FORM 10-Q--QUARTERLY OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Quarterly or Transitional Report
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _________to _________
Commission file number 0-14569
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
(Exact name of small business issuer as specified in its charter)
Maryland 04-2848939
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Beattie Place, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No___
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a)
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
(in thousands, except unit data)
June 30, 2001
June 30, December 31,
2001 2000
(unaudited) (Note)
Assets
Cash and cash equivalents $ 1,138 $ 2,447
Receivables and deposits 2,722 1,663
Restricted escrows 2,233 2,022
Other assets 527 1,416
Investment property:
Land 5,833 5,833
Buildings and related personal property 115,050 110,716
120,883 116,549
Less accumulated depreciation (62,284) (59,137)
58,599 57,412
$ 65,219 $ 64,960
Liabilities and Partners' (Deficit) Capital
Liabilities
Accounts payable 617 1,512
Due to affiliates 19 187
Tenant security deposit liabilities 666 567
Other liabilities 1,027 623
Advances from affiliate 1,747 2,233
Mortgage note payable 52,770 53,689
Minority interest 5,129 4,529
Partners' (Deficit) Capital
General partners (2,698) (2,779)
Limited partners (649 units issued and
outstanding) 5,942 4,399
3,244 1,620
$ 65,219 $ 64,960
Note: The balance sheet at December 31, 2000, has been derived from the audited
financial statements at that date but does not include all the information
and footnotes required by generally accepted accounting principles in the
United States for complete financial statements. Certain amounts have been
reclassified to conform to the presentation of the June 30, 2001 balance
sheet.
See Accompanying Notes to Consolidated Financial Statements
b)
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
Revenues:
Rental income $ 7,390 $ 6,192 $14,691 $11,882
Other income 337 326 666 634
Total revenues 7,727 6,518 15,357 12,516
Expenses:
Operating 3,009 2,772 5,915 5,207
General and administrative 180 145 347 270
Depreciation 1,585 1,386 3,147 2,675
Interest 1,317 1,294 2,653 2,603
Property taxes 466 452 916 892
Bad debt expense, net 73 63 155 231
Total expenses 6,630 6,112 13,133 11,878
Income before minority interest 1,097 406 2,224 638
Minority interest in net income
of operating partnerships (300) (173) (600) (256)
Net income $ 797 $ 233 $ 1,624 $ 382
Net income allocated to general
partners (5%) $ 40 $ 12 $ 81 $ 19
Net income allocated to limited
partners (95%) 757 221 1,543 363
$ 797 $ 233 $ 1,624 $ 382
Net income per limited partnership
unit $ 1,167 $ 340 $ 2,378 $ 559
See Accompanying Notes to Consolidated Financial Statements
c)
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' (DEFICIT) CAPITAL
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partners Partners Total
Original capital contributions 649 $ -- $40,563 $40,563
Partners' (deficit) capital at
December 31, 1999 649 $(2,865) $ 2,760 $ (105)
Net income for the six months
ended June 30, 2000 -- 19 363 382
Partners' (deficit) capital at
June 30, 2000 649 $(2,846) $ 3,123 $ 277
Partners' (deficit) capital at
December 31, 2000 649 $(2,779) $ 4,399 $ 1,620
Net income for the six months
ended June 30, 2001 -- 81 1,543 1,624
Partners' (deficit) capital at
June 30, 2001 649 $(2,698) $ 5,942 $ 3,244
See Accompanying Notes to Consolidated Financial Statements
d)
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
June 30,
2001 2000
Cash flows from operating activities:
Net income $ 1,624 $ 382
Adjustments to reconcile net income to net cash provided
by operating activities:
Minority interest in net income of operating
partnerships 600 256
Depreciation 3,147 2,675
Amortization of loan costs 68 62
Bad debt expense, net 155 231
Change in accounts:
Receivables and deposits (1,214) (1,174)
Other assets 821 827
Accounts payable 13 849
Tenant security deposit liabilities 99 21
Other liabilities 404 341
Due to affiliates (168) --
Net cash provided by operating activities 5,549 4,470
Cash flows from investing activities:
Property improvements and replacements (5,242) (3,708)
Net deposits to restricted escrows (211) (574)
Net cash used in investing activities (5,453) (4,282)
Cash flows from financing activities:
Payments on mortgage note payable (919) (734)
Payments on advances from affiliate (1,172) --
Advance from affiliate 686 --
Net cash used in financing activities (1,405) (734)
Net decrease in cash and cash equivalents (1,309) (546)
Cash and cash equivalents at beginning of period 2,447 2,343
Cash and cash equivalents at end of period $ 1,138 $ 1,797
Supplemental disclosure of cash flow information:
Cash paid for interest $ 2,606 $ 2,118
Included in property improvements and replacements for the six months ended June
30, 2001 are approximately $908,000 of improvements which were included in
accounts payable at December 31, 2000.
