UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2003 [ ] 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 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, 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___ Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ___ No X_ PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP CONSOLIDATED BALANCE SHEETS (in thousands, except unit data) June 30, December 31, 2003 2002 (unaudited) (Note) Assets Cash and cash equivalents $ 710 $ 5,559 Receivables and deposits 2,953 1,854 Restricted escrows 7,043 7,026 Other assets 2,459 3,424 Investment property: Land 5,833 5,833 Buildings and related personal property 121,901 120,469 127,734 126,302 Less accumulated depreciation (76,418) (72,740) 51,316 53,562 $ 64,481 $ 71,425 Liabilities and Partners' Deficit Liabilities Accounts payable $ 893 $ 1,044 Tenant security deposit liabilities 829 774 Other liabilities 677 937 Advances from affiliate -- 156 Mortgage note payable 111,750 113,100 114,149 116,011 Minority interest (Note E) Partners' Deficit General partners (2,911) (2,797) Investor limited partners (649 units issued and outstanding) (46,757) (41,789) (49,668) (44,586) $ 64,481 $ 71,425 Note: The balance sheet at December 31, 2002 has been derived from the audited financial statements at that date but does not include all the information and footnotes required by generally accepted accounting principles in the United States for complete financial statements. See Accompanying Notes to Consolidated Financial Statements SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except per unit data) Three Months Ended Six Months Ended June 30, June 30, 2003 2002 2003 2002 Revenues: Rental income $ 7,612 $ 7,562 $15,040 $15,014 Other income 367 294 688 615 Casualty gain (Note D) -- 466 83 466 Total revenues 7,979 8,322 15,811 16,095 Expenses: Operating 3,069 3,567 6,733 6,640 General and administrative 140 178 319 362 Depreciation 1,878 1,573 3,725 3,331 Interest 693 1,200 1,433 2,486 Property taxes 474 469 948 930 Total expenses 6,254 6,987 13,158 13,749 Income before minority interest 1,725 1,335 2,653 2,346 Distributions to minority interest partner in excess of investment (Note E) (303) -- (985) -- Minority interest in net income of operating partnerships (Note E) -- (243) -- (489) Net income $ 1,422 $ 1,092 $ 1,668 $ 1,857 Net income allocated to general partners (5%) $ 71 $ 55 $ 83 $ 93 Net income allocated to limited partners (95%) 1,351 1,037 1,585 1,764 $ 1,422 $ 1,092 $ 1,668 $ 1,857 Net income per limited partnership unit $ 2,082 $ 1,598 $ 2,442 $ 2,718 Distributions per limited partnership unit $ 3,074 $ 3,099 $10,097 $ 3,099 See Accompanying Notes to Consolidated Financial Statements SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT (Unaudited) (in thousands, except unit data) Limited Investor Partnership General Limited Units Partners Partners Total Original capital contributions 649 $ -- $ 40,563 $ 40,563 Partners' deficit at December 31, 2002 649 $(2,797) $(41,789) $(44,586) Distributions to partners -- (197) (6,553) (6,750) Net income for the six months ended June 30, 2003 -- 83 1,585 1,668 Partners' deficit at June 30, 2003 649 $(2,911) $(46,757) $(49,668) See Accompanying Notes to Consolidated Financial Statements SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands) Six Months Ended June 30, 2003 2002 Cash flows from operating activities: Net income $ 1,668 $ 1,857 Adjustments to reconcile net income to net cash provided by operating activities: Distributions to minority interest partner in excess of investment 985 -- Minority interest in net income of operating partnerships -- 489 Depreciation 3,725 3,331 Casualty gain (83) (466) Amortization of loan costs 221 68 Bad debt expense, net 139 100 Change in accounts: Receivables and deposits (1,238) (821) Other assets 778 708 Accounts payable 183 (384) Tenant security deposit liabilities 55 38 Other liabilities (260) 51 Due to affiliates -- (99) Net cash provided by operating activities 6,173 4,872 Cash flows from investing activities: Insurance proceeds received 104 445 Property improvements and replacements (1,834) (2,871) Net deposits to restricted escrows (17) (290) Refund of construction service fees from affiliate -- 2,245 Net cash used in investing activities (1,747) (471) Cash flows from financing activities: Payments on mortgage note payable (1,350) (986) Payments on advances from affiliate (156) (1,853) Distributions to partners (6,750) (2,117) Distributions to minority interest partner (985) (298) Loan costs paid (34) -- Net cash used in financing activities (9,275) (5,254) Net decrease in cash and cash equivalents (4,849) (853) Cash and cash equivalents at beginning of period 5,559 2,277 Cash and cash equivalents at end of period $ 710 $ 1,424 Supplemental disclosure of cash flow information: Cash paid for interest, including approximately zero and $30, respectively, paid to an affiliate $ 1,383 $ 2,427 Supplemental disclosure of non-cash information: Property improvements and replacements included in accounts payable $ 160 $ -- At December 31, 2002 and 2001 approximately $494,000 and $673,000, respectively, of property improvements and replacements were included in accounts payable which are included in property improvements and replacements during the six months ended June 30, 2003 and 2002, respectively. See Accompanying Notes to Consolidated Financial Statements SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note A - Basis of Presentation The accompanying unaudited consolidated financial statements of Springhill Lake Investors Limited Partnership (the "Partnership" or "Registrant") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of Three Winthrop Properties, Inc. (the "Managing General Partner" or "Three Winthrop"), all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003. For further information, refer to the consolidated financial statements and footnotes thereto included in the Partnership's Annual Report on Form 10-K for the year ended December 31, 2002. Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust, effectively controls the Managing General Partner in its capacity as the general partner of the Registrant. 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. 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. Affiliates of the Managing General Partner are entitled to receive 3% of residential rent collections and 5% of commercial income from the Partnership's property for providing property management services. The Partnership paid to such affiliates approximately $469,000 and $449,000 for the six months ended June 30, 2003 and 2002, respectively, which is included in operating expenses. An affiliate of the Managing General Partner received reimbursement of accountable administrative expenses amounting to approximately $219,000 and $267,000 for the six months ended June 30, 2003 and 2002, respectively, which is included in general and administrative expenses. During 2001, the Partnership was charged by affiliates of the Managing General Partner approximately $2,245,000 for fees related to construction management services for work performed during 1999, 2000 and 2001. These fees had been capitalized and included in investment property. During the second quarter of 2002, it was determined by the Managing General Partner that these fees should not have been charged and the Partnership was refunded the full amount. Accordingly, such previously capitalized fees were no longer included in investment property at June 30, 2002. In accordance with the Partnership Agreement, the Managing General Partner earned approximately $50,000 in asset management fees and approximately $5,000 in administrative fees for both the six month periods ended June 30, 2003 and 2002. These fees are included in general and administrative expenses. At December 31, 2002, the Partnership owed advances of approximately $156,000 to an affiliate of the Managing General Partner. The advance was repaid in January 2003 with interest charged at prime plus 2% which amounted to less than $1,000 for the six months ended June 30, 2003. There were no advances owed at June 30, 2002. The Partnership insures 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 six months ended June 30, 2003 and 2002, the Partnership was charged by AIMCO and its affiliates approximately $273,000 and $331,000, respectively, for insurance coverage and fees associated with policy claims administration. Note C - Mortgage Note Payable On November 14, 2002, the Partnership refinanced its existing mortgage encumbering Springhill Lake Apartments. The refinancing replaced the existing mortgage of approximately $50,300,000 with a new mortgage in the amount of $113,100,000. The Partnership capitalized loan costs of approximately $2,058,000 during 2002 and capitalized an additional $34,000 during the six months ended June 30, 2003. In addition, approximately $7,026,000 was deposited in an escrow account in connection with the refinancing to be used to complete required repairs at the property. Initially the November 14, 2002 refinancing of Springhill Lake Apartments was under an interim credit facility ("Interim Credit Facility") which also provided for the refinancing of several other properties. The Interim Credit Facility created separate loans for each property refinanced thereunder, which loans were not cross-collateralized or cross-defaulted with each other. During the term of the Interim Credit Facility, Springhill Lake Apartments was required to make interest-only payments. During December 2002, the loan on Springhill Lake Apartments was transferred to a different lender. The credit facility ("Permanent Credit Facility") with the new lender has a maturity of five years with an option for the Partnership to elect one five-year extension. This Permanent Credit Facility also created separate loans for each property refinanced thereunder, which loans are not cross-collateralized or cross-defaulted with each other. Each note under this Permanent Credit Facility is initially a variable rate loan, and after three years the Partnership has the option of converting the note to a fixed rate loan. The interest rate on the variable rate loans is 85 basis points over the Fannie Mae discounted mortgage-backed security index (1.80% per annum at June 30, 2003), and the rate resets monthly. Each loan automatically renews at the end of each month. In addition, monthly principal payments are required based on a 30-year amortization schedule, using the interest rate in effect during the first