITED PARTNERSHIP HUD PROJECT NO.: 000-35393 DECEMBER 31, 2009
TABLE OF CONTENTS PAGE MORTGAGOR S CERTIFICATION 4 MANAGING AGENT S CERTIFICATION 5 INDEPENDENT AUDITORS REPORT 6 FINANCIAL STATEMENTS BALANCE SHEET 8 STATEMENT OF OPERATIONS 10 STATEMENT OF PARTNERS EQUITY (DEFICIT) 11 STATEMENT OF CASH FLOWS 12 NOTES TO FINANCIAL STATEMENTS 14 SUPPLEMENTAL 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 COMPUTATION OF SURPLUS CASH, DISTRIBUTIONS AND RESIDUAL RECEIPTS 35
December 31, 2009 PAGE SUPPLEMENTAL INFORMATION (CONTINUED) CHANGES IN FIXED ASSET ACCOUNTS 36 DETAIL OF ACCOUNTS - BALANCE SHEET 38 DETAIL OF ACCOUNTS - STATEMENT OF OPERATIONS 39 OTHER INFORMATION 40 INDEPENDENT AUDITORS REPORT ON INTERNAL CONTROL 41 INDEPENDENT AUDITORS REPORT ON COMPLIANCE WITH SPECIFIC REQUIREMENTS APPLICABLE TO MAJOR HUD PROGRAMS 43 INDEPENDENT AUDITORS REPORT ON COMPLIANCE WITH SPECIFIC REQUIREMENTS APPLICABLE TO FAIR HOUSING AND NON-DISCRIMINATION 45-3 -
December 31, 2009 MORTGAGOR S CERTIFICATION I hereby certify that I have examined the accompanying financial statements and supplemental data of Windsor Family Associates Limited Partnership and, to the best of my knowledge and belief, the same are complete and accurate. GENERAL PARTNER Windsor Family, LLC N. Stephen Stavrou, President Date Telephone Number: (410) 571-6610 - 4 -
December 31, 2009 MANAGING AGENT S CERTIFICATION I hereby certify that I have examined the accompanying financial statements and supplemental data of Windsor Family Associates Limited Partnership and, to the best of my knowledge and belief, the same are complete and accurate. MANAGING AGENT Winn Management Company, LLC Kennard Jones Property Manager William Wollinger, President Managing Agent Taxpayer Identification Number: 04-3495536 - 5 -
INDEPENDENT AUDITORS REPORT To the Partners Windsor Family Associates Limited Partnership We have audited the accompanying balance sheet of Windsor Family Associates Limited Partnership as of December 31, 2009, and the related statements of operations, partners equity (deficit) and cash flows for the year 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 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 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 audit provides 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 Windsor Family Associates Limited Partnership as of December 31, 2009, and the results of its operations, the changes in partners equity (deficit) and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued a report dated April 21, 2010, on our consideration of Windsor Family Associates Limited Partnership s internal control over financial reporting. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and the results of that testing and not to provide an opinion on the internal control over financial reporting. In accordance with Government Auditing Standards, we have also issued an opinion dated April 21, 2010, on Windsor Family Associates Limited Partnership s compliance with certain provisions of laws, regulations, contracts, and grant agreements, and other matters that could have a direct and material effect on a major HUD-assisted program. Those reports are an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. - 6 -
Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying supplemental information on pages 25 through 40 is presented for purposes of additional analysis and is not a required part of the basic financial statements of the partnership. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. Bethesda, Maryland Taxpayer Identification Number: April 21, 2010 52-1088612 Lead Auditor: David A. Kessler - 7 -
BALANCE SHEET December 31, 2009 ASSETS CURRENT ASSETS Cash - operations $ 44,004 Cash - entity 860,316 Tenant accounts receivable $ 25,223 Allowance for doubtful accounts (3,179) 22,044 Prepaid expenses 85,639 Total current assets 1,012,003 DEPOSITS HELD IN TRUST - FUNDED Tenant deposits 67,909 RESTRICTED DEPOSITS AND FUNDED RESERVES Escrow deposits $ 98,817 Reserve for replacements 190,228 289,045 RENTAL PROPERTY Land 1,196,988 Buildings 13,449,124 Office furniture and equipment 924,725 15,570,837 Less accumulated depreciation (2,953,072) OTHER ASSETS Deferred financing costs and tax credit fees, net of accumulated amortization of $92,884 496,370 12,617,765 496,370 $ 14,483,092 (continued) - 8 -
BALANCE SHEET - CONTINUED December 31, 2009 LIABILITIES AND PARTNERS EQUITY (DEFICIT) CURRENT LIABILITIES Accounts payable - operations $ 900 Accounts payable - entity 925 Accrued management fee payable 180 Accrued interest payable - first mortgage 55,630 Mortgage payable - first mortgage, current maturities 126,773 Miscellaneous current liabilities 58,379 Prepaid revenue 9,018 Total current liabilities 251,805 DEPOSITS LIABILITY Tenant deposits held in trust (contra) 66,343 LONG-TERM LIABILITIES Accounts payable - entity (long-term) $ 62,098 Mortgage payable - first mortgage, net of current 11,482,979 Other mortgages payable, net of current maturities 216,000 Other loans/notes payable - surplus cash, net of current maturities 527,517 Accrued interest payable - other mortgages payable (longterm) 78,588 Accrued interest payable - notes payable (surplus cash) 57,364 Miscellaneous long-term liabilities 1,707,120 14,131,666 Total liabilities 14,449,814 CONTINGENCY - PARTNERS EQUITY (DEFICIT) 33,278 33,278 $ 14,483,092 See notes to financial statements - 9 -
STATEMENT OF OPERATIONS Year ended December 31, 2009 REVENUE Rental $ 1,728,226 Vacancies (51,732) Net rental revenue 1,676,494 Other 57,634 Total revenue 1,734,128 EXPENSES Administrative 249,182 Utilities 129,197 Operating and maintenance 115,808 Taxes and insurance 124,961 Financial (including interest of $670,748) 824,203 Total cost of operations before depreciation and amortization 1,443,351 Income (loss) before depreciation and amortization 290,777 Depreciation and amortization 405,119 Operating income (loss) (114,342) Morgagor entity expenses (including interest of $25,509) 39,784 Net income (loss) $ (154,126) See notes to financial statements - 10 -
STATEMENT OF PARTNERS EQUITY (DEFICIT) Year ended December 31, 2009 General partner Limited partner Total Partners equity (deficit) December 31, 2008 $ (3,539) $ (636,749) $ (640,288) Contributions - 827,692 827,692 Net income (loss) (154) (153,972) (154,126) Partners equity (deficit) December 31, 2009 $ (3,693) $ 36,971 $ 33,278 Partners percentage of losses 0.10% 99.90% 100.00% See notes to financial statements - 11 -
STATEMENT OF CASH FLOWS Year ended December 31, 2009 Cash flows from operating activities Rental receipts $ 1,625,491 Other operating receipts 57,634 Total receipts 1,683,125 Administrative expenses paid (62,773) Management fees paid (83,883) Utilities paid (129,830) Salaries and wages paid (86,793) Operating and maintenance paid (92,364) Real estate taxes paid (60,599) Property insurance paid (52,154) Miscellaneous taxes and insurance paid (900) Net tenant security deposits received (paid) 210 Other operating expenses paid (22,228) Interest paid on first mortgage (671,322) Mortgage insurance premium paid (58,226) Miscellaneous financial expenses paid (95,131) Entity/construction expenses paid Legal costs paid $ (925) (925) Total disbursements (1,416,918) Net cash provided by (used in) operating activities 266,207 Cash flows from investing activities Net deposits to mortgage escrows (9,453) Net deposits to reserve for replacements (27,856) Net purchases of fixed assets (58,877) Due from affiliate 18,539 Net cash provided by (used in) investing activities (77,647) Cash flows from financing activities Mortgage principal payments - first mortgage (119,705) Contributions from partners 827,692 Entity/construction financing activities Repayment of affiliate advance (17,441) Advance from affiliate 925 (16,516) Net cash provided by (used in) financing activities 691,471 NET INCREASE (DECREASE) IN CASH 880,031 Cash, beginning 24,289 Cash, end $ 904,320 (continued) - 12 -
STATEMENT OF CASH FLOWS - CONTINUED Year ended December 31, 2009 Reconciliation of net income (loss) to net cash provided by (used in) operating activities Net income (loss) $ (154,126) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities Depreciation 389,984 Amortization 15,135 Changes in asset and liability accounts (Increase) decrease in assets Tenant accounts receivable (8,210) Prepaid expenses (2,092) Tenant security deposits funded (938) Increase (decrease) in liabilities Accounts payable (7,923) Accrued liabilities (8,467) Accrued interest payable 24,935 Tenant security deposits held in trust 1,148 Prepaid revenue 3,411 Entity/construction liability accounts Accrued asset management fee $ 13,350 13,350 Total adjustments 420,333 Net cash provided by (used in) operating activities $ 266,207 See notes to financial statements - 13 -
NOTES TO FINANCIAL STATEMENTS December 31, 2009 NOTE 1 - ORGANIZATION Windsor Family Associates Limited Partnership (the partnership) was formed as a limited partnership under the laws of the State of Maryland, on July 27, 2001, for the purpose of acquiring, rehabilitating, and operating a residential rental housing project. The project consists of 128 units located in Suitland, Maryland, and began operations on November 14, 2003. The project is currently operating under the name of Windsor Crossing Family Apartments. The partnership agreement was amended and restated on September 1, 2002 and May 1, 2008. The partnership consists of one general partner, Windsor Family, LLC, which owns 0.1% interest, one limited partner, SunAmerica Housing Fund, which owns a 99.9% interest. All profits, losses and credits, except those gains and losses referred to in Sections 11.03 and 11.06 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. The partnership will continue to operate until December 31, 2061, unless dissolved earlier in accordance with the terms of the partnership agreement. 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, the partnership will execute an extended use agreement in connection with the issuance of tax-exempt bond financing from Prince George s County, which will require the utilization of the project pursuant to Section 42 for a minimum of 30 years, even if the partnership disposes of the project. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Accounts Receivable and Bad Debts Tenant receivables are reported net of an allowance for doubtful accounts. Management s estimate of the allowance is based on historical collection experience and a review of the current status of tenant accounts receivable. It is reasonably possible that management s - 14 -
NOTES TO FINANCIAL STATEMENTS - CONTINUED December 31, 2009 estimate of the allowance will change. As of December 31, 2009, an allowance for doubtful accounts in the amount of $3,179 is recorded. Rental Property Rental property is carried at cost. Depreciation is provided for in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives by use of the straight-line method for financial reporting purposes. For income tax purposes, accelerated lives and methods are used. 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. When recovery is reviewed, if the undiscounted cash flows estimated to be generated by the property are less than its carrying amount, management compares the carrying amount of the property to its fair value in order to determine whether 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 during the year ended December 31, 2009. Deferred Fees and Amortization Deferred financing fees in the amount of $579,562 are being amortized using the straight-line method over the life of the related debt. Accounting principles generally accepted in the United States of America require that the effective yield method be used to amortize mortgage costs; however, the effect of using the straight-line method is not materially different from the results that would have been obtained under the effective yield method. Estimated annual amortization of mortgage costs over each of the next five years is $14,489. Tax credit application fees totaling $9,692 are amortized on a straight-line method over the 15-year tax credit compliance period. Estimated annual amortization expense over each of the next five years is $646. - 15 -
NOTES TO FINANCIAL STATEMENTS - CONTINUED December 31, 2009 Rental Income 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 pass-through 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. 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. Advertising Costs Advertising costs are charged to operations and expensed when incurred. Recent Accounting Pronouncements In June 2009, the Financial Accounting Standards Board (FASB) issued the Accounting Standards Codification (Codification). Effective July 1, 2009, the Codification is the single source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP). The Codification is intended to - 16 -
NOTES TO FINANCIAL STATEMENTS - CONTINUED December 31, 2009 reorganize, rather than change, existing GAAP. Accordingly, all references to currently existing GAAP have been removed and have been replaced with plain English explanations of the partnership s accounting policies. The adoption of the Codification did not have a material impact on the partnership s financial position or results of operations. NOTE 3 - MORTGAGE PAYABLE The partnership has a first mortgage in the original amount of $12,220,400 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 221(d)(4) of the National Housing Act. The mortgage bears interest at the rate of 5.75% per annum payable in monthly installments of principal and interest totaling $65,919 and will mature on February 1, 2044. The balance of the first mortgage and accrued interest was $11,609,752 and $55,630, respectively, as of December 31, 2009. 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, 2009, are as follows: December 31, 2010 $ 126,773 2011 134,258 2012 142,184 2013 150,579 2014 159,469 Thereafter 10,896,489 $ 11,609,752-17 -
NOTES TO FINANCIAL STATEMENTS - CONTINUED December 31, 2009 NOTE 4 - NOTES PAYABLE Second Mortgage Payable The partnership also received a second mortgage from Prince George s County, Maryland, in the amount of $216,000. The mortgage is secured by a second mortgage on the rental property, and bears interest at the rate of 5.46% per annum. The mortgage matures on February 1, 2044. Beginning on March 1, 2004, 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 2009, interest expense of $15,252 was recorded to mortgagor entity expense. No payments were made during 2009. As of December 31, 2009, the outstanding principal balance and accrued interest was $216,000 and $78,588, respectively. Land Loan Payable The partnership also received a loan from the Housing Authority of Prince George s County, Maryland. The loan is unsecured and bears interest at the rate of 1.785% per annum. The loan is payable from surplus cash due 90 days after the year end. Payments made will be first applied to any unpaid interest and late fees and then to principal. No payments were made during 2009. The loan will mature in 2049. During 2009, interest expense of $10,257 was recorded to mortgagor entity expense. As of December 31, 2009, the outstanding principal balance and accrued interest was $527,517 and $57,364, respectively. NOTE 5 - RELATED PARTY TRANSACTIONS Capital Contributions Receivable Total contributions of $3,729,137 are due from the limited partner when certain milestones are achieved as disclosed in the partnership agreement. During 2009, contributions totaling $827,692 were received. As of December 31, 2009, $3,726,762 has been received. The above contributions may be reduced by any tax credit shortfall as calculated based on Section 5.1 of the partnership agreement. - 18 -
NOTES TO FINANCIAL STATEMENTS - CONTINUED December 31, 2009 Development Fee The partnership entered into a development agreement with an affiliate of the general partner for its services in overseeing the development of the apartment complex until all development work is complete. The total fee of $1,868,102 has been earned and capitalized as part of the costs of the rental property. The deferred developer fee is payable from future capital contributions and cash flow of the partnership. The fee is noninterest bearing and as of December 31, 2009, $1,369,723 remains payable and is included in miscellaneous longterm liabilities. 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 $205,214. As of December 31, 2009, no fees have been paid or expensed. Asset Management Fee The partnership agreed to pay an affiliate of the limited partner a fee of $7,500 for an annual review of the operations of the partnership and the apartment complex. The fee is payable from surplus cash and accrues interest at 12% annually. During 2009, $13,350 was recorded to mortgagor entity expense and as of December 31, 2009, $62,098 remains payable and is included in accounts payable - entity (long-term). Net Cash Flow Net cash flow as defined in the partnership agreement is to be distributed as follows: 1. To the payment of any outstanding excess investment Partnership loans and then to the payment of any remaining IP and GP loans pro rata based on their respective outstanding balance. 2. To the payment of any accrued asset management fee including all interest accrued thereon. - 19 -
NOTES TO FINANCIAL STATEMENTS - CONTINUED December 31, 2009 3. If there are any operating deficit loans (ODL), until such ODL have been paid in full, net cash flow (NCF) shall be paid and distributed in the following percentages: a) the NCF percentage to the payment of the outstanding ODL; and b) 100% minus the NCF percentage to be distributed to the partners pro rata in accordance with their percentage interest. 4. A) If the general partner s capital account is less than or equal to zero, then until the general partner has received payments of the incentive partnership management fee equal to the maximum amount for the preceding fiscal year net cash flow shall be distributed in the following percentages: 1) the NCF percentage (as defined in the partnership agreement) to the general partner as payment of incentive management fee; and 2) 100% minus the NCF percentage to the partners pro rata. B) If the general partner s capital account is greater than zero, then until the general partner s account equals zero, net cash flow shall be distributed in the following percentages: 1) the NCF percentage to the general partner as a distribution; and 2) 100% minus the NCF percentage to the partners pro rata. 5. 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 $799,378 in the aggregate to the partnership during the period commencing upon the conversion date of the first mortgage, which occurred on October 1, 2004, and ending on the fifth anniversary of the closing. The expiration date of the guarantee has since been extended until the eighth 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 - 20 -
NOTES TO FINANCIAL STATEMENTS - CONTINUED December 31, 2009 partnership agreement. As of December 31, 2009, $337,397 has been advanced and is included in miscellaneous long-term liabilities. Advances In a prior year, costs were paid on behalf of the partnership by a property owned by an affiliate of the general partner in the amount of $34,881. During 2009, affiliate advances in the amount of $17,441 were repaid. As of December 31, 2009, there is no outstanding balance. During 2009, advances of $925 were received from the limited partner in connection with legal fees. The advances are non-interest bearing and due on demand. At December 31, 2009, $925 remained payable. NOTE 6 - MANAGEMENT AGREEMENT The property is managed by Winn Management Company, LLC, an unrelated party, pursuant to a management agreement approved by HUD. The current management agreement provides for a management fee of 5% increased or decreased by increments of 1% based on performance measure based incentives. The management agreement began on May 1, 2006. Management fees charged to operations for the year ended December 31, 2009 were $84,146. NOTE 7 - 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. NOTE 8 - PAYMENT IN LIEU OF TAXES Effective September 26, 2002, 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 will make payments for each calendar year equal to the aggregate real property taxes which would have been due on account of the assessed value of the project decreased by the amount which the normal annual tax exceeds 12.5% of surplus cash. - 21 -
NOTES TO FINANCIAL STATEMENTS - CONTINUED December 31, 2009 The payment from surplus cash is to be made after management fees, debt service on the second mortgage, and required reserves, but prior to any distribution. The agreement does not waive the payment of other county taxes, assessments and fees. During 2009, PILOTs of $60,443 were recorded on the statement of operations. NOTE 9 - LOW-INCOME HOUSING TAX CREDITS (UNAUDITED) The partnership was allocated $4,843,880 of low-income housing tax credits by the Maryland Department of Housing and Community Development. As of December 31, 2009, $2,715,915 of the credits has been utilized by the partners. The expected availability of the remaining tax credits is $484,388 for each of the next four years through 2013 and $190,413 in 2014. NOTE 10 - CONCENTRATION OF CREDIT RISK The partnership maintains its cash balances in several accounts with two banks. The partnership also has escrows and reserves held in trust with the lender. The balances are insured by the Federal Deposit Insurance Corporation up to $250,000 at each 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. Management believes that no significant concentration of credit risk exists with respect to these cash balances at December 31, 2009. NOTE 11 - 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. - 22 -
NOTES TO FINANCIAL STATEMENTS - CONTINUED December 31, 2009 Below is a summary of mortgagor entity expenses expensed and paid: Description Beginning liability Expensed amount Paid amount Ending liability Asset management fees $ 48,748 $ 13,350 $ - $ 62,098 Legal expenses - 925-925 Interest on notes payable 47,107 10,257-57,364 Interest on other mortgages 63,336 15,252-78,588 NOTE 12 - ECONOMIC DEPENDENCY $ 159,191 $ 39,784 $ - $ 198,975 The partnership operates the property located in Suitland, Maryland. Future operations could be affected by changes in the economic or other conditions in that geographical area or the demand for such housing. NOTE 13 - 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 April 21, 2010 (the date the financial statements are 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. - 23 -
SUPPLEMENTAL INFORMATION SUPPORTING DATA REQUIRED BY HUD
SUPPLEMENTAL INFORMATION BALANCE SHEET DATA December 31, 2009 ASSETS Account No. CURRENT ASSETS 1120 Cash - operations $ 44,004 1125 Cash - entity 860,316 1130 Tenant accounts receivable $ 25,223 1131 Allowance for doubtful accounts (3,179) 1130N Net tenants accounts receivable 22,044 1200 Prepaid expenses 85,639 1100T Total current assets 1,012,003 DEPOSITS HELD IN TRUST - FUNDED 1191 Tenant deposits 67,909 RESTRICTED DEPOSITS AND FUNDED RESERVES 1310 Escrow deposits 98,817 1320 Reserve for replacements 190,228 1300T Total deposits 289,045 RENTAL PROPERTY 1410 Land 1,196,988 1420 Buildings 13,449,124 1465 Office furniture and equipment 924,725 1400T Total fixed assets 15,570,837 1495 Less accumulated depreciation (2,953,072) 1400N Net fixed assets 12,617,765 OTHER ASSETS 1520 Deferred financing costs, net of accumulated amortization of $92,884 496,370 1500T Total other assets 496,370 1000T Total assets $ 14,483,092-25 -
SUPPLEMENTAL INFORMATION - CONTINUED BALANCE SHEET DATA - CONTINUED December 31, 2009 LIABILITIES AND PARTNERS EQUITY (DEFICIT) Account No. CURRENT LIABILITIES 2110 Accounts payable - operations $ 900 2113 Accounts payable - entity 925 2123 Accrued management fee payable 180 2131 Accrued interest payable - first mortgage 55,630 2170 Mortgage payable - first mortgage, current maturities 126,773 2190 Miscellaneous current liabilities 58,379 2210 Prepaid revenue 9,018 2122T Total current liabilities 251,805 DEPOSITS LIABILITY 2191 Tenant deposits held in trust (contra) 66,343 LONG-TERM LIABILITIES 2305 Accounts payable - entity (long-term) $ 62,098 2320 Mortgage payable - first mortgage, net of current maturities 11,482,979 2322 Other mortgages payable, net of current maturities 216,000 2323 Other loans/notes payable - surplus cash, net of current maturities 527,517 2331 Accrued interest payable - other mortgages payable (long-term) 78,588 2332 Accrued interest payable - notes payable (surplus cash) 57,364 2390 Miscellaneous long-term liabilities 1,707,120 2300T Total long term liabilities 14,131,666 2000T Total liabilities 14,449,814 3130 PARTNERS EQUITY (DEFICIT) 33,278 2033T Total liabilities and partners equity (deficit) $ 14,483,092-26 -
SUPPLEMENTAL INFORMATION - CONTINUED STATEMENT OF OPERATIONS DATA Year ended December 31, 2009 Account No. RENTAL REVENUE 5120 Rent revenue - gross potential $ 1,332,028 5121 Tenant assistance payments 396,198 5100T Total rental revenue $ 1,728,226 VACANCIES 5220 Apartments (51,368) 5250 Rental concessions (364) 5200T Total vacancies (51,732) 5152N Net rental revenue 1,676,494 OTHER REVENUE 5910 Laundry and vending 41,462 5920 Tenant charges 11,050 5990 Miscellaneous revenue 5,122 5900T Total other revenue 57,634 5000T Total revenue 1,734,128-27 -
SUPPLEMENTAL INFORMATION - CONTINUED STATEMENT OF OPERATIONS DATA - CONTINUED Year ended December 31, 2009 Account No. ADMINISTRATIVE EXPENSES 6210 Advertising and marketing 11,542 6250 Other renting expenses 5,444 6310 Office salaries 56,059 6311 Office expenses 7,216 6320 Management fee 84,146 6331 Administrative rent free unit 2,956 6340 Legal expense - project 14,619 6350 Auditing expense 13,650 6370 Bad debts 43,248 6390 Miscellaneous administrative expenses 10,302 6263T Total administrative expenses 249,182 UTILITIES EXPENSE 6450 Electricity 60,969 6451 Water 68,228 6400T Total utilities expense 129,197 OPERATING AND MAINTENANCE EXPENSES 6510 Payroll 28,319 6515 Supplies 9,818 6520 Contracts 51,884 6525 Garbage and trash removal 10,838 6530 Security payroll/contract 2,415 6546 Heating/cooling repairs and maintenance 9,071 6590 Miscellaneous operating and maintenance expenses 3,463 6500T Total operating and maintenance expenses 115,808-28 -
SUPPLEMENTAL INFORMATION - CONTINUED STATEMENT OF OPERATIONS DATA - CONTINUED Year ended December 31, 2009 Account No. TAXES AND INSURANCE 6710 Real estate taxes 60,443 6711 Payroll taxes 6,620 6720 Property and liability insurance 50,037 6723 Health insurance and other employee benefits 6,961 6790 Miscellaneous taxes, licenses, permits and insurance 900 6700T Total taxes and insurance 124,961 FINANCIAL EXPENSES 6820 Interest on first mortgage payable 670,748 6850 Mortgage insurance premium/service charge 58,324 6890 Miscellaneous financial expenses 95,131 6800T Total financial expenses 824,203 6000T Total cost of operations before depreciation and amortization 1,443,351 5060T Income (loss) before depreciation and amortization 290,777 DEPRECIATION AND AMORTIZATION 6600 Depreciation expense 389,984 6610 Amortization expense 15,135 Total depreciation and amortization 405,119 5060N Operating income (loss) (114,342) CORPORATE OR MORTGAGOR ENTITY REVENUE AND EXPENSES 7120 Legal expenses 925 7141 Interest on notes payable 10,257 7142 Interest on mortgage payable 15,252 7190 Other expenses 13,350 7100T Net entity expenses 39,784 Total expenses 1,888,254 3250 Net income (loss) $ (154,126) - 29 -
SUPPLEMENTAL INFORMATION - CONTINUED STATEMENT OF OPERATIONS DATA - CONTINUED Year ended December 31, 2009 Account No. S1000-010 Total first mortgage (or bond) principal payments required during the audit year (12 monthly payments). Applies to all direct loans and HUD-held and fullyinsured first mortgages. $ 119,705 S1000-020 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. $ 45,300 S1000-030 Replacement reserve, or residual receipts and releases which are included as expense items on the statement of operations. $ - S1000-040 Project improvement reserve releases under the flexible subsidy program which are included as expense items on the statement of operations. $ - S3100-120 Mortgage payable note detail (Section 236 only) Interest reduction payments from subsidy. $ - - 30 -
SUPPLEMENTAL INFORMATION - CONTINUED STATEMENT OF PARTNERS EQUITY (DEFICIT) DATA Year ended December 31, 2009 Account No. General partner Limited partner Total S1100-010 Partners equity (deficit) December 31, 2008 $ (3,539) $ (636,749) $ (640,288) S1200-430 Contributions - 827,692 827,692 3250 Net income (loss) (154) (153,972) (154,126) Partners equity (deficit) 3130 December 31, 2009 $ (3,693) $ 36,971 $ 33,278-31 -
SUPPLEMENTAL INFORMATION - CONTINUED STATEMENT OF CASH FLOWS DATA Year ended December 31, 2009 Account No. Cash flows from operating activities S1200-010 Rental receipts $ 1,625,491 S1200-030 Other operating receipts 57,634 S1200-040 Total receipts 1,683,125 S1200-050 Administrative expenses paid (62,773) S1200-070 Management fees paid (83,883) S1200-090 Utilities paid (129,830) S1200-100 Salaries and wages paid (86,793) S1200-110 Operating and maintenance paid (92,364) S1200-120 Real estate taxes paid (60,599) S1200-140 Property insurance paid (52,154) S1200-150 Miscellaneous taxes and insurance paid (900) S1200-160 Net tenant security deposits received (paid) 210 S1200-170 Other operating expenses paid (22,228) S1200-180 Interest paid on first mortgage (671,322) S1200-210 Mortgage insurance premium paid (58,226) S1200-220 Miscellaneous financial expenses paid (95,131) S1200-225 Entity/construction expenses paid (include detail) S1200-226 Legal costs paid $ (925) (925) S1200-230 Total disbursements (1,416,918) S1200-240 Net cash provided by (used in) operating activities 266,207 Cash flows from investing activities S1200-245 Net deposits to mortgage escrows (9,453) S1200-250 Net deposits to reserve for replacements (27,856) S1200-330 Net purchases of fixed assets (58,877) S1200-340 Other investing activities (include detail) S1200-341 Due from affiliate 18,539 18,539 S1200-350 Net cash provided by (used in) investing activities (77,647) Cash flows from financing activities S1200-360 Mortgage principal payments - first mortgage (119,705) S1200-420 Distributions 827,692 S1200-455 Entity/construction financing activities (include detail) S1200-456 Repayment of affiliate advance (17,441) S1200-456 Advance from affiliate 925 (16,516) S1200-460 Net cash provided by (used in) financing activities 691,471 S1200-470 NET INCREASE (DECREASE) IN CASH 880,031 S1200-480 Cash, beginning 24,289 S1200T Cash, end $ 904,320-32 -
SUPPLEMENTAL INFORMATION - CONTINUED STATEMENT OF CASH FLOWS DATA - CONTINUED Year ended December 31, 2009 Account No. Reconciliation of net income (loss) to net cash provided by (used in) operating activities 3250 Net income (loss) $ (154,126) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities 6600 Depreciation 389,984 6610 Amortization 15,135 Changes in asset and liability accounts (Increase) decrease in assets S1200-490 Tenant accounts receivable (8,210) S1200-520 Prepaid expenses (2,092) S1200-530 Tenant security deposits funded (938) Increase (decrease) in liabilities S1200-540 Accounts payable (7,923) S1200-560 Accrued liabilities (8,467) S1200-570 Accrued interest payable 24,935 S1200-580 Tenant security deposits held in trust 1,148 S1200-590 Prepaid revenue 3,411 S1200-600 Other adjustments (include detail) S1200-601 Accrued asset management fee $ 13,350 13,350 Total adjustments 420,333 S1200-610 Net cash provided by (used in) operating activities $ 266,207-33 -
SUPPLEMENTAL INFORMATION - CONTINUED Year ended December 31, 2009 RESERVE FOR REPLACEMENTS Account No. 1320P Balance at December 31, 2008 $ 162,372 1320DT Total monthly deposits 45,300 1320WT Approved withdrawals (17,444) 1320 Balance at December 31, 2009 $ 190,228-34 -
SUPPLEMENTAL INFORMATION - CONTINUED Year ended December 31, 2009 COMPUTATION OF SURPLUS CASH, DISTRIBUTIONS AND RESIDUAL RECEIPTS Account No. Part A - Compute Surplus Cash S1300-010 Cash (Accounts 1120, 1170 and 1191) $ 111,913 1135 Accounts receivable - HUD - S1300-040 Total cash 111,913 S1300-050 Accrued mortgage interest payable 55,630 S1300-060 Delinquent mortgage principal payments - S1300-070 Delinquent deposits to reserve for replacements - S1300-075 Accounts payable (due within 30 days) 900 S1300-080 Loans and notes payable (due within 30 days) - S1300-090 Deficient tax, insurance or MIP escrow deposits - S1300-100 Accrued expenses (not escrowed) 180 2210 Prepaid revenue (Account 2210) 9,018 2191 Tenant security deposits liability (Account 2191) 66,343 S1300-110 Other current obligations S1300-120 Miscellaneous current liabilities $ 22,434 22,434 S1300-140 Less total current obligations 154,505 S1300-150 Surplus cash (deficiency) $ (42,592) Part B - Compute Distributions to Owners and Required Deposit to Residual Receipts Limited Dividend Projects S1300-160 Annual distribution earned during fiscal period covered by the statements $ - S1300-170 Distribution accrued and unpaid as of the end of the prior fiscal period - S1300-180 Distributions and entity expenses paid during fiscal period covered by the statements - S1300-190 Amount remaining as distribution earned but unpaid - S1300-200 Amount available for distribution during next fiscal period $ - S1300-210 Deposit due residual receipts reserve $ - - 35 -
SUPPLEMENTAL INFORMATION - CONTINUED Year ended December 31, 2009 CHANGES IN FIXED ASSET ACCOUNTS Assets Balance 12/31/08 Additions Deletions Balance 12/31/09 Land $ 1,196,988 $ - $ - $ 1,196,988 Buildings 13,449,124 - - 13,449,124 Office furniture and equipment 865,848 58,877-924,725 $ 15,511,960 $ 58,877 $ - $ 15,570,837 Accumulated depreciation $ 2,563,088 $ 389,984 $ - $ 2,953,072 Total net book value $ 12,617,765-36 -
SUPPLEMENTAL INFORMATION - CONTINUED Year ended December 31, 2009 Fixed Asset Detail Additions to Office Furniture and Equipment Account Item and quantity Amount Carpet $ 19,626 Plumbing 9,587 Appliances 15,289 Alarm 3,145 Flooring 1,285 Fixtures 9,945 $ 58,877-37 -
SUPPLEMENTAL INFORMATION - CONTINUED Year ended December 31, 2009 DETAIL OF ACCOUNTS - BALANCE SHEET MISCELLANEOUS CURRENT LIABILITIES (ACCOUNT NO. 2190) Miscellaneous operating payables $ 7,806 Accrued Utility Expense 14,628 Homeowners association dues payable 35,945 $ 58,379 MISCELLANEOUS LONG-TERM LIABILITIES (ACCOUNT NO. 2390) Operating deficit advances $ 337,397 Development fee payable 1,369,723 $ 1,707,120 OTHER MORTGAGES PAYABLE, NET OF CURRENT MATURITIES (ACCOUNT NO. 2322) Prince George s County Home Loan $ 216,000 ACCRUED INTEREST PAYABLE - OTHER MORTGAGES PAYABLE (LONG-TERM) (ACCOUNT NO. 2331) Second mortgage $ 78,588-38 -
SUPPLEMENTAL INFORMATION - CONTINUED Year ended December 31, 2009 DETAIL OF ACCOUNTS - STATEMENT OF OPERATIONS MISCELLANEOUS FINANCIAL EXPENSES (ACCOUNT NO. 6890) Homeowners association dues $ 89,688 Bank Fees 2,243 Tax credit monitoring fees 3,200 $ 95,131 OTHER ENTITY EXPENSES (ACCOUNT NO. 7190) Asset management fee $ 13,350-39 -
SUPPLEMENTAL INFORMATION - CONTINUED Year ended December 31, 2009 OTHER INFORMATION Schedule of notes payable: Account No. Creditor Lien placed on project assets? (Yes/No) Amount due S3100-140 Prince George s County Land Loan No $ 527,517-40 -
INDEPENDENT AUDITORS REPORT ON INTERNAL CONTROL To the Partners Windsor Family Associates Limited Partnership We have audited the financial statements of Windsor Family Associates Limited Partnership, as of and for the year ended December 31, 2009, and have issued our report thereon dated April 21, 2010. We have also audited Windsor Family Associates Limited Partnership s compliance with requirements applicable to major HUD-assisted programs for the year ended December 31, 2009, and have issued our report thereon dated April 21, 2010. We conducted our audits 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 U.S. Department of Housing and Urban Development, Office of the Inspector General. Those standards and the Guide require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and about whether Windsor Family Associates Limited Partnership complied with laws and regulations, noncompliance