See Accompanying Notes to Consolidated Financial Statements
e)
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited consolidated financial statements of Springhill Lake
Investors Limited Partnership (the "Partnership" or "Registrant") have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of Three Winthrop Properties, Inc. (the
"Managing General Partner" or "Three Winthrop"), all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and six month periods ended June
30, 2001, are not necessarily indicative of the results that may be expected for
the year ending December 31, 2001. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Partnership's Annual Report on Form 10-KSB for the year ended December 31, 2000.
The Managing General Partner is ultimately controlled by Apartment Investment
and Management Company ("AIMCO"), a publicly traded real estate investment
trust.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the
Partnership and its 90% general partnership interest in Springhill Lake Limited
Partnerships I through IX and Springhill Commercial Limited Partnership (the
"Operating Partnerships"). Theodore N. Lerner's ownership in the Operating
Partnerships has been reflected as a minority interest in the accompanying
consolidated financial statements. All significant interpartnership accounts and
transactions have been eliminated in consolidation.
Segment Reporting
Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosure about
Segments of an Enterprise and Related Information" established standards for the
way that public business enterprises report information about operating segments
in annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial reports. It
also established standards for related disclosures about products and services,
geographic areas and major customers. As defined in SFAS No. 131, the
Partnership has only one reportable segment. The Managing General Partner
believes that segment-based disclosures will not result in a more meaningful
presentation than the consolidated financial statements as currently presented.
Note B - Transactions with Affiliated Parties
The Partnership has no employees and is dependent on the Managing General
Partner and its affiliates for the management and administration of all
Partnership activities. The Limited Partnership Agreement provides for (i)
certain payments to affiliates for services, (ii) reimbursements of certain
expenses incurred by affiliates on behalf of the Partnership, (iii) an annual
asset management fee of $100,000 and (iv) an annual administration fee of
$10,000.
The following transactions with affiliates of the Managing General Partner were
charged to expense for the six months ended June 30, 2001 and 2000:
2001 2000
(in thousands)
Property management fees (included in
operating expenses) $ 457 $ 367
Reimbursement for services of affiliates
(included in general and administrative
expense and investment property) 663 171
Asset management fee (included in general
and administrative expense) 50 50
Annual administration fee (included in
general and administrative expense) 5 5
Affiliates of the Managing General Partner are entitled to receive 3% of tenant
rent collections and 5% of store commercial income from the Registrant's
property for providing property management services. The Registrant paid to such
affiliates approximately $457,000 and $367,000 for the six months ended June 30,
2001 and 2000, respectively.
An affiliate of the Managing General Partner received reimbursement of
accountable administrative expenses amounting to approximately $663,000 and
$171,000 for the six months ended June 30, 2001 and 2000, respectively. Included
in these amounts at June 30, 2001 are reimbursements of approximately $402,000
for construction oversight costs. There were no such expenditures at June 30,
2000.
In accordance with the Partnership Agreement, the Managing General Partner
earned approximately $50,000 in asset management fees and approximately $5,000
in administrative fees for both the six months ended June 30, 2001 and 2000.
At June 30, 2001 and December 31, 2000, the Partnership owed advances of
approximately $1,747,000 and $2,233,000, respectively, to an affiliate of the
Managing General Partner including accrued interest thereon of approximately
$19,000 and $30,000, respectively, which is included in due to affiliates. These
advances bear interest at the prime rate plus 2%, and the Partnership recognized
approximately $117,000 in interest expense during the six months ended June 30,
2001. Additionally, during the six months ended June 30, 2001, the Partnership
received advances of approximately $686,000 and made payments of approximately
$1,172,000.
In addition to its indirect ownership of the general partner interest in the
Partnership, AIMCO and its affiliates owned 446.65 limited partnership units
(the "Units") in the Partnership representing 68.82% of the outstanding Units at
June 30, 2001. A number of these Units were acquired pursuant to tender offers
made by AIMCO or its affiliates or Three Winthrop's affiliates. It is possible
that AIMCO or its affiliates will make one or more additional offers to acquire
additional limited partnership interests in the Partnership for cash or in
exchange for units in the operating partnership of AIMCO. Under the Partnership
Agreement, unitholders holding a majority of the Units are entitled to take
action with respect to a variety of matters. As a result of its ownership of
68.82% of the outstanding Units, AIMCO is in a position to influence all voting
decisions with respect to the Registrant. When voting on matters, AIMCO would in
all likelihood vote the Units it acquired in a manner favorable to the interest
of the Managing General Partner because of its affiliation with the Managing
General Partner.
Note C - Legal Proceedings
Grady v. Springhill Lake Apartments (Pending before the Prince George's County
Human Relations Commission, case no. AP94-1233). This public accommodation
discrimination claim was filed on December 16, 1994, however, the Commission
failed to notify the Registrant of the charge until September 8, 1996. On
December 26, 1996, the Registrant filed its position statement in this matter.
In his charge, the Complaintant claims that he was denied information regarding
the rental of an apartment for commercial use because of his race. In fact, the
Property does not lease apartments for commercial use, and, at the time, the
Property had no commercial space available for lease. In addition, the
Registrant believes that the almost two year delay in notifying the Registrant
of the charge is so prejudicial that the charge should be dismissed. The
Registrant is vigorously defending this matter. The Managing General Partner
does not anticipate that any cost, whether legal or settlement cost, associated
with this case will be material to the Registrant's overall operations.
The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature arising in the ordinary course of business.
Item 2. Management's Discussion and Analysis or Plan of Operations
The matters discussed in this Form 10-Q contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the
disclosures contained in this Form 10-Q and the other filings with the
Securities and Exchange Commission made by the Registrant from time to time. The
discussion of the Registrant's business and results of operations, including
forward-looking statements pertaining to such matters, does not take into
account the effects of any changes to the Registrant's business and results of
operations. Accordingly, actual results could differ materially from those
projected in the forward-looking statements as a result of a number of factors,
including those identified herein.
The Operating Partnerships' investment property is a complex which consists of
apartment and townhouse units and an eight store shopping center. The following
table sets forth the average occupancy of the property for the six months ended
June 30, 2001 and 2000:
Average
Occupancy
2001 2000
Springhill Lake Apartments
Greenbelt, Maryland 97% 85%
The increase in occupancy is due to significant renovation and beautification
efforts at the property. Additionally, emphasis was placed on quickly readying
vacant units for occupancy and implementing new marketing strategies.
Results of Operations
The Registrant's net income for the six months ended June 30, 2001 was
approximately $1,624,000 as compared to approximately $382,000 for the
corresponding period in 2000. The Registrant's net income for the three months
ended June 30, 2001 was approximately $797,000 as compared to approximately
$233,000 for the corresponding period in 2000. Income before minority interest
for the six months ended June 30, 2001 was approximately $2,224,000 as compared
to approximately $638,000 for the corresponding period in 2000. Income before
minority interest for the three months ended June 30, 2001 was approximately
$1,097,000 as compared to approximately $406,000 for the corresponding period in
2000. The increase in income before minority interest for the three and six
months ended June 30, 2001 is primarily the result of an increase in total
revenues partially offset by an increase in total expenses. The increase in
total revenues is attributable to an increase in both rental and other income.
