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 September 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)
September 30, December 31,
2001 2000
(unaudited) (Note)
Assets
Cash and cash equivalents $ 887 $ 2,447
Receivables and deposits 3,350 1,663
Restricted escrows 2,504 2,022
Other assets 564 1,416
Investment property:
Land 5,833 5,833
Buildings and related personal property 117,627 110,716
123,460 116,549
Less accumulated depreciation (63,892) (59,137)
59,568 57,412
$ 66,873 $ 64,960
Liabilities and Partners' (Deficit) Capital
Liabilities
Accounts payable $ 1,867 $ 1,512
Due to affiliates 12 187
Accrued property taxes 479 --
Tenant security deposit liabilities 729 567
Other liabilities 676 623
Advances from affiliate 1,632 2,233
Mortgage note payable 52,295 53,689
Minority interest 5,416 4,529
Partners' (Deficit) Capital
General partners (2,672) (2,779)
Limited partners (649 units issued and
outstanding) 6,439 4,399
3,767 1,620
$ 66,873 $ 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 accounting principles generally accepted in the
United States for complete financial statements. Certain amounts have been
reclassified to conform to the presentation of the September 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 Nine Months Ended
September 30, September 30,
2001 2000 2001 2000
Revenues:
Rental income $ 7,468 $ 6,836 $22,159 $18,718
Other income 311 393 977 1,027
Total revenues 7,779 7,229 23,136 19,745
Expenses:
Operating 3,269 2,516 9,184 7,723
General and administrative 190 293 537 563
Depreciation 1,666 1,462 4,813 4,137
Interest 1,309 1,326 3,962 3,929
Property taxes 478 438 1,394 1,330
Bad debt expense, net 57 133 212 364
Total expenses 6,969 6,168 20,102 18,046
Income before minority interest 810 1,061 3,034 1,699
Minority interest in net income
of operating partnerships (287) (298) (887) (554)
Net income $ 523 $ 763 $ 2,147 $ 1,145
Net income allocated to general
partners (5%) $ 26 $ 38 $ 107 $ 57
Net income allocated to limited
partners (95%) 497 725 2,040 1,088
$ 523 $ 763 $ 2,147 $ 1,145
Net income per limited partnership
unit $ 765 $ 1,117 $ 3,143 $ 1,676
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 nine months
ended September 30, 2000 -- 57 1,088 1,145
Partners' (deficit) capital at
September 30, 2000 649 $(2,808) $ 3,848 $ 1,040
Partners' (deficit) capital at
December 31, 2000 649 $(2,779) $ 4,399 $ 1,620
Net income for the nine months
ended September 30, 2001 -- 107 2,040 2,147
Partners' (deficit) capital at
September 30, 2001 649 $(2,672) $ 6,439 $ 3,767
See Accompanying Notes to Consolidated Financial Statements
d)
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
2001 2000
Cash flows from operating activities:
Net income $ 2,147 $ 1,145
Adjustments to reconcile net income to net cash provided
by operating activities:
Minority interest in net income of operating
partnerships 887 554
Depreciation 4,813 4,137
Amortization of loan costs 102 83
Bad debt expense, net 212 364
Change in accounts:
Receivables and deposits (1,899) (2,048)
Other assets 750 826
Accounts payable (85) 165
Tenant security deposit liabilities 162 63
Other liabilities 84 234
Due to affiliates (175) 185
Accrued property taxes 479 451
Net cash provided by operating activities 7,477 6,159
Cash flows from investing activities:
Property improvements and replacements (6,560) (5,606)
Net deposits to restricted escrows (482) (105)
Net cash used in investing activities (7,042) (5,711)
Cash flows from financing activities:
Payments on mortgage note payable (1,394) (1,134)
Payments on advances from affiliate (1,287) --
Advance from affiliate 686 1,629
Net cash (used in) provided by financing activities (1,995) 495
Net (decrease) increase in cash and cash equivalents (1,560) 943
Cash and cash equivalents at beginning of period 2,447 2,343
Cash and cash equivalents at end of period $ 887 $ 3,286
Supplemental disclosure of cash flow information:
Cash paid for interest, including approximately $172 and
$0, respectively, to an affiliate $ 3,874 $ 3,417
Supplemental disclosure of non-cash flow activity:
Property improvements and replacements included in
accounts payable $ 1,348 $ 1,213
Included in property improvements and replacements for the nine months ended
September 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 nine month periods ended
September 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 an affiliate of 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 86.66% general partnership interest in Springhill Lake
Limited Partnerships I through IX and Springhill Commercial Limited Partnership
(the "Operating Partnerships"). The limited partner'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.
Reclassifications
Certain of the 2000 balances have been reclassified to conform to the 2001
presentation.
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 nine months ended September 30, 2001 and 2000:
2001 2000
(in thousands)
Property management fees (included in
operating expenses) $ 684 $ 570
Reimbursement for services of affiliates
(included in general and administrative
expense and investment property) 2,132 415
Asset management fee (included in general
and administrative expense) 78 78
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 $684,000 and $570,000 for the nine months ended
September 30, 2001 and 2000, respectively.
An affiliate of the Managing General Partner received reimbursement of
accountable administrative expenses amounting to approximately $2,132,000 and
$415,000 for the nine months ended September 30, 2001 and 2000, respectively.
Included in these amounts at September 30, 2001 are reimbursements of
approximately $1,727,000 for construction oversight costs. There were no such
expenditures at September 30, 2000.
In accordance with the Partnership Agreement, the Managing General Partner
earned approximately $78,000 and $5,000 in asset management fees and
administrative fees, respectively, for each of the nine months ended September
30, 2001 and 2000.
At September 30, 2001 and December 31, 2000, the Partnership owed advances of
approximately $1,632,000 and $2,233,000, respectively, to an affiliate of the
Managing General Partner. Accrued interest thereon of approximately $12,000 and
$30,000, respectively, is included in due to affiliates. These advances bear
interest at the prime rate plus 2%, and the Partnership recognized approximately
$154,000 and $37,000 in interest expense during the nine months ended September
30, 2001 and 2000, respectively. During the nine months ended September 30, 2001
and 2000, the Partnership received advances of approximately $686,000 and
$1,629,000, respectively, and made payments of approximately $1,287,000 and $0,
respectively.
In addition to its indirect ownership of the general partner interests in the
Partnership, AIMCO and its affiliates owned 447.15 limited partnership units
(the "Units") in the Partnership representing 68.90% of the outstanding Units at
September 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 68.90% of the outstanding Units, AIMCO is in a position to control
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 - Casualty
On April 19, 2001, a fire occurred at Springhill Lake Apartments damaging two
buildings. Negotiations concerning this casualty are ongoing with the insurance
carrier. Thus, the financial statement impact cannot be practicably determined
at this time. The Partnership does not expect to recognize a loss from this
event.
Note D - 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 nine months ended
September 30, 2001 and 2000:
Average
Occupancy
2001 2000
Springhill Lake Apartments
Greenbelt, Maryland 97% 87%
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 nine months ended September 30, 2001 was
approximately $2,147,000 compared to approximately $1,145,000 for the
corresponding period in 2000. The Registrant's net income for the three months
ended September 30, 2001 was approximately $523,000 compared to approximately
$763,000 for the corresponding period in 2000. Income before minority interest
for the nine months ended September 30, 2001 was approximately $3,034,000
compared to approximately $1,699,000 for the corresponding period in 2000.
Income before minority interest for the three months ended September 30, 2001
was approximately $810,000 compared to approximately $1,061,000 for the
corresponding period in 2000. The increase in income before minority interest
for the three and nine months ended September 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
rental income offset by a decrease in 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 decreased primarily due
to a decrease in interest income and tenant reimbursements.
Total expenses increased primarily due to an increase in operating, depreciation
and property tax expenses partially offset by a decrease in general and
administrative and bad debt expenses. Operating expense increased primarily due
to an increase in utility expenses, especially natural gas, interior and
exterior common area painting projects, insurance premiums, contract work 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
which are now being depreciated. Property tax expense increased due to an
increase in the assessed value by the local taxing authority. Bad debt expense
decreased due to increased occupancy and tenant retention and the renovation
project attracting more desirable tenants. General and administrative expenses
decreased due to a decrease in reimbursements to the Managing General Partner
allowed under the Partnership Agreement associated with its management of the
Partnership. In addition to these reimbursements, 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 September 30, 2001, the Registrant had cash and cash equivalents of
approximately $887,000 compared to approximately $3,286,000 at September 30,
2000. Cash and cash equivalents decreased approximately $1,560,000 since
December 31, 2000 due to approximately $7,042,000 and $1,995,000 of cash used in
investing and financing activities, respectively, which was partially offset by
approximately $7,477,000 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 partially 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 $7,176,000 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 nine
months ended September 30, 2001, the property completed approximately $7,000,000
of capital expenditures, consisting primarily of electrical and plumbing
upgrades, water submetering, flooring and appliance replacements, roof
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 $52,295,000 is amortized over 120 months with a
balloon payment of approximately $49,017,000 due in 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 September 30, 2001 and December 31, 2000, the Partnership owed advances of
approximately $1,632,000 and $2,233,000, respectively, to an affiliate of the
Managing General Partner. Accrued interest thereon of approximately $12,000 and
$30,000, respectively, is included in due to affiliates. These advances bear
interest at the prime rate plus 2%, and the Partnership recognized approximately
$154,000 and $37,000 in interest expense during the nine months ended September
30, 2001 and 2000, respectively. During the nine months ended September 30, 2001
and 2000, the Partnership received advances of approximately $686,000 and
$1,629,000, respectively, and made payments of approximately $1,287,000 and $0,
respectively.
The Partnership did not make any distributions to its partners during the nine
months ended September 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 the debt
maturity, refinancing, and/or sale of the property. The Partnership's
distribution policy is reviewed on a monthly 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 interests in the
Partnership, AIMCO and its affiliates owned 447.15 limited partnership units
(the "Units") in the Partnership representing 68.90% of the outstanding Units at
September 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 68.90% of the outstanding Units, AIMCO is in a position to control
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 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. As of
September 30, 2001, the Partnership owes approximately $1,632,000 in such
advances which are repaid as the property's cash flow allows. Based on interest
rates at September 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 September
30, 2001. The interest rates represent the weighted-average rates. The fair
value of the Partnership's debt is approximately $53,655,000 as of September 30,
2001.
Principal amount by expected maturity:
Long Term Debt
Fixed Rate Debt Average Interest Rate
(in thousands)
2001 $ 354 9.30%
2002 2,049 9.30%
2003 49,892 9.30%
Total $52,295
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: