The following discussion and analysis of the liquidity and capital resources and results of operations of the Partnership should be read in conjunction with the audited Consolidated Financial Statements of the Account and the Partnership and the related Notes included herein.
The Partnership spent approximately $6.0 million on capital improvements to existing properties during 2005. Approximately $1.1 million was associated with the renovation of an apartment complex in Atlanta, Georgia, approximately $3.8 million with the renovation and redevelopment of a retail center in Roswell, Georgia, and approximately $0.5 million with the renovation of a hotel property in Lake Oswego, Oregon. The remaining $0.6 million was associated with minor capital improvements and transaction costs associated with leasing at various other properties.
The Partnership’s net investment income for the year ended December 31, 2005 was approximately $9.2 million, an increase of $1.4 million from $7.8 million for the prior year period. The office and hotel sector investments posted increases of $1.0 million and $0.5 million, respectively, from the prior year period. Partially offsetting these increases for 2005 were decreases in net investment income in the apartment, retail and industrial sectors, which posted decreases of $0.2 million, $0.3 million and $0.4 million, respectively, from the prior year period. Other net investment income increased $0.9 million during the year ended December 31, 2005 from the prior year period. Detail on the components of this net investment income are discussed below by property type sector.
The Partnership recorded an aggregate net realized and unrealized gain of $15.5 million for the year ended December 31, 2005, compared to an aggregate net realized and unrealized gain of $3.3 million for the prior year period.
The Partnership recorded an aggregate net realized gain of $6.2 million for the year ended December 31, 2005, compared to an aggregate net realized gain of $1.7 million for the prior year period. The realized gain for 2005 was recorded in the apartment and office sectors, which realized gains of $4.4 million and $1.2 million, respectively. In addition, the aggregate net realized gain for 2005 includes approximately $0.6 million of gain realized from the sale of a parcel of land located in Blue Springs, Missouri.
The following table presents a comparison of the Partnership’s sources of net investment income, and realized and unrealized gains or losses by investment type for the years ended December 31, 2005 and 2004.
Net Realized and Unrealized Gain (Loss) on Real Estate Investments $ 15,460,619
The Partnership recorded an aggregate net realized and unrealized gain of $5.0 million for the year ended December 31, 2005, compared to a net realized and unrealized gain of $1.1 million for the prior year period. The 2005 gains in the Partnership’s apartment sector were primarily due to (a) continued investor demand for apartment property types that resulted in a net unrealized gain of approximately $1.1 million related to the Raleigh, North Carolina property and (b) the sales of one apartment complex in Salem, Oregon and one apartment complex in Jacksonville, Florida. Partially offsetting these gains was a net unrealized loss of approximately $0.6 million related to the apartment property in Atlanta, Georgia attributable to capital expended in connection with the completion of an exterior redevelopment that did not result in value gains.
(3) Net investment income for the year ended December 31, 2005 reflects partial period results.
Net investment income for the Partnership’s retail properties was $4.4 million for the year ended December 31, 2005, a decrease of $0.3 million from the prior year period. The decrease in net investment income was primarily due to (a) increased expenses at the retail centers in Kansas City, Kansas and Kansas City, Missouri, (b) increased vacancy at the retail center in Ocean City, Maryland and (c) interest income received the prior year in connection with the loan made by the Partnership to the retail center in Westminster, Maryland that was paid in full on September 13, 2004. Partially offsetting the decrease was (a) an increase in net investment income at the retail center in Roswell, Georgia due to higher occupancy resulting from the opening of an anchor retailer, Publix, (b) interest income received in connection with the mortgage loan made by the Partnership to the retail center in Westminster, Maryland in January 2004 and (c) income received from the preferred equity investment made by the partnership on December 16, 2005.
The Aurora, Colorado industrial property owned by the Partnership recorded a net unrealized gain of approximately $1.4 million for the year ended December 31, 2005, compared to a net unrealized loss of approximately $0.2 million for the prior year period. The 2005 net unrealized gain was primarily due to investor demand for this product type.
The Lake Oswego, Oregon hotel property recorded a net unrealized gain of $1.0 million for the year ended December 31, 2005, compared to a net unrealized gain of approximately $0.1 million for the prior year period. The 2005 net unrealized gain was primarily due to strengthening market fundamentals and benefits associated with completion of a renovation.
The Blue Springs, Missouri land investment owned by the Partnership realized a net gain of approximately $0.6 million for the year ended December 31, 2005. The Partnership sold this land investment, prior to funding, for $2.3 million on November 28, 2005.
Other net investment income increased $0.9 million during the year ended December 31, 2005 from the prior year period. Other net investment income included interest income from short-term investments, investment management fees, and portfolio level expenses.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the application of accounting policies that often involve a significant degree of judgment. Management reviews critical estimates and assumptions on an ongoing basis. If management determines, as a result of its consideration of facts and circumstances, that modifications in assumptions and estimates are appropriate, results of operations and financial position as reported in the audited Consolidated Financial Statements of the Account and the Partnership may change significantly.
The following sections discuss those critical accounting policies applied in preparing the audited Consolidated Financial Statements of the Account and the Partnership that are most dependent on the application of estimates and assumptions.
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 at the date of the audited Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.