Rental income increased due to a significant increase in occupancy at the
property as discussed above and a decrease in concessions offered to tenants.
Other income increased primarily due to an increase in interest income, late
charges and tenant reimbursement.
Total expenses increased primarily due to an increase in operating, general and
administrative and depreciation expenses which more than offset the decrease in
bad debt expense. Operating expense increased primarily due to an increase in
utility expense, especially natural gas, maintenance salaries, interior painting
projects and property management expenses which is charged as a percentage of
tenant rent collections. Depreciation expense increased due to the completion of
capital improvements and replacements at the property during the past twelve
months. Bad debt expense decreased due to increased occupancy and the renovation
project attracting more desirable tenants.
General and administrative expenses increased due to an increase in
reimbursements to the Managing General Partner allowed under the Partnership
Agreement associated with its management of the Partnership. Costs associated
with the quarterly and annual communications with investors and regulatory
agencies and the annual audit required by the Partnership Agreement are also
included in general and administrative expenses.
As part of the ongoing business plan of the Registrant, the Managing General
Partner monitors the rental market environment of its investment property to
assess the feasibility of increasing rents, maintaining or increasing occupancy
levels, and protecting the Registrant from increases in expenses. As part of
this plan, the Managing General Partner attempts to protect the Registrant from
the burden of inflation-related increases in expenses by increasing rents and
maintaining a high overall occupancy level. However, due to changing market
conditions, which can result in the use of rental concessions and rental
reductions to offset softening market conditions, there is no guarantee that the
Managing General Partner will be able to sustain such a plan.
Liquidity and Capital Resources
At June 30, 2001, the Registrant had cash and cash equivalents of approximately
$1,138,000 as compared to approximately $1,797,000 at June 30, 2000. Cash and
cash equivalents decreased approximately $1,309,000 for the six months ended
June 30, 2001 from December 31, 2000. The decrease in cash and cash equivalents
is the result of approximately $5,453,000 and $1,405,000 of cash used in
investing and financing activities, respectively, which was partially offset by
approximately $5,549,000 of cash provided by operating activities. Cash used in
investing activities consisted of property improvements and replacements and, to
a lesser extent, net deposits to escrow accounts maintained by the mortgage
lender. Cash used in financing activities consisted of principal payments made
on the mortgage encumbering the Registrant's property and payments on advances
from affiliate offset by an advance from an affiliate. The Registrant invests
its working capital reserves in interest bearing accounts.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the property to adequately maintain the physical assets
and other operating needs of the Registrant and to comply with Federal, state,
and local legal and regulatory requirements.
For 2001, the Partnership budgeted approximately $4,950,000 for capital
improvements at Springhill Lake Apartments consisting primarily of flooring
replacements, structural improvements, building refurbishments, water
submetering, general enhancements and parking lot resurfacing. During the six
months ended June 30, 2001, the property completed approximately $4,334,000 of
capital expenditures, consisting primarily of electrical and plumbing upgrades,
water submetering, flooring and appliance replacements, structural improvements,
recreational facility upgrades, swimming pool enhancements, interior and
exterior improvements and parking area upgrades. These improvements were funded
from operating cash flow and replacement reserves. Additional improvements may
be considered and will depend on the physical condition of the property as well
as replacement reserves and anticipated cash flow generated by the property.
The Registrant's current assets are thought to be sufficient for any near term
needs (exclusive of capital improvements) of the Registrant. The mortgage
indebtedness of approximately $52,770,000 is amortized over 120 months with a
balloon payment of approximately $49,017,000 due May 2003. The Managing General
Partner will attempt to refinance such indebtedness and/or sell the property
prior to such maturity date. If the property cannot be refinanced or sold for a
sufficient amount, the Registrant will risk losing the property through
foreclosure.
At June 30, 2001, the Partnership owed advances of approximately $1,747,000 to
an affiliate of the Managing General Partner including accrued interest thereon
of approximately $19,000. During the six months ended June 30, 2001, the
Partnership received advances of approximately $686,000 and made payments of
approximately $1,172,000.
The Partnership did not make any distributions to its partners during the six
months ended June 30, 2001 or 2000. The Partnership is prohibited from making
distributions until all advances from its affiliate are repaid. Future cash
distributions will depend on the levels of net cash generated from operations,
the availability of cash reserves, and the timing of debt maturity, refinancing,
and/or sale of the property. The Partnership's distribution policy is reviewed
on a quarterly basis. There can be no assurance that the Partnership will
generate sufficient funds from operations after planned capital expenditures to
permit distributions to its partners during 2001 or subsequent periods.
In addition to its indirect ownership of the general partner interest in the
Partnership, AIMCO and its affiliates owned 446.65 limited partnership units
(the "Units") in the Partnership representing 68.82% of the outstanding Units at
June 30, 2001. A number of these Units were acquired pursuant to tender offers
made by AIMCO or its affiliates or Three Winthrop's affiliates. It is possible
that AIMCO or its affiliates will make one or more additional offers to acquire
additional limited partnership interests in the Partnership for cash or in
exchange for units in the operating partnership of AIMCO. Under the Partnership
Agreement, unitholders holding a majority of the Units are entitled to take
action with respect to a variety of matters. As a result of its ownership of
68.82% of the outstanding Units, AIMCO is in a position to influence all voting
decisions with respect to the Registrant. When voting on matters, AIMCO would in
all likelihood vote the Units it acquired in a manner favorable to the interest
of the Managing General Partner because of its affiliation with the Managing
General Partner.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership is exposed to market risks from adverse changes in interest
rates. In this regard, changes in U.S. interest rates affect the interest earned
on the Partnership's cash and cash equivalents as well as interest paid on its
indebtedness. As a policy, the Partnership does not engage in speculative or
leveraged transactions, nor does it hold or issue financial instruments for
trading purposes. The Partnership is exposed to changes in interest rates
primarily as a result of its borrowing activities used to maintain liquidity and
fund business operations. To mitigate the impact of fluctuations in U.S.
interest rates, the Partnership maintains its debt as fixed rate in nature by
borrowing on a long-term basis. However, the advances made from its affiliate to
the Partnership bear interest at a variable rate. Based on interest rates at
June 30, 2001, a 100 basis point increase or decrease in market interest rates
would not have a material impact on the Partnership.
The following table summarizes the Partnership's debt obligations at June 30,
2001. The interest rates represent the weighted-average rates. The fair value of
the Partnership's debt is approximately $54,340,000 as of June 30, 2001.
Principal amount by expected maturity:
Long Term Debt
Fixed Rate Debt Average Interest Rate
(in thousands)
2001 $ 829 9.30%
2002 2,049 9.30%
2003 49,892 9.30%
Total $52,770
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
Grady v. Springhill Lake Apartments (Pending before the Prince George's County
Human Relations Commission, case no. AP94-1233). This public accommodation
discrimination claim was filed on December 16, 1994, however, the Commission
failed to notify the Registrant of the charge until September 8, 1996. On
December 26, 1996, the Registrant filed its position statement in this matter.
In his charge, the Complaintant claims that he was denied information regarding
the rental of an apartment for commercial use because of his race. In fact, the
Property does not lease apartments for commercial use, and, at the time, the
Property had no commercial space available for lease. In addition, the
Registrant believes that the almost two year delay in notifying the Registrant
of the charge is so prejudicial that the charge should be dismissed. The
Registrant is vigorously defending this matter. The Managing General Partner
does not anticipate that any cost, whether legal or settlement cost, associated
with this case will be material to the Registrant's overall operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
None.
b) Reports on Form 8-K:
Current Report on Form 8-K dated July 6, 2001 and filed on
July 13, 2001, disclosing the dismissal of Arthur Andersen LLP
as the Registrant's certifying accountant and the appointment
of Ernst & Young LLP as the certifying accountants for the
year ended December 31, 2001.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
By: THREE WINTHROP PROPERTIES, INC.
Managing General Partner
By: /s/Patrick J. Foye
Patrick J. Foye
Vice President - Residential
By: /s/Martha L. Long
Martha L. Long
Vice President - Residential
Accounting
Date: