FORM 10-K--ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
[No Fee Required]
For the fiscal year ended December 31, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
[No Fee Required]
For the transition period from _________to _________
Commission file number 0-14569
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
(Exact name of registrant 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, PO Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
Issuer's telephone number (864) 239-1000
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Units of Limited Partnership Interest
(Title of class)
Indicate by check mark whether the registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding
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___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [X].
State the aggregate market value of the voting partnership interests held by
non-affiliates computed by reference to the price at which the partnership
interests were sold, or the average bid and asked prices of such partnership
interests, as of December 31, 2001. No market exists for the limited partnership
interests of the Registrant, and, therefore, no aggregate market value can be
determined.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
PART I
Item 1. Description of Business
Springhill Lake Investors Limited Partnership (the "Registrant" or the
"Partnership") was organized as a Maryland limited partnership under the
Maryland Revised Uniform Limited Partnership Act on December 28, 1984, for the
purpose of investing as a general partner in Springhill Lake Limited
Partnerships I through IX and Springhill Commercial Limited Partnership
(collectively, the "Operating Partnerships"), each of which is a Maryland
limited partnership owning a section of a garden apartment complex in Greenbelt,
Maryland (the "Project" or "Property"). The Registrant is the sole General
Partner of each Operating Partnership. The Limited Partner of each Operating
Partnership is Theodore N. Lerner ("Lerner"), a former General Partner of the
Operating Partnerships whose interest was converted to that of a Limited Partner
on January 16, 1985 in conjunction with the Registrant's acquisition of its
interest in the Operating Partnerships. The Managing General Partner of the
Registrant is Three Winthrop Properties, Inc. ("Three Winthrop" or "Managing
General Partner") a wholly-owned subsidiary of First Winthrop Corporation
("FWC"), the controlling entities which are Winthtrop Financial Associates, a
Limited Partnership ("WFA"), and Apartment Investment and Management Company
("AIMCO"). See "Transfer of Control". The non-managing General Partner is
Linnaeus-Lexington Associates Limited Partnership ("Linnaeus-Lexington"). Both
the Managing General Partner and the non-managing General Partner are hereby
collectively known as the "General Partners". The Partnership Agreement provides
that the Partnership and Operating Partnerships are to terminate on December 31,
2035 unless terminated prior to such date.
The Registrant was initially capitalized with nominal capital contributions from
its General Partners. In April 1985, the Registrant completed a private offering
of 649 units of limited partnership interest (the "Units") pursuant to
Regulation D under the Securities Act of 1933 and the terms of the Confidential
Memorandum dated January 16, 1985. The Registrant raised $40,562,500 in capital
contributions from investors who were admitted to the Registrant as limited
partners ("Limited Partners"). Since its initial offering, the Registrant has
not received, nor are limited partners required to make, additional capital
contributions.
The Registrant purchased its interest in the Operating Partnerships on January
16, 1985, for approximately $73,515,000, of which $58,000,000 was financed by
means of a mortgage loan, which was subsequently refinanced in 1993. See "Item
8. Financial Statements - Note F" for further information concerning the
mortgage loan encumbering the property.
The Registrant's interest in the Operating Partnerships entitles it to 90% of
profits and losses for tax purposes, 90% of the Operating Partnerships' cash
flow (after certain priority distributions), and 85% of the proceeds of a sale
or disposition of the Project (after certain priority distributions).
The only business of the Registrant is investing as a general partner in the
Operating Partnerships, and as such, to cause the Operating Partnerships to own
and operate the Project, until such time as a sale, if any, of all or a portion
of the Project appears to be advantageous to the Registrant and is permitted
under the terms of the Operating Partnerships' Partnership Agreements. See "Item
2. Description of Property" for further information on the project owned by the
Operating Partnerships.
The Registrant has no employees. Management and administrative services are
performed by the Managing General Partner and by agents retained by the Managing
General Partner.
The real estate business in which the Partnership is engaged is highly
competitive. There are other residential properties within the market area of
the Partnership's project. The number and quality of competitive properties,
including those which may be managed by an affiliate of the Managing General
Partner, in such market area could have a material effect on the rental market
for the apartments and commercial space at the Registrant's property and the
rents that may be charged for such apartments and space. While the Managing
General Partner and its affiliates own and/or control a significant number of
apartment units in the United States, such units represent an insignificant
percentage of total apartment units in the United States and competition for the
apartments is local.
The Partnership receives income from its interest in the Project and is
responsible for operating expenses, capital improvements and debt service
payments under mortgage obligations secured by the Property. The Partnership
financed its investment primarily through non-recourse debt. Therefore, in the
event of default, the lender can generally look only to the subject property for
recovery of amounts due.
Both the income and expenses of operating the project owned by the Partnership
are subject to factors outside of the Partnership's control, such as changes in
the supply and demand for similar properties resulting from various market
conditions, increases/decreases in unemployment or population shifts, changes in
the availability of permanent mortgage financing, changes in zoning laws, or
changes in patterns or needs of users. In addition, there are risks inherent in
owning and operating residential properties because such properties are
susceptible to the impact of economic and other conditions outside of the
control of the Partnership.
There have been, and it is possible there may be other, Federal, state and local
legislation and regulations enacted relating to the protection of the
environment. The Partnership is unable to predict the extent, if any, to which
such new legislation or regulations might occur and the degree to which such
existing or new legislation or regulations might adversely affect the project
owned by the Partnership.
The Partnership monitors the Property for evidence of pollutants, toxins and
other dangerous substances, including the presence of asbestos. In certain cases
environmental testing has been performed, which resulted in no material adverse
conditions or liabilities. In no case has the Partnership received notice that
it is a potentially responsible party with respect to an environmental clean up
site.
A further description of the Partnership's business is included in "Management's
Discussion and Analysis or Plan of Operations" included in "Item 7." of this
Form 10-K.
Transfer of Control
On October 28, 1997, Insignia Financial Group, Inc. ("Insignia") acquired 100%
of the Class B stock of FWC, the sole shareholder of the Managing General
Partner, as well as a 20.7% limited partnership interest in the Partnership. In
connection with this transaction, the by-laws of the Managing General Partner
were amended and restated and certain agreements were entered into between WFA
and Insignia, the shareholders of FWC. As result of these agreements, Insignia
was granted the right to elect one director to the Managing General Partner's
Board of Directors (the "Class B Director"). Further, a Residential Committee of
the Board of Directors of the Managing General Partner was established, the
members of which are to be appointed by the Class B Director. The Residential
Committee is vested with the authority to elect officers and, together they have
the right to cause the Managing General Partner to take such actions as it
deemed necessary and advisable in connection with the activities of the
Partnership.
Pursuant to a series of transactions which closed on October 1, 1998 and
February 26, 1999, Insignia and Insignia Properties Trust merged into AIMCO, a
publicly traded real estate investment trust, with AIMCO being the surviving
corporation. As a result, AIMCO acquired all of the rights of Insignia in and to
the limited partnership interests and the rights granted to Insignia pursuant to
the First Winthrop transaction. The Managing General Partner does not believe
that this transaction has had or will have a material effect on the affairs and
operations of the Partnership.
Item 2. Description of Property
The Registrant owns no property other than its interest in the Operating
Partnerships. The following table sets forth the Registrant's investments in
property through its Operating Partnerships:
Date of
Property Purchase Type of Ownership Use
Springhill Lake Apartments 10/84 Fee ownership subject Apartment
Greenbelt, Maryland to a first mortgage. 2,899 units
The Project was initially acquired by the Operating Partnerships in October 1984
for an initial cost of $73,316,500. The Project consists of 2,899 apartment and
townhouse units and an eight-store shopping center situated on 154 acres of
landscaped grounds. The Project also contains a clubhouse/community center, two
Olympic-size swimming pools and six tennis courts.
Schedule of Property
Set forth below for the Registrant's property is the gross carrying value,
accumulated depreciation, depreciable life, method of depreciation and federal
tax basis.
Gross
Carrying Accumulated Federal
Property Value Depreciation Rate Method Tax Basis
(in thousands) (in thousands)
Springhill Lake $125,133 $65,806 10-25 yrs S/L $37,846
See "Item 8. Financial Statements, Note A" for a description of the
Partnership's depreciation policy.
Schedule of Property Indebtedness
The following table sets forth certain information relating to the loan
encumbering the Registrant's property.
Principal Principal Principal
Balance At Balance At Stated Balance
December 31, December 31, Interest Period Maturity Due At
Property 2001 2000 Rate Amortized Date Maturity (1)
(in thousands) (in thousands)
Springhill Lake
1st mortgage $51,788 $53,689 9.30% 10 years 05/03 $49,166
(1) See "Item 8. Financial Statements - Note F" for information with respect
to the Registrant's ability to prepay this loan and other specific details
about the loan.
Rental Rates and Occupancy
Average annual rental rate and occupancy for 2001 and 2000 for the property:
Average Annual Average Annual
Rental Rates Occupancy
(per unit)
Property 2001 2000 2001 2000
Springhill Lake $10,527 $10,051 97% 90%
The increase in occupancy is due to significant renovations and beautification
efforts at the property. Additionally, emphasis was placed on quickly readying
vacant units for occupancy and implementing new marketing strategies.
As noted under "Item 1. Description of Business," the real estate industry is
highly competitive. The Property is subject to competition from other
residential complexes in the area. The Managing General Partner believes that
the property is adequately insured. The property is a predominately residential
complex which leases units for lease terms of one year or less. No residential
tenant leases 10% or more of the available rental space. The property is in good
physical condition, subject to normal depreciation and deterioration as is
typical for assets of this type and age.
Real Estate Taxes and Rates
Real estate taxes and rates in 2001 for the property were:
2001 2001
Billing Rate
(in thousands)
Springhill Lake $1,791 4.53%
Capital Improvements
The Partnership completed approximately $8,673,000 in capital expenditures at
Springhill Lake during the year ended December 31, 2001, consisting primarily of
appliance, heating, plumbing, water heater, air conditioning, countertop,
cabinet, floor covering, furniture and fixture replacements, pool upgrades,
interior decoration, major landscaping, exterior painting, parking lot upgrades,
recreational facility improvements, vehicles, fencing, roof replacement,
electrical and structural improvements. These improvements were funded primarily
from replacement reserves, advances from affiliates and operations. The
Partnership is currently evaluating the capital improvement needs of the
property for the upcoming year. The minimum amount to be budgeted is expected to
be $300 per unit or approximately $870,000. 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.
Item 3. 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 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 4. Submission of Matters to a Vote of Security Holders
During the quarter ended December 31, 2001, no matter was submitted to a vote of
unit holders through the solicitation of proxies or otherwise.
PART II
Item 5. Market for the Partnership Equity and Related Partner Matters
The Partnership, a publicly-held limited partnership, offered and sold 649
limited partnership units aggregating $40,562,500. The Partnership currently has
144 holders of record owning an aggregate of 649 Units. Affiliates of the
Managing General Partner owned 519.90 units or 80.11% of the outstanding units
at December 31, 2001. No public trading market has developed for the Units, and
it is not anticipated that such a market will develop in the future.
During the years ended December 31, 2001, 2000 and 1999, there were no cash
distributions. 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
cash available for distribution 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 in
2002 or subsequent periods. See "Item 2. Description of Properties - Capital
Improvements" for information relating to anticipated capital expenditures at
the Project.
In addition to its indirect ownership of the managing general partner interest
in the Partnership, AIMCO and its affiliates owned 519.90 limited partnership
units (the "Units") in the Partnership representing 80.11% of the outstanding
Units at December 31, 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 80.11% 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 6. Selected Financial Data (in thousands, except unit data):
2001 2000 1999 1998 1997
Total revenues from
rental operations $ 31,004 $ 27,220 $ 26,159 $ 24,940 $ 25,218
Net income $ 2,387 $ 1,725 $ 1,056 $ 196 $ 406
Net income per limited
partnership unit $ 3,495 $ 2,525 $ 1,545 $ 287 $ 595
Limited partnership units
outstanding $ 649 $ 649 $ 649 $ 649 $ 649
Total assets $ 67,310 $ 64,900 $ 61,613 $ 62,353 $ 62,627
Mortgage note payable $ 51,788 $ 53,689 $ 55,402 $ 57,083 $ 58,498
The above selected financial data should be read in conjunction with the
Partnership's financial statements and notes thereto appearing in "Item 8.
Financial Statements".
Item 7. Management's Discussion and Analysis or Plan of Operation
The matters discussed in this Form 10-K contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the disclosure
contained in this Form 10-K 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 operation. 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.
This item should be read in conjunction with the consolidated financial
statements and other items contained elsewhere in this report.
Results of Operations
2001 Compared with 2000
The Registrant's net income for the year ended December 31, 2001 was
approximately $2,387,000 compared to net income of approximately $1,725,000 for
the year ended December 31, 2000 (See "Item 8. Financial Statements - Note D"
for a reconciliation of these amounts to the Registrant's federal taxable
income). Income before minority interest for the year ended December 31, 2001
was approximately $3,328,000 compared to approximately $2,523,000 for the year
ended December 31, 2000. The increase in income before minority interest is due
to 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 partially offset by a decrease in other income. Rental income
increased due to an increase in average annual rental rates combined with a
significant increase in average occupancy and a significant decrease in
concessions offered to tenants. Other income decreased due to decreases in
ancillary income and interest income which was offset by an increase in tenant
reimbursements.
Total expenses increased due to an increase in operating, depreciation, general
and administrative and property tax expenses partially offset by a decrease in
bad debt expense. 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
expense which is charged as a percentage of tenant rent collections.
Depreciation expense increased due to the completion of property 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 increased due to an increase in the costs of
services included in the management reimbursements to the Managing General
Partner allowed under the Partnership Agreement associated with its management
of the Partnership.
2000 Compared to 1999
The Registrant's net income for the year ended December 31, 2000 was
approximately $1,725,000 compared to net income of approximately $1,056,000 for
the year ended December 31, 1999 (See "Item 8. Financial Statements - Note D"
for a reconciliation of these amounts to the Registrant's federal taxable
income). Income before minority interest for the year ended December 31, 2000
was approximately $2,523,000 compared to approximately $1,727,000 for the year
ended December 31, 1999. The increase in income before minority interest was due
to an increase in total revenues partially offset by an increase in total
expenses. The increase in total revenues was attributable to an increase in
rental and other income. Rental income increased due to an increase in average
annual rental rates. Other income increased due to increases in auxillary income
and an increase in interest income as a result of higher average cash balances
held in interest bearing accounts offset by the receipt in May 1999 of attorney
fees and costs received as a result of a summary judgment in favor of the
Partnership.
Total expenses increased slightly due to increases in depreciation and general
and administrative expenses, which were partially offset by decreases in bad
debt, interest and operating expenses. Depreciation expense increased due to the
completion of capital improvements and replacements at the property during the
past twelve months. Operating expense decreased primarily due to decreases in
referral fees and completion of exterior building projects in 1999. These
decreases were partially offset by increases in fuel oil, due to the change to a
more reliable but expensive supplier and an increase in salaries and related
benefits. Bad debt expense decreased due to a decrease in write-offs of tenant
receivables and charges that were deemed to be uncollectible. Interest expense
decreased due to scheduled principal payments which reduced the principal
balance of the debt encumbering the property.
General and administrative expense increased for the year ended December 31,
2000 compared to the year ended December 31, 1999 primarily due to an increase
in the cost of services included in the management reimbursements to the
Managing General Partner as allowed under the Partnership Agreement.
Also included in general and administrative expense for the years ended December
31, 2000 and 1999 are costs associated with the quarterly and annual
communications with investors and regulatory agencies and the annual audits and
appraisals required by the Partnership Agreement are also included.
As part of the ongoing business plan of the Partnership, 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 expense. 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 Reserves
At December 31, 2001, the Registrant held cash and cash equivalents of
approximately $2,277,000, compared to approximately $2,447,000 at December 31,
2000. The decrease of approximately $170,000 was due to approximately $9,218,000
and $2,281,000 of cash used in investing and financing activities, respectively,
which was partially offset by approximately $11,329,000 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 advances from an affiliate. The registrant invests its working capital
reserves in interest bearing accounts.
The Registrant has invested as a general partner in the Operating Partnerships,
and as such, receives distributions of cash flow from the Operating Partnerships
and is responsible for expenditures consisting of (i) interest payable on the
mortgage loan and (ii) fees payable to affiliates of the General Partners. The
General Partners believe that funds distributed by the Operating Partnerships to
the Registrant will be sufficient to pay such expenditures.
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. The Partnership is currently
evaluating the capital improvement needs of the property for the upcoming year.
The minimum amount to be budgeted is expected to be $300 per unit or
approximately $870,000. Additional improvements may be considered and will
depend on the physical condition of the property as well as 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 $51,788,000 is amortized over 10 years with a
balloon payment of approximately $49,166,000 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.
During the years ended December 31, 2001, 2000 and 1999, there were no cash
distributions. 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
cash available for distribution 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 in
2002 or subsequent periods.
In addition to its indirect ownership of the managing general partner interest
in the Partnership, AIMCO and its affiliates owned 519.90 limited partnership
units (the "Units") in the Partnership representing 80.11% of the outstanding
Units at December 31, 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 80.11% 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.
Recent Accounting Pronouncements
In August 2001, the Financial Accounting Standards Board issued SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS No.
144 provides accounting guidance for financial accounting and reporting for
the impairment or disposal of long-lived assets. SFAS No. 144 supersedes SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of". SFAS No. 144 is effective for fiscal
years beginning after December 15, 2001. The Managing General Partner does
not anticipate that its adoption will have a material effect on the financial
position or results of operations of the Partnership.
ITEM 7a. 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
December 31, 2001, the Partnership owes approximately $1,853,000 in such
advances which are repaid as the property's cash flow allows. Based on interest
rates at December 31, 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 December
31, 2001. The interest rates represent the weighted-average rates. The fair
value of the Partnership's debt is approximately $53,123,000 as of December 31,
2001.
Principal amount by expected maturity:
Long Term Debt
Fixed Rate Debt Average Interest Rate
(in thousands)
2002 $ 2,075 9.30%
2003 49,713 9.30%
Total $51,788
Item 8. Financial Statements
Report of Ernst & Young LLP, Independent Auditors
Report of Arthur Andersen LLP, Independent Auditors
Consolidated Balance Sheets - December 31, 2001 and 2000
Consolidated Statements of Operations - Years ended December 31, 2001,
2000 and 1999
Consolidated Statements of Changes in Partners' (Deficit) Capital - Years
ended December 31, 2001, 2000 and 1999
Consolidated Statements of Cash Flows - Years ended December 31, 2001,
2000 and 1999
Notes to Consolidated Financial Statements
Report of Ernst & Young LLP, Independent Auditors
To The Partners of
Springhill Lake Investors Limited Partnership
We have audited the accompanying consolidated balance sheet of Springhill Lake
Investors Limited Partnership as of December 31, 2001, and the related
consolidated statements of operations, changes in partners' (deficit) capital,
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. 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 the Partnership's 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 consolidated financial position of Springhill Lake
Investors Limited Partnership at December 31, 2001, and the consolidated results
of its operations and its cash flows for the year then ended, in conformity with
accounting principles generally accepted in the United States.
/s/ERNST & YOUNG LLP
Greenville, South Carolina
February 15, 2002
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Springhill Lake Investors Limited Partnership:
We have audited the accompanying consolidated balance sheet of Springhill Lake
Investors Limited Partnership and Subsidiaries as of December 31, 2000, and the
consolidated statements of operations, changes in partners' (deficit) capital,
and cash flows for the years ended December 31, 2000 and 1999. 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 audits.
We conducted our audits in accordance with auditing standards general accepted
in 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 audits provide 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 Springhill Lake Investors
Limited Partnership and Subsidiaries as of December 31, 2000 and the
consolidated results of their operations and their cash flows for the years
ended December 31, 2000 and 1999, in conformity with accounting principles
generally accepted in the United States.
/s/Arthur Andersen LLP
Denver, Colorado,
February 8, 2001.
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
(in thousands, except unit data)
December 31, December 31,
2001 2000
Assets
Cash and cash equivalents $ 2,277 $ 2,447
Receivables and deposits 2,118 1,603
Restricted escrows 2,332 2,022
Other assets 1,256 1,416
Investment Property (Notes C and F):
Land 5,833 5,833
Buildings and related personal property 119,300 110,716
125,133 116,549
Less accumulated depreciation (65,806) (59,137)
59,327 57,412
$ 67,310 $ 64,900
Liabilities and Partners' (Deficit) Capital
Liabilities
Accounts payable $ 2,222 $ 1,512
Due to affiliate (Note E) 99 187
Tenant security deposit liabilities 775 567
Other liabilities 1,096 563
Advances from affiliate (Note E) 1,853 2,233
Mortgage note payable (Note F) 51,788 53,689
57,833 58,751
Minority Interest 5,470 4,529
Partners' (Deficit) Capital
General partners (2,660) (2,779)
Investor limited partners
(649 units issued and outstanding) 6,667 4,399
4,007 1,620
$ 67,310 $ 64,900
See Accompanying Notes to Consolidated Financial Statements
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per unit data)
Years Ended December 31,
2001 2000 1999
Revenues:
Rental income $29,682 $25,809 $24,764
Other income 1,322 1,411 1,395
Total revenues 31,004 27,220 26,159
Expenses:
Operating 12,713 10,786 11,145
General and administrative 815 743 605
Depreciation 6,727 5,548 4,406
Interest 5,242 5,258 5,336
Property taxes 1,849 1,779 1,777
Bad debt expense 330 583 1,163
Total expenses 27,676 24,697 24,432
Income before minority interest 3,328 2,523 1,727
Minority interest in net earnings of
operating partnerships (941) (798) (671)
Net income $ 2,387 $ 1,725 $ 1,056
Net income allocated to general partners (5%) $ 119 $ 86 $ 53
Net income allocated to investor limited
partners (95%) 2,268 1,639 1,003
Net income $ 2,387 $ 1,725 $ 1,056
Net income per limited partnership unit $ 3,495 $ 2,525 $ 1,545
See Accompanying Notes to Consolidated Financial Statements
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' (DEFICIT) CAPITAL
For The Years Ended December 31, 2001, 2000 and 1999
(in thousands, except unit data)
Total
Limited Investor Partners'
Partnership General Limited (Deficit)
Units Partners Partners Capital
Original capital contributions 649 $ -- $40,563 $40,563
Partners' (deficit) capital at
December 31, 1998 649 $(2,918) $ 1,757 $(1,161)
Net income for the year ended
December 31, 1999 -- 53 1,003 1,056
Partners' (deficit) capital at
December 31, 1999 649 (2,865) 2,760 (105)
Net income for the year ended
December 31, 2000 -- 86 1,639 1,725
Partners' (deficit) capital at
December 31, 2000 649 (2,779) 4,399 1,620
Net income for the year ended
December 31, 2001 -- 119 2,268 2,387
Partners' (deficit) capital at
December 31, 2001 649 $(2,660) $ 6,667 $ 4,007
See Accompanying Notes to Consolidated Financial Statements
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended December 31,
2001 2000 1999
Cash flows from operating activities:
Net income $ 2,387 $ 1,725 $ 1,056
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interest in net earnings of operating
partnerships 941 798 671
Depreciation 6,727 5,548 4,406
Amortization of loan costs 136 98 124
Bad debt expense 330 583 1,163
Change in accounts:
Receivables and deposits (845) (849) (1,128)
Other assets 24 (35) (118)
Accounts payable 988 (799) (334)
Tenant security deposit liabilities 208 61 100
Other liabilities 521 (113) (552)
Due to affiliate (88) 187 --
Net cash provided by operating activities 11,329 7,204 5,388
Cash flows from investing activities:
Property improvements and replacements (8,908) (7,654) (6,156)
Net (deposits to) withdrawals from restricted
escrows (310) 34 1,464
Net cash used in investing activities (9,218) (7,620) (4,692)
Cash flows from financing activities:
Proceeds from advances from affiliate 1,115 2,329 --
Payments on advances from affiliate (1,495) (96) --
Payments on mortgage note payable (1,901) (1,713) (1,681)
Net cash (used in) provided by financing
activities (2,281) 520 (1,681)
Net (decrease) increase in cash and cash equivalents (170) 104 (985)
Cash and cash equivalents at beginning of year 2,447 2,343 3,328
Cash and cash equivalents at end of year $ 2,277 $ 2,447 $ 2,343
Supplemental disclosure of cash flow information:
Cash paid for interest, including approximately
$225, $64, and $0, respectively, paid to an
affiliate $ 5,118 $ 5,167 $ 5,657
Supplemental disclosure of non-cash information:
Property improvements and replacements in accounts
Payable and other liabilities $ 673 $ 908 $ --
See Accompanying Notes to Consolidated Financial Statements
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001
Note A - Organization and Summary of Significant Accounting Policies
Organization: Springhill Lake Investors Limited Partnership (the "Partnership"),
a Maryland limited partnership was formed on December 28, 1984, to acquire and
own a 90% general partnership interest in Springhill Lake Limited Partnerships I
through IX and Springhill Commercial Limited Partnership (the "Operating
Partnerships"). The Operating Partnerships own and operate the Springhill Lake
complex in Greenbelt, Maryland. The complex consists of 2,899 apartment and
townhouse units and an eight-store shopping center. The Partnership Agreement
provides that the Partnership is to terminate on December 31, 2035 unless
terminated prior to such date.
Principles of Consolidation: The accompanying consolidated financial statements
include the accounts of the Partnership and 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.
Use of Estimates: The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results could differ
from those estimates.
Allocation of Profits, Gains and Losses: The Partnership Agreement provides for
net income and net losses for both financial and tax reporting purposes to be
allocated 95% to the Limited Partners and 5% to the General Partner.
Gains from property sales are allocated in accordance with the Partnership
Agreement.
Accordingly, net income as shown in the statements of operations and changes in
partners' capital for 2001, 2000 and 1999 was allocated 95% to the Limited
Partners and 5% to the General Partner. Net income per limited partnership unit
for each year was computed as 95% of net income divided by 649 units
outstanding.
Depreciation: Depreciation is provided by the straight-line method over the
estimated lives of the apartment properties and related personal property. For
Federal income tax purposes, the accelerated cost recovery method is used for
real property over 18 years for additions after March 15, 1984 and before May 9,
1985, and 19 years for additions after May 8, 1985, and before January 1, 1987.
As a result of the Tax Reform Act of 1986, for additions after December 31,
1986, the modified accelerated cost recovery method is used for depreciation of
(1) real property over 27 1/2 years and (2) personal property additions over 5
years.
Cash and Cash Equivalents: Includes cash on hand and in banks. At certain times,
the amount of cash deposited at a bank may exceed the limit on insured deposits.
Cash balances included approximately $2,250,000 and $2,256,000 at December 31,
2001 and 2000, respectively, that are maintained by an affiliated management
company on behalf of affiliated entities in cash concentration accounts.
Investment in Property: Investment property consists of one apartment complex
with an eight-store shopping center and is stated at cost. Acquisition fees are
capitalized as a cost of real estate. In accordance with Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets To Be Disposed Of," the Partnership
records impairment losses on long-lived assets used in operations when events
and circumstances indicate that the assets might be impaired and the
undiscounted cash flows estimated to be generated by those assets are less than
the carrying amounts of those assets. Costs of investment property that have
been permanently impaired have been written down to appraisal value. No
adjustments for the impairment of value were necessary for the years ended
December 31, 2001, 2000 or 1999. See "Recent Accounting Pronouncements" below.
Segment Reporting: 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 presently presented.
Advertising: The Partnership expenses the costs of advertising as incurred.
Advertising costs of approximately $103,000, $209,000 and $367,000 for the years
ended December 31, 2001, 2000 and 1999, respectively, were charged to operating
expense as incurred.
Loan Costs: Loan costs of approximately $1,359,000 are included in other assets
in the accompanying consolidated balance sheet as of December 31, 2001 and 2000.
Accumulated amortization of approximately $1,178,000 and $1,042,000 was also
included in other assets as of December 31, 2001 and 2000, respectively. These
costs are amortized on a straight-line basis over the life of the loan.
Fair Value of Financial Instruments: SFAS No. 107, "Disclosures about Fair Value
of Financial Instruments", as amended by SFAS No. 119, "Disclosures about
Derivative Financial Instruments and Fair Value of Financial Instruments",
requires disclosure of fair value information about financial instruments,
whether or not recognized in the balance sheet, for which it is practicable to
estimate fair value. Fair value is defined in the SFAS as the amount at which
the instruments could be exchanged in a current transaction between willing
parties, other than in a forced or liquidation sale. The Partnership believes
that the carrying amounts of its financial instruments (except for long term
debt) approximate their fair values due to the short term maturity of these
instruments. The fair value of the Partnership's long term debt, after
discounting the scheduled loan payments at a borrowing rate currently available
to the Partnership, is approximately $53,123,000, which is approximately
$1,335,000 greater than carrying value. See "Recent Accounting Pronouncements"
below.
Leases: The Partnership generally leases apartment units for twelve-month terms
or less. Commercial building lease terms are generally for terms of 3 to 10
years or month to month. The Partnership recognizes income as earned on its
leases. In addition, the Managing General Partner's policy is to offer rental
concessions during particularly slow months or in response to heavy competition
from other similar complexes in the area. Concessions are charged against rental
income as incurred.
Tenant Security Deposits: The Partnership requires security deposits from
lessees for the duration of the lease. Deposits are refunded when the tenant
vacates, provided the tenant has not damaged its space and is current on its
rental payments.
Income Taxes: No provision for income taxes is reflected in the accompanying
consolidated financial statements. Each partner is required to report on his
individual tax return his allocable share of income, gains, losses, deductions
and credits.
Recent Accounting Pronouncements: In August 2001, the Financial Accounting
Standards Board issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets". SFAS No. 144 provides accounting guidance for
financial accounting and reporting for the impairment or disposal of
long-lived assets. SFAS No. 144 supersedes SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of".
SFAS No. 144 is effective for fiscal years beginning after December 15, 2001.
The Managing General Partner does not anticipate that its adoption will have
a material effect on the financial position or results of operations of the
Partnership.
Note B - Transfer of Control
On October 28, 1997, Insignia Financial Group, Inc. ("Insignia") acquired 100%
of the Class B stock of First Winthrop, the sole shareholder of the Managing
General Partner, as well as a 20.7% limited partnership interest in the
Partnership. In connection with this transaction, the by-laws of the Managing
General Partner were amended and restated and certain agreements were entered
into between WFA and Insignia, the shareholders of First Winthrop. As result of
these agreements, Insignia was granted the right to elect one director to the
Managing General Partner's Board of Directors (the "Class B Director"). Further,
a Residential Committee of the Board of Directors of the Managing General
Partner was established, the members of which are to be appointed by the Class B
Director. The Residential Committee is vested with the authority to elect
officers and, together they have the right to cause the Managing General Partner
to take such actions as it deemed necessary and advisable in connection with the
activities of the Partnership.
Pursuant to a series of transactions which closed on October 1, 1998 and
February 26, 1999, Insignia and Insignia Properties Trust merged into AIMCO, a
publicly traded real estate investment trust, with AIMCO being the surviving
corporation. As a result, AIMCO acquired all of the rights of Insignia in and to
the limited partnership interests and the rights granted to Insignia pursuant to
the First Winthrop transaction. The Managing General Partner does not believe
that this transaction has had or will have a material effect on the affairs and
operations of the Partnership.
Note C - Real Estate and Accumulated Depreciation
Initial Cost
Investment Properties To Partnership
Buildings Cost
and Related Capitalized
Personal Subsequent to
Description Encumbrances Land Property Acquisition
(in thousands) (in thousands)
Springhill Lake $ 51,788 $ 5,833 $ 67,484 $ 51,816
Gross Amount At Which Carried
At December 31, 2001
(in thousands)
Buildings
And Related
Personal Accumulated Date Depreciable
Description Land Property Total Depreciation Acquired Life-Years
Springhill Lake $ 5,833 $119,300 $125,133 $ 65,806 10/84 10-25
The depreciable lives included above are for the building and components. The
depreciable lives for related personal property are 5 - 10 years.
Reconciliation of "Investment Properties and Accumulated Depreciation":
Years Ended December 31,
2001 2000 1999
(in thousands)
Investment Properties
Balance at beginning of year $116,549 $107,987 $101,831
Property improvements 8,673 8,562 6,156
Disposition of property (89) -- --
Balance at end of year $125,133 $116,549 $107,987
Accumulated Depreciation
Balance at beginning of year $ 59,137 $ 53,589 $ 49,183
Depreciation of real estate 6,727 5,548 4,406
Disposition of property (58) -- --
Balance at end of year $ 65,806 $ 59,137 $ 53,589
The aggregate cost of the real estate for Federal income tax purposes at
December 31, 2001 and 2000, is $124,419,000 and $115,871,000. The accumulated
depreciation taken for Federal income tax purposes at December 31, 2001 and
2000, is $86,573,000 and $80,415,000.
Note D - Taxable Income
Taxable income or loss of the Partnership is reported in the income tax returns
of its partners. Accordingly, no provision for income taxes is made in the
financial statements of the Partnership. The following is a reconciliation of
reported income and Federal taxable income (in thousands, except per unit data):
2001 2000 1999
Net income as reported $ 2,387 $ 1,725 $ 1,056
Excess of accelerated depreciation for
income tax purposes 249 194 (124)
Deferred revenue - laundry income (72) (147) (161)
Other 1,262 (152) 779
Federal taxable income $ 3,826 $ 1,620 $ 1,550
Federal taxable income per limited
partnership unit $ 5,601 $ 2,371 $ 1,142
The following is a reconciliation between the Partnership's reported amounts and
Federal tax basis of net assets and liabilities (in thousands):
2001 2000
Net assets as reported: $ 4,007 $ 1,620
Land and buildings (589) (625)
Accumulated depreciation (20,958) (21,100)
Deferred sales commission 223 424
Other 2,554 1,116
Net liabilities - income tax method $(14,763) $(18,565)
Note E - Related Party Transactions
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 years ended December 31, 2001, 2000 and 1999:
2001 2000 1999
(in thousands)
Property management fees (included in operating $1,048 $ 790 $ 748
expenses)
Reimbursement for services of affiliates (included
in general administrative expense and 2,484 839 419
investment properties)
Asset management fee (included in general and
administrative expense) 100 100 100
Annual administration fee (included in general
and administrative expense) 10 10 10
Interest expense 186 94 --
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 $1,048,000, $790,000 and $748,000 for the years ended
December 31, 2001, 2000 and 1999, respectively.
An affiliate of the Managing General Partner received reimbursement of
accountable administrative expenses amounting to approximately $2,484,000,
$839,000 and $419,000 for the years ended December 31, 2001, 2000 and 1999,
respectively. Included in these amounts are fees related to construction
management services provided by an affiliate of the Managing General Partner of
approximately $1,849,000, $290,000 and $90,000 for the years ended December 31,
2001, 2000 and 1999, respectively. The construction management service fees are
calculated based on a percentage of current and certain prior year additions to
investment property and are being depreciated over 15 years. At December 31,
2001 approximately $88,000, of accountable administrative fees and expenses are
accrued and are included in due to affiliate in the accompanying consolidated
balance sheets.
In accordance with the Partnership Agreement, the Managing General Partner
earned approximately $100,000 in asset management fees and approximately $10,000
in administrative fees for the years ended December 31, 2001, 2000 and 1999.
During the years ended December 31, 2001 and 2000, an affiliate of the Managing
General Partner advanced the Partnership approximately $1,115,000 and
$2,329,000, respectively. Approximately $1,495,000 and $96,000 was repaid during
2001 and 2000, respectively. In accordance with the Partnership Agreement,
interest is charged at the prime rate plus 2%. The Partnership recognized
approximately $186,000 and $94,000 of interest expense related to these advances
during the years ended December 31, 2001 and 2000, respectively. Of these
amounts, approximately $11,000 and $30,000 was accrued at December 31, 2001 and
2000, respectively, and is included in due to affiliate. No such advances were
made during 1999.
Beginning in 2001, the Partnership began insuring its property up to certain
limits through coverage provided by AIMCO which is generally self-insured for a
portion of losses and liabilities related to workers compensation, property
casualty and vehicle liability. The Partnership insures its property above the
AIMCO limits through insurance policies obtained by AIMCO from insurers
unaffiliated with the Managing General Partner. During the year ended December
31, 2001, the Partnership paid AIMCO and its affiliates approximately $246,000
for insurance coverage and fees associated with policy claims administration.
In addition to its indirect ownership of the managing general partner interest
in the Partnership, AIMCO and its affiliates owned 519.90 limited partnership
units (the "Units") in the Partnership representing 80.11% of the outstanding
Units at December 31, 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 80.11% 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 F - Mortgage Note Payable
The terms of the mortgage note payable are as follows:
Principal Principal
Balance Balance Monthly Principal
Due At Due At Payment Balance
Property December 31, December 31, Including Interest Maturity Due At
2001 2000 Interest Rate Date Maturity
(in thousands) (in thousands)
Springhill Lake
1st mortgage $51,788 $53,689 $ 566 9.30% 05/03 $49,166
The mortgage note payable is non-recourse and is secured by pledge of the
Partnership's interest in the Operating Partnerships, and joint and several
guarantees by the Operating Partnerships which, in turn, are secured by an
indemnity first mortgage on the Operating Partnerships and a pledge of the stock
of Springfield Facilities, Inc., an affiliate. The mortgage note requires
prepayment penalties if repaid prior to maturity. Further, the property may not
be sold subject to existing indebtedness.
Scheduled principal payments of the mortgage note payable subsequent to December
31, 2001, are as follows (in thousands):
2002 $ 2,075
2003 49,713
Total $51,788
Note G - Operating Leases
One of the Operating Partnerships leases retail space to tenants in the shopping
center under operating leases which expire in various years through August 31,
2011. The leases call for base monthly rentals plus additional charges for pass
throughs and percentage rent. Minimum future rental payments to be received
subsequent to December 31, 2001 are as follows (in thousands):
2002 $ 123
2003 112
2004 101
2005 91
2006 93
Thereafter 408
$ 928
Note H - Selected Quarterly Financial Data (Unaudited)
The following is a summary of the unaudited quarterly results of operations for
the Partnership (in thousands, except per unit data):
1st 2nd 3rd 4th
2001 Quarter Quarter Quarter Quarter Total
Total revenues $ 7,630 $ 7,727 $ 7,779 $ 7,868 $31,004
Total expenses 6,803 6,930 7,256 7,628 28,617
Net income $ 827 $ 797 $ 523 $ 240 $ 2,387
Net income per limited
partnership unit $ 1,211 $ 1,167 $ 765 $ 352 $ 3,495
1st 2nd 3rd 4th
2000 Quarter Quarter Quarter Quarter Total
Total revenues $ 5,998 $ 6,518 $ 7,229 $ 7,475 $27,220
Total expenses 5,849 6,285 6,466 6,895 25,495
Net income $ 149 $ 233 $ 763 $ 580 $ 1,725
Net income per limited
partnership unit $ 219 $ 340 $ 1,117 $ 849 $ 2,525
An adjustment was made in the fourth quarter of 2001 of approximatley $230,000
to properly state minority interest which if recorded during the year ended
December 31, 2001, would have increased net income for each quarter by
approximately $50,000.
Note I - 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 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 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Effective July 6, 2001, the Registrant dismissed its prior Independent Auditors,
Arthur Andersen LLP and retained as its new Independent Auditors, Ernst & Young
LLP. Arthur Andersen's Independent Auditors' Report on the Registrant's
financial statements for the calendar year ended December 31, 2000 did not
contain an adverse opinion or a disclaimer of opinion, and was not qualified or
modified as to uncertainty, audit scope or accounting principles. The decision
to change Independent Auditors was approved by the Managing General Partner's
directors. During the calendar year ended 2000 and through July 6, 2001, there
were no disagreements between the Registrant and Arthur Andersen on any matter
of accounting principles or practices, financial statement disclosure, or
auditing scope of procedure which disagreements if not resolved to the
satisfaction of Arthur Andersen, would have caused it to make references to the
subject matter of the disagreements in connection with its reports.
Effective July 6, 2001, the Registrant engaged Ernst & Young LLP as its
Independent Auditors. During the last two calendar years and through July 6,
2001, the Registrant did not consult Ernst & Young LLP regarding any of the
matters or events set forth in Item 304(a)(2)(i) and (ii) of Regulation S-K.
PART III
Item 10. Directors, Executive Officers, Promoters and Control Persons,
Compliance With Section 16(a) of the Exchange Act
The Registrant has no directors or officers. Three Winthrop and
Linnaeus-Lexington are the General Partners of the Registrant. Three Winthrop is
the Managing General Partner and manages and controls substantially all of the
Registrant's affairs and has general responsibility and ultimate authority in
all matters affecting its business. On October 28, 1997, Insignia Financial
Group, Inc. ("Insignia") acquired 100% of the Class B stock of First Winthrop
Corporation ("FWC"), the sole shareholder of Three Winthrop. Pursuant to this
transaction, the by-laws of Three Winthrop were amended to provide for the
creation of a Residential Committee. On October 1, 1998, Insignia was merged
into Apartment Investment and Management Company ("AIMCO") (See "Item 1 -
Transfer of Control"). Pursuant to the terms of Three Winthrop's by-laws, AIMCO
has the right to elect one director to Three Winthrop's Board of Directors and
appoint the members of the Residential Committee. The Residential Committee is
generally authorized to cause Three Winthrop to take such actions as it deems
necessary and advisable in connection with the activities of the Registrant.
There are no family relationships between or among any officers or directors.
Name Age Position
Patrick J. Foye 44 Vice President - Residential and Director
Martha L. Long 42 Vice President - Residential Accounting
Michael L. Ashner 49 Chief Executive Officer and Director
Peter Braverman 50 Executive Vice President and Director
Patrick J. Foye has been Vice President - Residential and Director of the
Managing General Partner since October 1, 1998. Mr. Foye has served as
Executive Vice President of AIMCO since May 1998. Prior to joining AIMCO,
Mr. Foye was a partner in the law firm of Skadden, Arps, Slate, Meagher &
Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels,
Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy
Chairman of the Long Island Power Authority and serves as a member of the New
York State Privatization Council. He received a B.A. from Fordham College
and a J.D. from Fordham University Law School.
Martha L. Long has been Vice President of Residential Accounting of the Managing
General Partner since October 1998 as a result of the acquisition of Insignia
Financial Group, Inc. As of February 2001, Ms. Long was also appointed head of
the service business for AIMCO. From June 1994 until January 1997, she was the
Controller for Insignia, and was promoted to Senior Vice President - Finance and
Controller in January 1997, retaining that title until October 1998. From 1988
to June 1994, Ms. Long was Senior Vice President and Controller for The First
Savings Bank, FSB in Greenville, South Carolina.
Michael L. Ashner, has been the Chief Executive Officer of Winthrop Financial
Associates, A Limited Partnership ("WFA") and the Managing General Partner since
January 15, 1996. From June 1994 until January 1996, Mr. Ashner was a Director,
President and Co-chairman of National Property Investors, Inc., a real estate
investment company ("NPI"). Mr. Ashner was also a Director and executive officer
of NPI Property Management Corporation ("NPI Management") from April 1984 until
January 1996. In addition, since 1981 Mr. Ashner has been President of Exeter
Capital Corporation, a firm which has organized and administered real estate
limited partnerships.
Peter Braverman, has been a Vice President of WFA and the Managing General
Partner since January 1996. From June 1995 until January 1996, Mr. Braverman was
a Vice President of NPI and NPI Management. From June 1991 until March 1994, Mr.
Braverman was President of the Braverman Group, a firm specializing in
management consulting for the real estate and construction industries. From 1988
to 1991, Mr. Braverman was a Vice President and Assistant Secretary of Fischbach
Corporation, a publicly traded, international real estate and construction firm.
One or more of the above persons are also directors and/or officers of a general
partner (or general partner of a general partner) of limited partnerships which
either have a class of securities registered pursuant to Section 12(g) of the
Securities Exchange Act of 1934, or are subject to the reporting requirements of
Section 15(d) of such Act. Further, one or more of the above persons are also
directors and/or officers of Apartment Investment and Management Company and the
general partner of AIMCO Properties, L.P., entities that have a class of
securities registered pursuant to Section 12(g) of the Securities Exchange Act
of 1934, or are subject to the reporting requirements of Section 15 (d) of such
Act.
The Residential Committee of the Managing General Partner fulfills the
obligations of the Audit Committee and oversees the Partnership's financial
reporting process on behalf of the Managing General Partner. Management has the
primary responsibility for the financial statements and the reporting process
including the systems of internal controls. In fulfilling its oversight
responsibilities, the executive officers and director of the Managing General
Partner reviewed the audited financial statements with management including a
discussion of the quality, not just the acceptability, of the accounting
principles, the reasonableness of significant judgments, and the clarity of
disclosures in the financial statements.
The Residential Committee of the Managing General Partner reviewed with the
independent auditors, who are responsible for expressing an opinion on the
conformity of those audited financial statements with accounting principles
generally accepted in the United States, their judgments as to the quality, not
just the acceptability, of the Partnership's accounting principles and such
other matters as are required to be discussed with the Audit Committee or its
equivalent under auditing standards generally accepted in the United States. In
addition, the Partnership has discussed with the independent auditors the
auditors' independence from management and the Partnership including the matters
in the written disclosures required by the Independence Standards Board and
considered the compatibility of non-audit services with the auditors'
independence.
The Residential Committee of the Managing General Partner discussed with the
Partnership's independent auditors the overall scope and plans for their audit.
In reliance on the reviews and discussions referred to above, the executive
officers and director of the Managing General Partner have approved the
inclusion of the audited financial statements in the Form 10-K for the year
ended December 31, 2001 for filing with the Securities and Exchange Commission.
The Managing General Partner has reappointed Ernst and Young LLP as independent
auditors to audit the financial statements of the Partnership for the current
fiscal year. Fees for the last fiscal year were audit services of approximately
$52,000 and non-audit services (principally tax-related) of approximately
$29,000.
Item 11. Executive Compensation
The Registrant is not required to and did not pay any compensation to the
officers or directors of the Managing General Partner. The Managing General
Partner does not presently pay any compensation to any of its officers and
directors (See "Item 13, Certain Relationships and Related Transactions").
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) Security Ownership of Certain Beneficial Owners
Except as noted below, no person or entity was known by the Registrant to be the
beneficial owner or more than 5% of the Limited Partnership Units of the
Registrant as of December 31, 2001.