with which would be material to a major HUD-assisted program. Management of the partnership is responsible for establishing and maintaining effective internal control. In planning and performing our audit of the financial statements and compliance, we considered the partnership s internal control over financial reporting and its internal control over compliance with requirements that could have a direct and material effect on a major HUD-assisted program in order to determine our auditing procedures for the purpose of expressing our opinions on the financial statements and on compliance, but not for the purpose of expressing an opinion on the effectiveness of the partnership s internal control over financial reporting and internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the partnership s internal control over financial reporting and internal control over compliance. 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 (a) misstatements of the partnership s financial statements or (b) noncompliance with applicable requirements of a HUD-assisted program on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control such that there is a reasonable possibility that (a) a material misstatement of the partnership s financial statements, or (b) material noncompliance with applicable requirements of a HUD-assisted program, will not be prevented, or detected and corrected on a timely basis. - 41 -
Our consideration of internal control over financial reporting and internal control over compliance was for the limited purpose described in the third paragraph of this report and was not designed to identify all deficiencies in internal control that might be deficiencies, significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control that we consider to be material weaknesses, as defined above. This report is intended solely for the information and use of the partners, management and the U.S. Department of Housing and Urban Development and is not intended to be and should not be used by anyone other than these specified parties. Bethesda, Maryland April 21, 2010-42 -
INDEPENDENT AUDITORS REPORT ON COMPLIANCE WITH SPECIFIC REQUIREMENTS APPLICABLE TO MAJOR HUD PROGRAMS To the Partners Windsor Family Associates Limited Partnership We have audited Windsor Family Associates Limited Partnership s compliance with the specific program requirements governing federal financial reports; mortgage status; replacement reserve; residual receipts; distributions to owners; tenant application, eligibility and recertification; management functions; unauthorized change of ownership/acquisition of liabilities; unauthorized loans of project funds; excess income that are applicable to each of its major HUD-assisted programs for the year ended December 31, 2009. Compliance with those requirements is the responsibility of the partnership s management. Our responsibility is to express an opinion on the 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 U.S. Department of Housing and Urban Development, 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 requirements referred to above that could have a direct and material effect on a major HUD-assisted program occurred. An audit includes examining, on a test basis, evidence about Windsor Family Associates Limited Partnership s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination of the partnership s compliance with those requirements. In our opinion, Windsor Family Associates Limited Partnership complied, in all material respects, with the requirements referred to above that are applicable to each of its major HUDassisted programs for the year ended December 31, 2009. - 43 -
This report is intended solely for the information and use of the partners, management and the U.S. Department of Housing and Urban Development and is not intended to be and should not be used by anyone other than these specified parties. Bethesda, Maryland April 21, 2010-44 -
INDEPENDENT AUDITORS REPORT ON COMPLIANCE WITH SPECIFIC REQUIREMENTS APPLICABLE TO FAIR HOUSING AND NON-DISCRIMINATION To the Partners Windsor Family Associates Limited Partnership We have applied procedures to test Windsor Family Associates Limited Partnership s compliance with the Fair Housing and Non-Discrimination requirements applicable to its HUDassisted programs for the year ended December 31, 2009. Our procedures were limited to the applicable compliance requirement described by the Consolidated Audit Guide for Audits of HUD Programs (the Guide) issued by the U.S. Department of Housing and Urban Development, Office of the Inspector General. Our procedures were substantially less in scope than an audit, the objective of which is the expression of an opinion on (Client name) s compliance with the Fair Housing and Non-Discrimination requirements. Accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance that are required to be reported herein under the Guide. This report is intended solely for the information and use of the partners, management and the U.S. Department of Housing and Urban Development and is not intended to be and should not be used by anyone other than these specified parties. Bethesda, Maryland April 21, 2010-45 -