month that the property is on the Permanent Credit Facility. The loans may be prepaid without penalty. The mortgage note payable is non-recourse and is secured by a 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. Further, the property may not be sold subject to existing indebtedness. Note D - Casualty Gain During March 2002 a fire occurred at Springhill Lake Apartments which resulted in damage to eleven units at the property. During the six months ended June 30, 2003, all work was completed to repair the damage and the property recorded a casualty gain of approximately $83,000. The gain was the result of the receipt of insurance proceeds of approximately $104,000 offset by approximately $21,000 of undepreciated fixed assets being written off. During April 2001 a fire occurred at Springhill Lake Apartments which resulted in damage to two buildings at the property. The property initially received $145,000 of insurance proceeds during August 2001 and received the remaining balance of $445,000 in June 2002. All work has been completed with the total costs to restore the buildings totaling approximately $595,000. A casualty gain was recognized during the second quarter of 2002 of approximately $466,000 as a result of the receipt of $590,000 in total insurance proceeds less the write-off of approximately $124,000 in undepreciated assets. Note E - Minority Interest The limited partnership interest in the operating partnerships is reflected as a minority interest in the accompanying consolidated financial statements. Income allocated to the minority partner for the six months ended June 30, 2003 and 2002 was approximately zero and $489,000, respectively. During the six months ended June 30, 2003, the operating partnerships distributed approximately $7,730,000 of operating and refinancing proceeds to its partners, of which approximately $985,000 was distributed to the minority interest partner. Previous distributions to the minority interest partner during 2002 had reduced the minority interest partner's investment balance to zero. When the operating partnerships make distributions in excess of the minority partner's investment balance, the Partnership, as the majority partner, records a charge equal to the minority partner's excess distribution over the investment balance. The charge is classified as distributions to the minority interest partner in excess of investment on the accompanying consolidated statements of operations. Distributions to the minority partner in excess of investment totaled approximately $985,000 for the six months ended June 30, 2003. Such cumulative distributions to the minority partner in excess of investment totaled approximately $2,082,000 at June 30, 2003. No income is allocated to the minority partner until all previous losses recognized by the majority partner are recovered. For the six months ended June 30, 2003, approximately $527,000 in earnings were allocated to the majority partner to recover previous losses recognized. Note F - Legal Proceedings The Partnership is unaware of any 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 OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The matters discussed in this report contain certain forward-looking statements, including, without limitation, statements regarding future financial performance and the effect of government regulations. Actual results may differ materially from those described in the forward-looking statements and will be affected by a variety of risks and factors including, without limitation: national and local economic conditions; the terms of governmental regulations that affect the Registrant and interpretations of those regulations; the competitive environment in which the Registrant operates; financing risks, including the risk that cash flows from operations may be insufficient to meet required payments of principal and interest; real estate risks, including variations of real estate values and the general economic climate in local markets and competition for tenants in such markets; litigation, including costs associated with prosecuting and defending claims and any adverse outcomes, and possible environmental liabilities. Readers should carefully review the Registrant's financial statements and the notes thereto, as well as the risk factors described in the documents the Registrant files from time to time with the Securities and Exchange Commission. The Partnership owns no property other than its interest in the operating partnerships. The operating partnerships' investment property is a complex which consists of apartment and townhouse units and an eight store shopping center. The following table sets forth the average occupancy of the property for the six months ended June 30, 2003 and 2002: Average Occupancy 2003 2002 Springhill Lake Apartments Greenbelt, Maryland 95% 97% Results of Operations The Partnership's net income for the six months ended June 30, 2003 was approximately $1,668,000 compared to approximately $1,857,000 for the corresponding period in 2002. The Partnership's net income for the three months ended June 30, 2003 was approximately $1,422,000 compared to net income of approximately $1,092,000 for the three months ended June 30, 2002. Income before minority interest for the six months ended June 30, 2003 was approximately $2,653,000 compared to approximately $2,346,000 for the corresponding period in 2002. Income before minority interest for the three months ended June 30, 2003 was approximately $1,725,000 compared to approximately $1,335,000 for the corresponding period in 2002. The increase in income before minority interest for both the three and six months ended June 30, 2003 is primarily due to a decrease in total expenses partially offset by a decrease in total revenues. The decrease in total revenues is primarily due to a larger casualty gain recognized in 2002 compared to 2003 related to separate fires at the property in April 2001 and March 2002 slightly offset by an increase in other income. Other income increased due to an increase in utility reimbursements and laundry income at the property. Rental income remained relatively constant for the comparable periods. During March 2002 a fire occurred at Springhill Lake Apartments which resulted in damage to eleven units at the property. During the six months ended June 30, 2003, all work was completed to repair the damage and the property recorded a casualty gain of approximately $83,000. The gain was the result of the receipt of insurance proceeds of approximately $104,000 offset by approximately $21,000 of undepreciated fixed assets being written off. During April 2001 a fire occurred at Springhill Lake Apartments which resulted in damage to two buildings at the property. The property initially received $145,000 of insurance proceeds during August 2001 and received the remaining balance of $445,000 in June 2002. All work has been completed with the total costs to restore the buildings totaling approximately $595,000. A casualty gain was recognized during the second quarter of 2002 of approximately $466,000 as a result of the receipt of $590,000 in total insurance proceeds less the write-off of approximately $124,000 in undepreciated assets. Total expenses for the six months ended June 30, 2003 decreased due to a decrease in interest and general and administrative expenses partially offset by increases in operating and depreciation expenses. Property tax expense remained relatively constant for the comparable period. Interest expense decreased due to the refinancing of the mortgage encumbering Springhill Lake Apartments in November 2002. Though the mortgage principal balance increased significantly, the variable interest rate on the new loan was significantly lower during 2003 than the fixed interest rate applicable to the old loan during 2002. General and administrative expenses decreased due to lower costs incurred in relation to communications with investors. Operating expense increased due to increases in interior painting, natural gas costs, roof repairs and snow removal expenses partially offset by a decrease in salary and related employee expenses at the property. Depreciation expense increased due to property improvements and replacements placed into service during the past twelve months which are now being depreciated. Total expenses for the three months ended June 30, 2003 decreased due to a decrease in interest and general and administrative expenses as discussed above and a decrease in operating expense partially offset by an increase in depreciation expense as discussed above. Property tax expense remained relatively constant for the comparable period. The decrease in operating expenses for the three months ended June 30, 2003 was due primarily to decreases in maintenance expenses and salary and related employee expenses partially offset by an increase in natural gas costs at the property compared to the corresponding period in 2002. Included in general and administrative expenses are reimbursements to the Managing General Partner as allowed under the Partnership Agreement associated with its management of the Partnership. Costs associated with the quarterly and annual communications with investors and regulatory agencies and the annual audit required by the Partnership Agreement are also included in general and administrative expenses. Minority interest in net earnings of the operating partnerships totaled approximately $243,000 and $489,000 for the three and six months ended June 30, 2002, respectively. During the three and six months ended June 30, 2003, the Partnership did not recognize any minority interest in net earnings of the operating partnerships as previous distributions to the minority partner during 2002 reduced the minority interest partner's investment balance to zero. For the three and six months ended June 30, 2003 distributions to the minority partner of approximately $303,000 and $985,000, respectively, were made in excess of the minority partner's investment in the operating partnerships. When the operating partnerships make distributions in excess of the minority partner's investment balance, the Partnership, as the majority partner, records a charge equal to the minority partner's excess distribution over the investment balance. The charge is classified as distributions to the minority partner in excess of investment on the accompanying consolidated statements of operations. Distributions to the minority partner in excess of investment totaled approximately $985,000 for the six months ended June 30, 2003. Such cumulative distributions to the minority partner in excess of investment totaled approximately $2,082,000 at June 30, 2003. No income is allocated to the minority partner until all previous losses recognized by the majority partner are recovered. For the six months ended June 30, 2003, approximately $527,000 in earnings were allocated to the majority partner to recover previous losses recognized. 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 Partnership from increases in expenses. As part of this plan, the Managing General Partner attempts to protect the Partnership from the burden of inflation-related increases in expenses by increasing rents and maintaining a high overall occupancy level. However, due to changing market conditions, which can result in the use of rental concessions and rental reductions to offset softening market conditions, there is no guarantee that the Managing General Partner will be able to sustain such a plan. Liquidity and Capital Resources At June 30, 2003, the Partnership had cash and cash equivalents of approximately $710,000 as compared to approximately $1,424,000 at June 30, 2002. Cash and cash equivalents decreased approximately $4,849,000 from December 31, 2002 due to approximately $9,275,000 and $1,747,000 of cash used in financing and investing activities, respectively, partially offset by approximately $6,173,000 of cash provided by operating activities. Cash used in financing activities consisted of distributions to partners, principal payments made on the mortgage encumbering the property, payments on advances from an affiliate of the Managing General Partner and additional loan costs paid relating to the 2002 mortgage refinancing. 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 partially offset by the receipt of insurance proceeds. The Registrant invests its working capital reserves in interest bearing accounts. The Partnership 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 Managing General Partner. The Managing General Partner believes that funds distributed by the operating partnerships to the Partnership 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 Partnership and to comply with Federal, state, and local legal and regulatory requirements. The Managing General Partner monitors developments in the area of legal and regulatory compliance and is studying new federal laws, including the Sarbanes-Oxley Act of 2002. The Sarbanes-Oxley Act of 2002 mandates or suggests additional compliance measures with regard to governance, disclosure, audit and other areas. In light of these changes, the Partnership expects that it will incur higher expenses related to compliance, including increased legal and audit fees. Capital improvements planned for the Partnership's property are detailed below. During the six months ended June 30, 2003 the Partnership completed approximately $1,500,000 of capital improvements at Springhill Lake Apartments consisting primarily of structural improvements, appliance and plumbing fixture upgrades, floor covering replacements, heating and air conditioning upgrades and interior decorations. These improvements were funded from operations. The Partnership evaluates the capital improvement needs of the property during the year and currently expects to complete an additional $650,000 which does not include any amounts that will be incurred to complete repairs and improvements at the property required to be made in connection with the November 2002 refinancing of the mortgage encumbering the property. At the refinancing, approximately $7,026,000 was deposited in an escrow account to fund such repairs and improvements. The additional capital improvements will consist primarily of roofing upgrades, appliance and flooring replacements and structural improvements. 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 additional capital expenditures will be incurred only if cash is available from operations or from Partnership reserves. To the extent that such budgeted capital improvements are completed, the Partnership's distributable cash flow, if any, may be adversely affected at least in the short term. On November 14, 2002, the Partnership refinanced its existing mortgage encumbering Springhill Lake Apartments. The refinancing replaced the existing mortgage of approximately $50,300,000 with a new mortgage in the amount of $113,100,000. The Partnership capitalized loan costs of approximately $2,058,000 during 2002 and capitalized an additional $34,000 during the six months ended June 30, 2003. In addition, approximately $7,026,000 was deposited in an escrow account in connection with the refinancing to be used to complete required repairs at the property. Initially the November 14, 2002 refinancing of Springhill Lake Apartments was under an interim credit facility ("Interim Credit Facility") which also provided for the refinancing of several other properties. The Interim Credit Facility created separate loans for each property refinanced thereunder, which loans were not cross-collateralized or cross-defaulted with each other. During the term of the Interim Credit Facility, Springhill Lake Apartments was required to make interest-only payments. During December 2002, the loan on Springhill Lake Apartments was transferred to a different lender. The credit facility ("Permanent Credit Facility") with the new lender has a maturity of five years with an option for the Partnership to elect one five-year extension. This Permanent Credit Facility also created separate loans for each property refinanced thereunder, which loans are not cross-collateralized or cross-defaulted with each other. Each note under this Permanent Credit Facility is initially a variable rate loan, and after three years the Partnership has the option of converting the note to a fixed rate loan. The interest rate on the variable rate loans is 85 basis points over the Fannie Mae discounted mortgage-backed security index (1.80% per annum at June 30, 2003), and the rate resets monthly. Each loan automatically renews at the end of each month. In addition, monthly principal payments are required based on a 30-year amortization schedule, using the interest rate in effect during the first month that the property is on the Permanent Credit Facility. The loans may be prepaid without penalty. The mortgage note payable is non-recourse and is secured by a 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. Further, the property may not be sold subject to existing indebtedness. The Partnership's assets are thought to be sufficient for any near term needs (exclusive of capital improvements) of the Partnership. The mortgage indebtedness of approximately $111,750,000 requires monthly payments of principal and interest until its maturity date in September 2007 at which time a balloon payment of approximately $99,693,000 will be due. The Managing General Partner may 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 Partnership will risk losing the property through foreclosure. The Partnership distributed the following amounts during the six months ended June 30, 2003 and 2002 (in thousands, except per unit data): Six Months Per Limited Six Months Per Limited Ended Partnership Ended Partnership June 30, 2003 Unit June 30, 2002 Unit Refinancing $ 2,818 $ 4,342 $ -- $ -- Operations 3,932 5,755 2,117 3,099 $ 6,750 $10,097 $ 2,117 $ 3,099 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 property sale. 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 required capital improvement expenditures to permit further distributions to its partners during the remainder of 2003 or subsequent periods. Other AIMCO and its affiliates owned 521.90 limited partnership units (the "Units") in the Partnership representing 80.42% of the outstanding Units at June 30, 2003. 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 acquire additional Units in exchange for cash or a combination of cash and units in the operating partnership of AIMCO either through private purchases or tender offers. Pursuant to the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters that include, but are not limited to, voting on certain amendments to the Partnership Agreement and voting to remove the Managing General Partner. As a result of its ownership of 80.42% of the outstanding Units, AIMCO and its affiliates are in a position to control all voting decisions with respect to the Partnership. Although the Managing General Partner owes fiduciary duties to the limited partners of the Partnership, the Managing General Partner also owes fiduciary duties to AIMCO as its sole stockholder. As a result, the duties of the Managing General Partner, as managing general partner, to the Partnership and its limited partners may come into conflict with the duties of the Managing General Partner to AIMCO, as its sole stockholder. Critical Accounting Policies and Estimates The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States which require the Partnership to make estimates and assumptions. The Partnership believes that of its significant accounting policies, the following may involve a higher degree of judgment and complexity. Impairment of Long-Lived Assets The Partnership's investment property is recorded at cost, less accumulated depreciation, unless considered impaired. If events or circumstances indicate that the carrying amount of the property may be impaired, the Partnership will make an assessment of its recoverability by estimating the undiscounted future cash flows, excluding interest charges, of the property. If the carrying amount exceeds the aggregate future cash flows, the Partnership would recognize an impairment loss to the extent the carrying amount exceeds the fair value of the property. Real property investments are subject to varying degrees of risk. Several factors may adversely affect the economic performance and value of the Partnership's investment property. These factors include changes in the national, regional and local economic climate; local conditions, such as an oversupply of multifamily properties; competition from other available multifamily property owners and changes in market rental rates. Any adverse changes in these factors could cause an impairment in the Partnership's assets. Revenue Recognition 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. Rental income attributable to leases is recognized monthly as it is earned and the Partnership fully reserves balances outstanding over thirty days. The Partnership will offer rental concessions during particularly slow months or in response to heavy competition from other similar complexes in the area. Any concessions given at the inception of the lease are amortized over the life of the lease. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Partnership is exposed to market risks from adverse changes in interest rates. In this regard, changes in U.S. interest rates affect the interest earned on the Partnership's cash and cash equivalents as well as interest paid on its indebtedness. As a policy, the Partnership does not engage in speculative or leveraged transactions, nor does it hold or issue financial instruments for trading purposes. The Partnership is exposed to changes in interest rates primarily as a result of its borrowing activities used to maintain liquidity and fund business operations. The debt encumbering the Property bears interest at a variable rate. Based on interest rates at June 30, 2003, a 100 basis point increase or decrease in market interest rates would affect net income by approximately $1.1 million. The following table summarizes the Partnership's debt obligations at June 30, 2003. Management believes that the fair value of the Partnership's debt approximates its carrying value as of June 30, 2003. Principal amount by expected maturity: Long Term Debt Variable Rate Debt Average Interest Rate (in thousands) 2003 $ 1,359 (1) 2004 2,769 (1) 2005 2,829 (1) 2006 2,891 (1) 2007 101,902 (1) Total $111,750 (1) Adjustable rate based on Fannie Mae discounted mortgage-backed security index ("DMBS") plus 85 basis points. The rate was 1.80% at June 30, 2003 and will reset monthly. The Partnership has the option of converting to a fixed rate loan in 2005. The loan matures in 2007 with one five-year extension option. ITEM 4. CONTROLS AND PROCEDURES (a) Disclosure Controls and Procedures. The Partnership's management, with the participation of the principal executive officer and principal financial officer of the Managing General Partner, who are the equivalent of the Partnership's principal executive officer and principal financial officer, respectively, has evaluated the effectiveness of the Partnership's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this report. Based on such evaluation, the principal executive officer and principal financial officer of the Managing General Partner, who are the equivalent of the Partnership's principal executive officer and principal financial officer, respectively, have concluded that, as of the end of such period, the Partnership's disclosure controls and procedures are effective. (b) Internal Control Over Financial Reporting. There have not been any changes in the Partnership's internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Partnership's internal control over financial reporting. PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits: 3.4 Amended and Restated Limited Partnership Agreement and Certificate of Amendment of Springhill Lake Investors Limited Partnership (incorporated herein by reference to the Registrant's Registration Statement on Form 10, dated April 30, 1986). 3.4(a) Amendment to Amended and Restated Limited Partnership Agreement and Certificate of Amendment of Springhill Lake Investors Limited Partnership (incorporated herein by reference to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993). 31.1 Certification of equivalent of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of equivalent of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes -Oxley Act of 2002. b) Reports on Form 8-K: None filed for the quarter ended June 30, 2003. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly 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/Thomas C. Novosel Thomas C. Novosel Vice President - Residential and Chief Accounting Officer Date: August 13, 2003 Exhibit 31.1 CERTIFICATION I, Patrick J. Foye, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Springhill Lake Investors Ltd. Partnership; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 13, 2003 /s/Patrick J. Foye Patrick J. Foye Vice President - Residential of Three Winthrop Properties, Inc., equivalent of the chief executive officer of the Partnership Exhibit 31.2 CERTIFICATION I, Paul J. McAuliffe, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Springhill Lake Investors Ltd. Partnership; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 13, 2003 /s/Paul J. McAuliffe Paul J. McAuliffe Vice President - Residential of Three Winthrop Properties, Inc., equivalent of the chief financial officer of the Partnership Exhibit 32.1 Certification of CEO and CFO Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the Quarterly Report on Form 10-Q of Springhill Lake Investors Ltd. Partnership (the "Partnership"), for the quarterly period ended June 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Patrick J. Foye, as the equivalent of the chief executive officer of the Partnership, and Paul J. McAuliffe, as the equivalent of the chief financial officer of the Partnership, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership. /s/Patrick J. Foye Name: Patrick J. Foye Date: August 13, 2003 /s/Paul J. McAuliffe Name: Paul J. McAuliffe Date: August 13, 2003 This certification is furnished with this Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Partnership for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.