Number
Entity of Units Percentage
Insignia Financial Group, Inc.
(an affiliate of AIMCO) 241.15 37.16%
AIMCO Properties, LP
(an affiliate of AIMCO) 278.75 42.95%
Insignia Financial Group, Inc. is ultimately owned by AIMCO. Its business
address is 55 Beattie Place, Greenville, South Carolina 29601.
AIMCO Properties, LP is indirectly ultimately controlled by AIMCO. Its business
address is 2000 South Colorado Boulevard, Denver, Colorado 80222.
No director or officer of the Managing General Partner owns any Units. The
Managing General Partner owns 100 Units as required by the terms of the
Partnership Agreement governing the Partnership.
(b) Security Ownership of Management
No executive officer, director or general partner of Three Winthrop or
Linnaeus-Lexington or WFA own any Units of the Registrant or has the right to
acquire beneficial ownership of additional Units.
Item 13. Certain Relationships and Related Transactions
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 years ended December 31, 2001, 2000 and 1999:
2001 2000 1999
(in thousands)
Property management fees $1,048 $ 790 $ 748
Reimbursement for services of affiliates 2,484 839 419
Asset management fee 100 100 100
Annual administration fee 10 10 10
Interest expense 186 94 --
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 $1,048,000, $790,000 and $748,000 for the years ended
December 31, 2001, 2000 and 1999, respectively.
An affiliate of the Managing General Partner received reimbursement of
accountable administrative expenses amounting to approximately $2,484,000,
$839,000 and $419,000 for the years ended December 31, 2001, 2000 and 1999,
respectively. Included in these amounts are fees related to construction
management services provided by an affiliate of the Managing General Partner of
approximately $1,849,000, $290,000 and $90,000 for the years ended December 31,
2001, 2000 and 1999, respectively. The construction management service fees are
calculated based on a percentage of current and certain prior year additions to
investment property and are being depreciated over 15 years. At December 31,
2001 approximately $88,000, of accountable administrative fees and expenses are
accrued and are included in due to affiliate in the accompanying consolidated
balance sheets.
In accordance with the Partnership Agreement, the Managing General Partner
earned approximately $100,000 in asset management fees and approximately $10,000
in administrative fees for the years ended December 31, 2001, 2000 and 1999.
During the years ended December 31, 2001 and 2000, an affiliate of the Managing
General Partner advanced the Partnership approximately $1,115,000 and
$2,329,000, respectively. Approximately $1,495,000 and $96,000 was repaid during
2001 and 2000, respectively. In accordance with the Partnership Agreement,
interest is charged at the prime rate plus 2%. The Partnership recognized
approximately $186,000 and $94,000 of interest expense related to these advances
during the years ended December 31, 2001 and 2000, respectively. Of these
amounts, approximately $11,000 and $30,000 was accrued at December 31, 2001 and
2000, respectively, and is included in due to affiliate. No such advances were
made during 1999.
Beginning in 2001, the Partnership began insuring its property up to certain
limits through coverage provided by AIMCO which is generally self-insured for a
portion of losses and liabilities related to workers compensation, property
casualty and vehicle liability. The Partnership insures its property above the
AIMCO limits through insurance policies obtained by AIMCO from insurers
unaffiliated with the Managing General Partner. During the year ended December
31, 2001, the Partnership paid AIMCO and its affiliates approximately $246,000
for insurance coverage and fees associated with policy claims administration.
In addition to its indirect ownership of the managing general partner interest
in the Partnership, AIMCO and its affiliates owned 519.90 limited partnership
units (the "Units") in the Partnership representing 80.11% of the outstanding
Units at December 31, 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 80.11% 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 14. Exhibits and Reports on Form 8-K
(a) Reports on Form 8-K filed in the fourth quarter of fiscal year
2001:
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has caused this Report on Form 10-K 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:
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
/s/Patrick J. Foye Vice President-Residential Date:
Patrick J. Foye and Director
/s/Martha L. Long Vice President - Residential Date:
Martha L. Long Accounting
Index to Exhibits
Exhibit No. Document
3.4 Amended and Restated Limited Partnership Agreement and
Certificate of Amendment of Springhill Lake Investors
Limited Partnership(1)
3.4 (a) Amendment to Amended and Restated Limited Partnership
Agreement of Springhill Lake Investors Limited Partnership
dated August 23, 1995 (3)
10 (a) Amended and Restated Limited Partnership Agreement and
Certificate of Amendment of First Springhill Lake Limited
Partnership (Partnership Agreements of Second - Ninth
Springhill Lake Limited Partnerships are substantially
identical)(1)
(b) Loan Agreement dated as of April 30, 1993 between
Springhill Lake Investors Limited Partnership and Marvin M.
Franklin, Mark P. Snyderman and J. Grant Monahon, as
Trustees of AEW #207 Trust(2)
(c) $58,000,000 Amended and Restated Promissory Note from
Springhill Lake Investors Limited Partnership to Marvin M.
Franklin, Mark P. Snyderman and J. Grant Monahon, as
Trustees of AEW #207 Trust dated April 30, 1993(2)
(d) $5,000,000 Second Promissory Note from Springhill Lake
Investors Limited Partnership to Marvin M. Franklin, Mark
P. Snyderman and J. Grant Monahon, as Trustees of AEW #207
Trust dated April 30, 1993(2)
(e) Amended and Restated Indemnity and Deed of Trust and
Security Agreement between the Operating Partnerships and
James C. Oliver and Fred Wolf, II, Trustees, dated as of
April 30, 1993(2)
(f) Second Indemnity and Deed of Trust and Security Agreement
between the Operating Partnerships and James C. Oliver and
Fred Wolf, II, Trustees, dated as of April 30, 1993(2)
(g) Indemnity Agreement dated as of April 30, 1993 between
Springhill Lake Investors Limited Partnership and Winthrop
Financial Associates, A Limited Partnership(2)
(h) Amended and Restated Guaranty and Indemnity Agreement of
Property Owners dated as of April 30, 1994 between the
Operating Partnerships and Marvin M. Franklin, Mark P.
Snyderman and J. Grant Monahon, as Trustees of AEW #207
Trust(2)
(i) Second Guaranty and Indemnity Agreement of Property Owners
dated as of April 30, 1994 between the Operating
Partnerships and Marvin M. Franklin, Mark P. Snyderman and
J. Grant Monahon, as Trustees of AEW #207 Trust(2)
16.1 Letter dated July 13, 2001, from the former accountant
regarding its concurrence with the statements made by the
Registrant in this Current Report.
- ---------------
(1) Incorporated herein by reference to the Registrant's
Registration Statement on Form 10 dated April 30, 1986, as
thereafter amended.
(2) Incorporated herein by reference to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1993.
(3) Incorporated herein by reference to the Registrant's
Current Report on Form 8-K dated August 23, 1995, as filed
September 5, 1995.