SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 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, PO Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
Registrant's telephone number (864) 239-1000
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
(Title of class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities 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].
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rate 12b-2). Yes ___ No _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, 2003. 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
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.
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 of which are an affiliate of Winthrop
Financial Associates, a Limited Partnership ("WFA"), and Apartment Investment
and Management Company ("AIMCO"). 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". Pursuant to the by-laws of the
Managing General Partner, the Residential Committee of the Managing General
Partner as well as the officers appointed by the Residential Committee have the
exclusive authority to manage the day-to-day affairs of the Managing General
Partner in its capacity as the general partner of the Registrant. The
Residential Committee consists of a director appointed by AIMCO. Accordingly,
AIMCO has effective control of the Managing General Partner in its capacity as
general partner of the Registrant. The Partnership Agreement provides that the
Partnership and Operating Partnerships are to terminate on December 31, 2035
unless terminated prior to such date.
On December 11, 2003, AIMCO Properties, L.P., a Delaware limited partnership,
entered into a Redemption and Contribution Agreement (the "Redemption and
Contribution Agreement") with FWC with respect to the acquisition of the
managing General Partner's interest (the "MGP Interest") by an affiliate of
AIMCO Properties, L.P., the operating partnership of AIMCO.
As of the time of the execution of the Redemption and Contribution Agreement and
until such time as the transfer of the MGP Interest from the Managing General
Partner to the AIMCO Properties, L.P. affiliate is effective, NHP Management
Company ("NHP"), an affiliate of AIMCO Properties, L.P., holds 100% of the Class
B stock of FWC, which provides NHP with the right to elect one director to the
Managing General Partner's Board of Directors, who in turn has the power to
appoint the sole member of the Residential Committee of the Managing General
Partner's Board of Directors. The Residential Committee is vested with the
authority to elect officers and, subject to certain limitations, the Residential
Committee and its appointed officers have the right to cause the Managing
General Partner to take such actions as it deems necessary and advisable in
connection with the activities of the Partnership.
The purchase price allocated to the MGP Interest was $1,000 plus the redemption
of certain interests held by affiliates of AIMCO Properties, L.P. in FWC. The
agreement is subject to necessary actions to obtain the consent of the limited
partners (although AIMCO Properties, L.P. and its affiliates control a
sufficient interest in the Partnership to approve the transfer of the MGP
Interest), lenders, if applicable, and any necessary governmental consents.
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 and again in
2002. See "Item 8. Financial Statements and Supplementary Data - Note E" for
further information concerning the mortgage loan encumbering the property.
The Registrant's interest in the Operating Partnerships entitles it to 87.26% of
profits and losses for tax purposes, 87.26% 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 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.
Risk Factors
The real estate business in which the Partnership is engaged is highly
competitive. There are other residential properties within the market area of
the Registrant'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.
Laws benefiting disabled persons may result in the Partnership's incurrence of
unanticipated expenses. Under the Americans with Disabilities Act of 1990, or
ADA, all places intended to be used by the public are required to meet certain
Federal requirements related to access and use by disabled persons. Likewise,
the Fair Housing Amendments Act of 1988, or FHAA, requires apartment properties
first occupied after March 13, 1990 to be accessible to the handicapped. These
and other Federal, state and local laws may require modifications to the
Registrant's property, or restrict renovations of the property. Noncompliance
with these laws could result in the imposition of fines or an award of damages
to private litigants and also could result in an order to correct any
non-complying feature, which could result in substantial capital expenditures.
Although the Managing General Partner believes that the Registrant's property is
substantially in compliance with present requirements, the Partnership may incur
unanticipated expenses to comply with the ADA and the FHAA.
Both the income and expenses of operating the property 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 property
owned by the Partnership.
The Partnership monitors its 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.
Item 2. Description of Property
The following table sets forth the Registrant's investment in property:
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 a four-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 $128,641 $80,070 10-30 yrs S/L $31,079
See "Item 8. Financial Statements, Note A" for a description of the
Partnership's capitalization and depreciation policies.
Schedule of Property Indebtedness
The following table sets forth certain information relating to the loan
encumbering the Partnership's property.
Principal Principal Principal
Balance At Balance At Stated Balance
December 31, Interest Period Maturity Due At
Property 2003 2002 Rate Amortized Date Maturity (1)
(in thousands) (in thousands)
Springhill Lake
1st mortgage $110,386 $113,100 (2) 30 years 09/07 $99,940
(1) See "Item 8. Financial Statements and Supplementary Data - Note E" for
information with respect to the Registrant's ability to prepay this loan
and other specific details about the loan.
(2) Adjustable rate based on the Fannie Mae discounted mortgage-backed
security index plus 85 basis points. The rate at December 31, 2003 was
1.92%.
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 approximately $53,000 during the year ended December 31, 2003.
The Partnership recognized a loss on the early extinguishment of debt of
approximately $58,000 during the year ended December 31, 2002 due to the write
off of unamortized loan costs. In addition, approximately $7,783,000 was
initially deposited in an escrow account in connection with the refinancing to
be used to complete required repairs at the property. At December 31, 2003, the
escrow account balance was approximately $7,070,000.
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 (1.92% at December 31,
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 financed by 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.
Rental Rates and Occupancy
Average annual rental rate and occupancy for 2003 and 2002 for the property:
Average Annual Average Annual
Rental Rate Occupancy
(per unit)
Property 2003 2002 2003 2002
Springhill Lake $11,085 $10,899 96% 97%
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 its units for 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.
Schedule of Real Estate Taxes and Rates
Real estate taxes and rates in 2003 for the property were:
2003 2003
Billing Rate
(in thousands)
Springhill Lake $1,973 4.75%
The Property has a fiscal year different than the real estate tax year;
therefore, real estate tax expense as stated in the Partnership's Consolidated
Statement of Operations does not agree to the 2003 billings.
Capital Improvements
The Partnership completed approximately $2,407,000 in capital improvements at
Springhill Lake Apartments during the year ended December 31, 2003, consisting
primarily of structural improvements, appliance and plumbing fixture upgrades,
floor covering replacements, hearing and electrical improvements, cabinet
upgrades and interior decorations. These improvements were funded from
operations and replacement reserves. The Partnership is currently evaluating the
capital improvement needs of the property for the upcoming year and currently
expects to budget approximately $1,595,000 which does not include any amounts
that will be incurred during 2004 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. In connection with the refinancing,
approximately $7,783,000 was initially deposited in an escrow account to fund
such repairs and improvements. At December 31, 2003, the balance in the escrow
account was approximately $7,070,000. 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. The capital
improvements planned for the year 2004 at the Partnership's property will be
made only to the extent of cash available from operations and Partnership
reserves.
Item 3. Legal Proceedings
On August 8, 2003 AIMCO Properties L.P., an affiliate of the Managing General
Partner, was served with a Complaint in the United States District Court,
District of Columbia alleging that AIMCO Properties L.P. willfully violated the
Fair Labor Standards Act (FLSA) by failing to pay maintenance workers overtime
for all hours worked in excess of forty per week. The Complaint is styled as a
Collective Action under the FLSA and seeks to certify state subclasses in
California, Maryland, and the District of Columbia. Specifically, the plaintiffs
contend that AIMCO Properties L.P. failed to compensate maintenance workers for
time that they were required to be "on-call". Additionally, the Complaint
alleges AIMCO Properties L.P. failed to comply with the FLSA in compensating
maintenance workers for time that they worked in responding to a call while
"on-call". The Complaint also attempts to certify a subclass for salaried
service directors who are challenging their classification as exempt from the
overtime provisions of the FLSA. AIMCO Properties L.P. has filed an answer to
the Complaint denying the substantive allegations. Discovery is currently
underway.
The Managing General Partner does not anticipate that any costs to the
Partnership, whether legal or settlement costs, associated with this case will
be material to the Partnership's overall operations.
Item 4. Submission of Matters to a Vote of Security Holders
During the quarter ended December 31, 2003, 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
143 holders of record owning an aggregate of 649 Units. Affiliates of the
Managing General Partner owned 521.90 units or 80.42% of the outstanding units
at December 31, 2003. No public trading market has developed for the Units, and
it is not anticipated that such a market will develop in the future.
The Partnership distributed the following amounts during the years ended
December 31, 2003 and 2002 (in thousands, except per unit data):
Per Limited Per Limited
Year Ended Partnership Year Ended Partnership
December 31, 2003 Unit December 31, 2002 Unit
Operations $ 3,932 $ 5,755 $ 5,966 $ 8,733
Refinance (1) 2,818 4,342 45,840 70,632
Total $ 6,750 $10,097 $51,806 $79,365
(1) Proceeds from the November 2002 refinancing of the mortgage encumbering
Springhill Lake Apartments.
Future cash distributions will depend on the levels of net cash generated from
operations, the availability of cash reserves, 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 required
capital improvement expenditures to permit further distributions to its partners
during 2004 or subsequent periods. See "Item 2. Description of Property -
Capital Improvements" for information relating to anticipated capital
expenditures at the property.
AIMCO and its affiliates owned 521.90 limited partnership units (the "Units") in
the Partnership representing 80.42% of the outstanding Units at December 31,
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 AIMCO Properties, L.P., 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.
Item 6. Selected Financial Data (in thousands, except unit data)
2003 2002 2001 2000 1999
Total revenues from
rental operations $ 32,282 $ 32,290 $ 31,004 $ 27,220 $ 26,159
Net income $ 4,455 $ 3,213 $ 2,387 $ 1,725 $ 1,056
Net income per limited
partnership unit $ 6,521 $ 4,703 $ 3,495 $ 2,525 $ 1,545
Limited partnership
units outstanding 649 649 649 649 649
Total assets $ 65,825 $ 71,425 $ 67,310 $ 64,900 $ 61,613
Mortgage note payable $110,386 $113,100 $ 51,788 $ 53,689 $ 55,402
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 and Supplementary Data."
Item 7. Management's Discussion and Analysis or Plan of Operation
This item should be read in conjunction with the consolidated financial
statements and other items contained elsewhere in this report.
Results of Operations
2003 Compared with 2002
The Partnership's net income for the year ended December 31, 2003 was
approximately $4,455,000 compared to net income of approximately $3,213,000 for
the year ended December 31, 2002 (See "Item 8. Financial Statements and
Supplementary Data - Note C" for a reconciliation of theses amounts to the
Partnership's federal taxable income.) Income before minority interest for the
year ended December 31, 2003 was approximately $5,440,000 compared to
approximately $5,377,000 for the year ended December 31, 2002. The increase in
income before minority interest is primarily due to a decrease in total expenses
partially offset by a decrease in total revenues. The decrease in total revenues
for the year ended December 31, 2003 is 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, respectively, slightly offset by an increase in both other and
rental income. Other income increased due to increases in utility reimbursements
and legal fees partially offset by decreases in lease cancellation fees and
miscellaneous resident charges at the property. Rental income increased slightly
due to increased rental rates at Springhill Lake Apartments.
During March 2002 a fire occurred at Springhill Lake Apartments which resulted
in damage to eleven units at the property. During the year ended December 31,
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 property improvements and replacements being written off.
Total expenses for year ended December 31, 2003 decreased due to decreases in
interest and general and administrative expenses partially offset by increases
in operating, property tax, bad debt and depreciation expenses. 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 in 2003 than the fixed interest rate applicable to the old loan during
2002. General and administrative expense decreased due to a decrease in
accountable reimbursements paid to an affiliate of the Managing General Partner
in accordance with the Partnership Agreement. The increase in operating expense
is primarily due to increases in property administrative costs and maintenance
expenses at the property. Property administrative expenses increased primarily
due to the cost of cleaning contracts and costs associated with collecting
tenant rents. Maintenance expenses increased primarily due to roof repairs, snow
removal expenses and contract work offset by decreases in interior and exterior
building improvements at the Partnership's investment property. Property tax
expense increased due to an increased tax rate by the local taxing authority.
Depreciation expense increased due to property improvements and replacements
placed into service during the past twelve months which are now being
depreciated. Bad debt expense increased as a result of larger balances owed by
tenants that were evicted during 2003 compared to the balances owed for 2002
evictions.
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 zero and $1,066,000 for the years ended December 31, 2003 and
2002, respectively. During the year ended December 31, 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
years ended December 31, 2003 and 2002, distributions to the minority interest
partner of approximately $985,000 and $1,098,000, 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.
Cumulative distributions to the minority partner in excess of investment totaled
approximately $2,083,000 and $1,098,000 at December 31, 2003 and 2002,
respectively. No income is allocated to the minority partner until all previous
losses recognized by the majority partner are recovered. For the years ended
December 31, 2003 and 2002, approximately $1,070,000 and zero, respectively, in
earnings were allocated to the majority partner to recover previous losses
recognized. Earnings will continue to be allocated to the majority partner to
recover previous losses recognized until such time as the net amount of
approximately $1,013,000 at December 31, 2003 is recovered.
2002 Compared with 2001
The Registrant's net income for the year ended December 31, 2002 was
approximately $3,213,000 compared to net income of approximately $2,387,000 for
the year ended December 31, 2001 (see "Item 8. Financial Statements and
Supplementary Data - Note C" for a reconciliation of these amounts to the
Registrant's federal taxable income). Income before minority interest for the
year ended December 31, 2002 was approximately $5,377,000 compared to
approximately $3,328,000 for the year ended December 31, 2001. The increase in
income before minority interest is due to an increase in total revenues and a
decrease in total expenses. The increase in total revenues is primarily due to
the casualty gain recognized in 2002 resulting from a fire at the property in
April 2001 and an increase in rental income attributable to an increase in the
average rental rates at Springhill Lake Apartments.
During April 2001, a fire occurred at Springhill Lake Apartments which resulted
in damage to two buildings. 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 was completed during 2002 with the total costs
to restore the buildings totaling approximately $595,000. A casualty gain was
recognized during 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 decreased due to decreases in operating, general and
administrative, bad debt, and interest expenses partially offset by an increase
in depreciation expense. The decrease in operating expense is primarily due to
decreases in maintenance expenses, utility charges and advertising costs at the
Partnership's investment property and property management fees paid to an
affiliate of the Managing General Partner. The decrease in maintenance expenses
is due primarily to the capitalization of certain direct and indirect project
costs, primarily payroll related costs, at the property (see Item 8. Financial
Statements and Supplementary Data, Note A - Organization and Significant
Accounting Policies). General and administrative expense decreased due to a
decrease in the cost of services provided by the Managing General Partner as
allowed under the Partnership Agreement. Bad debt expense decreased due to
occupancy levels being constant and the renovation efforts at the property which
is attracting more desirable tenants. Interest expense decreased due to advances
from an affiliate of the Managing General Partner being paid in full during 2002
and the scheduled monthly principal payments on the mortgage encumbering the
property prior to the refinancing in November 2002. Depreciation expense
increased due to property improvements and replacements placed into service
during the past twelve months which are now being depreciated.
Minority interest in net earnings of the Operating Partnerships totaled
approximately $1,066,000 and $941,000 for the years ended December 31, 2002 and
2001. The increase was due primarily to the increase in income before minority
interest as described above. Distributions to the minority partner reduced the
investment balance to zero during the year ended December 31, 2002. When the
Partnership makes 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, even though
there is no economic impact, cost or risk to the Partnership. The charge is
classified as distributions to minority partner in excess of investment on the
accompanying consolidated statements of operations. Distributions to the
minority partner in excess of investment totaled approximately $1,098,000 for
the year ended December 31, 2002.
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 expense. 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, the Managing General
Partner may use rental concessions and rental rate reductions to offset
softening market conditions, accordingly, there is no guarantee that the
Managing General Partner will be able to sustain such a plan.
Liquidity and Capital Reserves
At December 31, 2003, the Partnership had cash and cash equivalents of
approximately $5,194,000, compared to approximately $5,559,000 at December 31,
2002. The decrease of approximately $365,000 was due to approximately
$10,658,000 and $2,841,000 of cash used in financing and investing activities,
respectively, which was partially offset by approximately $13,134,000 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 Partnership invests its working capital reserves in
interest bearing accounts.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the property to adequately maintain the physical assets
and other operating needs of the 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. The Partnership is
currently evaluating the capital improvement needs of the property for the
upcoming year and currently expects to budget approximately $1,595,000 which
does not include any amounts that will be incurred during 2004 to complete
repairs and improvements at the property required to be made in connection with
the November 2002 refinancing of the property. At closing of this loan, the
Partnership was required to fund a replacement reserve account with
approximately $7,783,000. At December 31, 2003, the balance in the escrow
account was approximately $7,070,000. 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. 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 recognized a loss on the early extinguishment of
debt of approximately $58,000 during the year ended December 31, 2002 due to the
write off of unamortized loan costs. The Partnership capitalized loan costs of
approximately $2,058,000 during the year ended December 31, 2002 and capitalized
an additional $53,000 during the year ended December 31, 2003. In addition,
approximately $7,783,000 was initially deposited in an escrow account in
connection with the refinancing to be used to complete required repairs at the
property. At December 31, 2003, the escrow balance was approximately $7,070,000.
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 (1.92% at December 31,
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 financed by 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.
Effective April 1, 2002, the Partnership adopted SFAS No. 145, "Recission of
FASB Statements No. 4, 44 and 64." SFAS No. 4 "Reporting Gains and Losses from
Extinguishment of Debt," required that all gains and losses from extinguishment
of debt be aggregated and, if material, classified as an extraordinary item.
SFAS No. 145 rescinds SFAS No. 4, and accordingly, gains and losses from
extinguishment of debt should only be classified as extraordinary if they are
unusual in nature and occur infrequently. Neither of these criteria applies to
the Partnership. As a result the loss on early extinguishment of debt discussed
above is included in interest expense for the year ended December 31, 2002.
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 $110,386,000 requires monthly payments of
principal and interest until its maturity date in September 2007 at which time a
balloon payment of approximately $99,940,000 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 sold or refinanced for a
sufficient amount the Partnership will risk losing the property through
foreclosure.
The Partnership distributed the following amounts during the years ended
December 31, 2003 and 2002 (in thousands, except per unit data):
Per Limited Per Limited
Year Ended Partnership Year Ended Partnership
December 31, 2003 Unit December 31, 2002 Unit
Operations $ 3,932 $ 5,755 $ 5,966 $ 8,733
Refinance (1) 2,818 4,342 45,840 70,632
Total $ 6,750 $10,097 $51,806 $79,365
(1) Proceeds from the November 2002 refinancing of the mortgage encumbering
Springhill Lake Apartments.
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 distributions to its partners during
2004 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 December 31,
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 AIMCO Properties, L.P., 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
A summary of the Partnership's significant accounting policies is included in
"Note A - Organization and Significant Accounting Policies" which is included in
the consolidated financial statements in "Item 8. Financial Statements". The
Managing General Partner believes that the consistent application of these
policies enables the Partnership to provide readers of the financial statements
with useful and reliable information about the Partnership's operating results
and financial condition. The preparation of consolidated financial statements in
conformity with accounting principles generally accepted in the United States
requires the Partnership to make estimates and assumptions. These estimates and
assumptions affect the reported amounts of assets and liabilities at the date of
the financial statements as well as reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these estimates.
Judgments and assessments of uncertainties are required in applying the
Partnership's accounting policies in many areas. 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, but are not limited
to, 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 asset.
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. The Partnership evaluates all accounts receivable from residents and
establishes an allowance, after the application of security deposits, for
accounts greater than 30 days past due on current tenants and all receivables
due from former tenants. 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 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 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 December 31, 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 December
31, 2003. Management believes that the fair value of the Partnership's debt
approximates its carrying value as of December 31, 2003.
Principal amount by expected maturity:
Long Term Debt
Variable Rate Debt Average Interest Rate
(in thousands)
2004 $ 2,764 (1)
2005 2,829 (1)
2006 2,891 (1)
2007 101,902 (1)
Total $110,386
(1) Adjustable rate based on Fannie Mae discounted mortgage-backed security
index plus 85 basis points. The rate was 1.92% at December 31, 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 8. Financial Statements and Supplementary Data
Report of Ernst & Young LLP, Independent Auditors
Consolidated Balance Sheets - December 31, 2003 and 2002
Consolidated Statements of Operations - Years ended December 31, 2003, 2002
and 2001
Consolidated Statements of Changes in Partners' (Deficiency) Capital -
Years ended December 31, 2003, 2002 and 2001
Consolidated Statements of Cash Flows - Years ended December 31, 2003, 2002
and 2001
Notes to Consolidated Financial Statements
Report of Ernst & Young LLP, Independent Auditors
The Partners of
Springhill Lake Investors Limited Partnership
We have audited the accompanying consolidated balance sheets of Springhill Lake
Investors Limited Partnership as of December 31, 2003 and 2002 and the related
consolidated statements of operations, changes in partners' (deficiency)
capital, and cash flows for each of the three years in the period ended December
31, 2003. 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 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 audits provide 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, 2003 and 2002, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 2003, in conformity with accounting
principles generally accepted in the United States.
/s/ERNST & YOUNG LLP
Greenville, South Carolina
February 27, 2004
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
(in thousands, except unit data)
December 31,
2003 2002
Assets
Cash and cash equivalents $ 5,194 $ 5,559
Receivables and deposits 1,944 1,854
Restricted escrows 7,070 7,026
Other assets 3,046 3,424
Investment Property (Notes B and E):
Land 5,833 5,833
Buildings and related personal property 122,808 120,469
128,641 126,302
Less accumulated depreciation (80,070) (72,740)
48,571 53,562
$ 65,825 $ 71,425
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 830 $ 1,044
Tenant security deposit liabilities 834 774
Other liabilities 656 937
Advances from affiliate -- 156
Mortgage note payable (Note E) 110,386 113,100
112,706 116,011
Minority Interest (Note H) -- --
Partners' Deficit
General partners (2,771) (2,797)
Investor limited partners
(649 units issued and outstanding) (44,110) (41,789)
(46,881) (44,586)
$ 65,825 $ 71,425
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,
2003 2002 2001
Revenues:
Rental income $30,677 $30,462 $29,682
Other income 1,522 1,362 1,322
Casualty gain (Note F) 83 466 --
Total revenues 32,282 32,290 31,004
Expenses:
Operating 13,990 12,347 12,713
General and administrative 598 639 815
Depreciation 7,377 7,106 6,727
Interest 2,714 4,772 5,242
Property taxes 1,883 1,850 1,849
Bad debt expense 280 199 330
Total expenses 26,842 26,913 27,676
Income before minority interest 5,440 5,377 3,328
Distributions to minority interest partner
in excess of investment (Note H) (985) (1,098) --
Minority interest in net earnings of
operating partnerships (Note H) -- (1,066) (941)
Net income $ 4,455 $ 3,213 $ 2,387
Net income allocated to general partners (5%) $ 223 $ 161 $ 119
Net income allocated to investor limited
partners (95%) 4,232 3,052 2,268
Net income $ 4,455 $ 3,213 $ 2,387
Net income per limited partnership unit $ 6,521 $ 4,703 $ 3,495
Distributions per limited partnership unit $10,097 $79,365 $ --
See Accompanying Notes to Consolidated Financial Statements
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' (DEFICIENCY) CAPITAL
For The Years Ended December 31, 2003, 2002 and 2001
(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' (deficiency) 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' (deficiency) capital
at December 31, 2000 649 (2,660) 6,667 4,007
Distributions to partners (298) (51,508) (51,806)
Net income for the year ended
December 31, 2002 -- 161 3,052 3,213
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 year ended
December 31, 2003 -- 223 4,232 4,455
Partners' deficit at
December 31, 2003 649 $(2,771) $(44,110) $(46,881)
See Accompanying Notes to Consolidated Financial Statements
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended December 31,
2003 2002 2001
Cash flows from operating activities:
Net income $ 4,455 $ 3,213 $ 2,387
Adjustments to reconcile net income to net cash provided
by operating activities:
Distributions to minority interest partner in excess
of investment 985 1,098 --
Minority interest in net earnings of operating
partnerships -- 1,066 941
Depreciation 7,377 7,106 6,727
Casualty gain (83) (466) --
Amortization of loan costs 437 150 136
Loss on early extinguishment of debt -- 58 --
Bad debt expense 280 199 330
Change in accounts:
Receivables and deposits (370) 65 (845)
Other assets (6) (318) 24
Accounts payable 280 (1,042) 988
Tenant security deposit liabilities 60 (1) 208
Other liabilities (281) (2) 521
Due to affiliate -- (99) (88)
Net cash provided by operating activities 13,134 11,027 11,329
Cash flows from investing activities:
Insurance proceeds received 104 445 --
Property improvements and replacements (2,901) (3,858) (8,908)
Net deposits to restricted escrows (44) (4,694) (310)
Refund of construction service fees from affiliate -- 2,245 --
Net cash used in investing activities (2,841) (5,862) (9,218)
Cash flows from financing activities:
Proceeds from advances from affiliate -- 156 1,115
Payments on advances from affiliate (156) (1,853) (1,495)
Payments on mortgage note payable (2,714) (1,488) (1,901)
Distributions to partners (6,750) (51,806) --
Distributions to minority interest partner (985) (7,634) --
Repayment of mortgage notes payable -- (50,300) --
Proceeds from refinancing -- 113,100 --
Loan costs paid (53) (2,058) --
Net cash used in financing activities (10,658) (1,883) (2,281)
Net (decrease) increase in cash and cash equivalents (365) 3,282 (170)
Cash and cash equivalents at beginning of year 5,559 2,277 2,447
Cash and cash equivalents at end of year $ 5,194 $ 5,559 $ 2,277
Supplemental disclosure of cash flow information:
Cash paid for interest, including approximately $0, $41,
and $225, respectively, paid to an affiliate $ 2,456 $ 4,586 $ 5,118
Supplemental disclosure of non-cash information:
Property improvements and replacements in accounts
payable and other liabilities $ -- $ 494 $ 673
See Accompanying Notes to Consolidated Financial Statements
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003
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 a four-store shopping center. 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 of which are Winthrop Financial
Associates, a Limited Partnership ("WFA"), and Apartment Investment and
Management Company ("AIMCO"). 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". Pursuant to the by-laws of the
Managing General Partner, the Residential Committee of the Managing General
Partner as well as the officers appointed by the Residential Committee have the
exclusive authority to manage the day-to-day affairs of the Managing General
Partner in its capacity as the general partner of the Registrant. The
Residential Committee consists of a director appointed by AIMCO. Accordingly,
AIMCO has effective control of the Managing General Partner in its capacity as
general partner of the Registrant. 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 2003, 2002 and 2001 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
(the "Units").
Depreciation: Depreciation is provided by the straight-line method over the
estimated lives of the apartment property 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 27.5 years and (2) personal property additions over 5
years.
Cash and Cash Equivalents: Cash and cash equivalents include 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 $5,125,000 and
$5,516,000 at December 31, 2003 and 2002, respectively, that are maintained by
an affiliated management company on behalf of affiliated entities in cash
concentration accounts.
Investment Property: Investment property consists of one apartment complex with
a four-store shopping center and is stated at cost. Acquisition fees are
capitalized as a cost of real estate. Expenditures in excess of $250 that
maintain an existing asset which has a useful life of more than one year are
capitalized as capital replacement expenditures and depreciated over the
estimated useful life of the asset. Expenditures for ordinary repairs,
maintenance and apartment turnover costs are expensed as incurred. In accordance
with Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets," 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, 2003, 2002
or 2001.
During 2001, AIMCO, an affiliate of the Managing General Partner, commissioned a
project to study process improvement ideas to reduce operating costs. The result
of the study led to a re-engineering of business processes and eventual
redeployment of personnel and related capital spending. The implementation of
these plans during 2002, accounted for as a change in accounting estimate,
resulted in a refinement of the Partnership's process for capitalizing certain
direct and indirect project costs (principally payroll related costs) and
increased capitalization of such costs by approximately $451,000 in 2002
compared to 2001. Capitalization of such costs decreased by approximately
$40,000 in 2003 compared to 2002.
Advertising: The Partnership expenses the costs of advertising as incurred.
Advertising costs of approximately $87,000, $73,000, and $103,000 for the years
ended December 31, 2003, 2002 and 2001, respectively, were charged to operating
expense as incurred.
Segment Reporting: SFAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information" established standards for the way 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 establishes 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.
Loan Costs: Loan costs of approximately $2,111,000 and $2,058,000 are included
in other assets in the accompanying consolidated balance sheet as of December
31, 2003 and 2002, respectively. Accumulated amortization of approximately
$497,000 and $25,000 was also included in other assets as of December 31, 2003
and 2002, respectively. These loan costs are being amortized over five years on
a straight-line method. Amortization expense is included in interest expense in
the accompanying consolidated statements of operations. Amortization of loan
costs is expected to be approximately $430,000 in 2004 through 2006 and $324,000
in 2007.
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 approximates its
carrying value at December 31, 2003.
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 attributable to
leases monthly as it is earned. The Partnership evaluates all accounts
receivable from residents and establishes an allowance, after the application of
security deposits, for accounts greater than 30 days past due on current tenants
and all receivables due from former tenants. 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.
Tenant Security Deposits: The Partnership requires security deposits from
lessees for the duration of the lease and are included in receivables and
deposits in the accompanying consolidated balance sheets. 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.
Note B - Investment Property and Accumulated Depreciation
Initial Cost
Investment Property To Partnership
Buildings Cost
and Related Capitalized
Personal Subsequent to
Description Encumbrances Land Property Acquisition
(in thousands) (in thousands)
Springhill Lake $110,386 $ 5,833 $ 67,484 $ 55,324
Gross Amount At Which Carried
At December 31, 2003
(in thousands)
Buildings
And
Related
Personal Accumulated Date Depreciable
Description Land Property Total Depreciation Acquired Life-Years
Springhill Lake $5,833 $122,808 $128,641 $ 80,070 10/84 10-30
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 Property and Accumulated Depreciation":
Years Ended December 31,
2003 2002 2001
(in thousands)
Investment Property
Balance at beginning of year $126,302 $125,133 $116,549
Property improvements 2,407 3,679 8,673
Disposition of property (68) (265) (89)
Refund of construction service fees
previously capitalized (1) -- (2,245) --
Balance at end of year $128,641 $126,302 $125,133
Accumulated Depreciation
Balance at beginning of year $ 72,740 $ 65,806 $ 59,137
Depreciation of real estate 7,377 7,106 6,727
Disposition of property (47) (172) (58)
Balance at end of year $ 80,070 $ 72,740 $ 65,806
(1) See Note D - Related Party Transactions for further information.
The aggregate cost of the real estate for Federal income tax purposes at
December 31, 2003 and 2002, is $127,734,000 and $124,896,000. The accumulated
depreciation taken for Federal income tax purposes at December 31, 2003 and 2002
is $96,655,000 and $92,901,000.
Note C - 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):
2003 2002 2001
Net income as reported $ 4,455 $ 3,213 $ 2,387
Excess of accelerated depreciation for
income tax purposes 3,623 778 249
Deferred revenue - laundry income (79) (79) (72)
Other 117 542 1,262
Federal taxable income $ 8,116 $ 4,454 $ 3,826
Federal taxable income per limited
partnership unit $11,881 $ 6,519 $ 5,601
The following is a reconciliation between the Partnership's reported amounts and
Federal tax basis of net liabilities (in thousands):
2003 2002
Net liabilities as reported: $(46,881) $(44,586)
Land and buildings (907) (1,293)
Accumulated depreciation (16,585) (20,161)
Deferred sales commission 65 144
Other 3,558 3,780
Net liabilities - income tax method $(60,750) $(62,116)
Note D - 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.
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 as compensation for providing property management services. The
Partnership paid to such affiliates approximately $953,000, $936,000 and
$1,048,000 for the years ended December 31, 2003, 2002 and 2001, respectively,
which is included in operating expense.
An affiliate of the Managing General Partner received reimbursement of
accountable administrative expenses amounting to approximately $413,000,
$435,000 and $2,474,000 for the years ended December 31, 2003, 2002 and 2001,
respectively, which is included in general and administrative expense. For the
years ended December 31, 2002 and 2001, the first three quarters were based on
estimated amounts and in the fourth quarter the reimbursements were adjusted
based on actual costs (see "Note J"). 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 December 31, 2002.
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, 2003, 2002 and 2001,
which is included in general and administrative expense.
During the years ended December 31, 2002 and 2001, an affiliate of the Managing
General Partner advanced the Partnership approximately $156,000 and $1,115,000,
respectively. There were no advances made for the year ended December 31, 2003.
Approximately $156,000, $1,853,000 and $1,495,000 was repaid during 2003, 2002
and 2001, respectively. At December 31, 2003, there was no balance due for
advances from affiliate. At December 31, 2002, approximately $156,000 was owed
and is included in advances from affiliate in the accompanying consolidated
balance sheet. In accordance with the Partnership Agreement, interest is charged
at the prime rate plus 2%. The Partnership recognized approximately $30,000 and
$186,000 of interest expense related to these advances during the years ended
December 31, 2002 and 2001, respectively. Interest expense for the year ended
December 31, 2003 amounted to less than $1,000.
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 years ended December 31, 2003, 2002 and
2001, the Partnership was charged by AIMCO and its affiliates approximately
$273,000, $331,000 and $393,000, respectively, for insurance coverage and fees
associated with policy claims administration.
AIMCO and its affiliates owned 521.90 limited partnership units (the "Units") in
the Partnership representing 80.42% of the outstanding Units at December 31,
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 AIMCO Properties, L.P., 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.
Note E - 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, Including Interest Maturity Due At
2003 2002 Interest Rate Date Maturity
(in thousands) (in thousands)
Springhill Lake
1st mortgage $110,386 $113,100 $ 427 (1) 09/07 $ 99,940
(1) Adjustable rate based on Fannie Mae discounted mortgage-backed security
index plus 85 basis points. The rate at December 31, 2003 was 1.92% 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.
On November 14, 2002, the Partnership refinanced its existing mortgage
encumbering Springhill Lake Apartments. This loan was initially refinanced under
an interim credit facility ("Interim Credit Facility") which had a term of three
months. The Interim Credit Facility included properties in other partnerships
that are affiliated with the Partnership. However, the Interim Credit Facility
created separate loans for each property that are not cross-collateralized or
cross-defaulted with the other property loans. During the term of the Interim
Credit Facility, the property was required to make interest-only payments. The
first month's interest, which was paid at the date of the refinancing, was
calculated at LIBOR plus 70 basis points. Interest for the following month was
calculated at LIBOR plus 150 basis points.
During December 2002 the loan was sold to Fannie Mae under a permanent credit
facility ("Permanent Credit Facility"). The Credit Facility has a maturity of
five years, with one five-year extension option. This Permanent Credit Facility
also creates separate loans for each property that are not cross-collateralized
or cross-defaulted with the other property loans. Each note under this Permanent
Credit Facility will begin as a variable rate loan with the option of converting
to a fixed rate loan after three years. The interest rate on the variable rate
loans is the Fannie Mae discounted mortgage-backed security index plus 85 basis
points. The rate was 1.92% at December 31, 2003 and will reset monthly. Each
loan will automatically renew 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 any property is on the
Permanent Credit Facility. The loans may be prepaid without penalty.
The 2002 refinancing of the existing Springhill Lake Apartments loan replaced
the first mortgage of approximately $50,300,000 with a new mortgage in the
amount of $113,100,000. Total capitalized loan costs were approximately
$2,058,000 during the year ended December 31, 2002. Additional loan costs of
approximately $53,000 were capitalized during the year ended December 31, 2003.
The Partnership recognized a loss on the early extinguishment of debt of
approximately $58,000 during the year ended December 31, 2002 due to the write
off of unamortized loan costs. In addition, approximately $7,783,000 was
initially deposited in an escrow account to be used to complete required repairs
at the property. At December 31, 2003, the escrow account balance was
approximately $7,070,000.
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. Further, the property may not be
sold subject to existing indebtedness.
Scheduled principal payments of the mortgage note payable subsequent to December
31, 2003, are as follows (in thousands):
2004 $ 2,764
2005 2,829
2006 2,891
2007 101,902
Total $110,386
Note F - Casualty Gains
During March 2002 a fire occurred at Springhill Lake Apartments which resulted
in damage to eleven units at the property. During the year ended December 31,
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 property improvements and replacements 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 year ended December 31, 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 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, 2003 are as follows (in thousands):
2004 $ 154
2005 161
2006 167
2007 155
2008 137
Thereafter 413
$1,187
Note H - Minority Interest
The limited partnership interest of Theodore N. Lerner in the operating
partnerships is reflected as a minority interest in the accompanying
consolidated financial statements. Minority interest in net earnings of the
operating partnerships recorded by the Partnership totaled approximately zero
and $1,066,000 for the years ended December 31, 2003 and 2002, respectively.
During the year ended December 31, 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 years ended December 31, 2003 and
2002, distributions to the minority interest partner of approximately $985,000
and $1,098,000, 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. Cumulative distributions
to the minority partner in excess of investment totaled approximately $2,083,000
and $1,098,000 at December 31, 2003 and 2002, respectively. No income is
allocated to the minority partner until all previous losses recognized by the
majority partner are recovered. For the years ended December 31, 2003 and 2002,
approximately $1,070,000 and zero, respectively, in earnings were allocated to
the majority partner to recover previous losses recognized. Earnings will
continue to be allocated to the majority partner to recover previous losses
recognized until such time as the net amount of approximately $1,013,000 at
December 31, 2003 is recovered.
Note I - 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
2003 Quarter Quarter Quarter Quarter Total
Total revenues $ 7,902 $ 8,048 $ 8,165 $ 8,167 $32,282
Total expenses 7,656 6,626 6,789 6,756 27,827
Net income $ 246 $ 1,422 $ 1,376 $ 1,411 $ 4,455
Net income per limited
partnership unit $ 361 $ 2,082 $ 2,014 $ 2,064 $ 6,521
1st 2nd 3rd 4th
2002 Quarter Quarter Quarter Quarter Total
Total revenues $ 7,821 $ 8,374 $ 8,132 $ 7,963 $32,290
Total expenses 7,056 7,282 6,885 7,854 29,077
Net income $ 765 $ 1,092 $ 1,247 $ 109 $ 3,213
Net income per limited
partnership unit $ 1,120 $ 1,598 $ 1,826 $ 159 $ 4,703
Note J - Fourth-Quarter Adjustment
The Partnership's policy is to record management reimbursements to the Managing
General Partner as allowed under the Partnership Agreement on a quarterly basis,
using estimated financial information furnished by an affiliate of the Managing
General Partner. For the first three quarters of 2002 and 2001, these
reimbursements of accountable administrative expenses were based on estimated
amounts. During the fourth quarter of 2002 and 2001, the Partnership recorded an
adjustment to management reimbursements to the Managing General Partner of
approximately ($99,000) and $88,000, respectively, due to a difference in the
estimated costs and the actual costs incurred. The actual management
reimbursements to the Managing General Partner for the year ended December 31,
2002 and 2001 were approximately $435,000 and $616,000, respectively, as
compared to the estimated management reimbursements to the Managing General
Partner for the nine months ended September 30, 2002 and 2001 of approximately
$401,000 and $395,000, respectively.
Note K - Legal Proceedings
On August 8, 2003 AIMCO Properties L.P., an affiliate of the Managing General
Partner, was served with a Complaint in the United States District Court,
District of Columbia alleging that AIMCO Properties L.P. willfully violated the
Fair Labor Standards Act (FLSA) by failing to pay maintenance workers overtime
for all hours worked in excess of forty per week. The Complaint is styled as a
Collective Action under the FLSA and seeks to certify state subclasses in
California, Maryland, and the District of Columbia. Specifically, the plaintiffs
contend that AIMCO Properties L.P. failed to compensate maintenance workers for
time that they were required to be "on-call". Additionally, the Complaint
alleges AIMCO Properties L.P. failed to comply with the FLSA in compensating
maintenance workers for time that they worked in responding to a call while
"on-call". The Complaint also attempts to certify a subclass for salaried
service directors who are challenging their classification as exempt from the
overtime provisions of the FLSA. AIMCO Properties L.P. has filed an answer to
the Complaint denying the substantive allegations. Discovery is currently
underway.
The Managing General Partner does not anticipate that any costs to the
Partnership, whether legal or settlement costs, associated with this case will
be material to the Partnership's overall operations.
The Partnership is unaware of any other pending or outstanding litigation
matters involving it or its investment property that are 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
None.
Item 9a. 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
fourth quarter of 2003 that have materially affected, or are reasonably likely
to materially affect, the Partnership's internal control over financial
reporting.
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. Pursuant to the by-laws of the Managing
General Partner, the Residential Committee of the Managing General Partner as
well as the officers appointed by the Residential Committee have the exclusive
authority to manage the day-to-day affairs of the Managing General Partner in
its capacity as the general partner of the Registrant. There are no family
relationships between or among any directors or officers.
Name Age Position
Martha L. Long 44 Director, Vice President - Residential,
and sole member of the Residential Committee
Thomas M. Herzog 41 Vice President - Residential and Chief
Accounting Officer
Michael L. Ashner 51 Chief Executive Officer and Director
Peter Braverman 52 Executive Vice President and Director
Martha L. Long has been a Director and Vice President - Residential of the
Managing General Partner since February 2004. Ms. Long has been with AIMCO since
October 1998 and has served in various capacities. From 1998 to 2001, Ms. Long
served as Senior Vice President and Controller of AIMCO and the Managing General
Partner. During 2002 and 2003, Ms. Long served as Senior Vice President of
Continuous Improvement for AIMCO.
Thomas M. Herzog was appointed Vice President - Residential and Chief Accounting
Officer of the Managing General Partner in February 2004 and of AIMCO in January
2004. Prior to joining AIMCO in January 2004, Mr. Herzog was at GE Real Estate,
serving as Chief Accounting Officer & Global Controller from April 2002 to
January 2004 and as Chief Technical Advisor from March 2000 to April 2002. Prior
to joining GE Real Estate, Mr. Herzog was at Deloitte & Touche LLP from 1990
until 2000, including a two-year assignment in the real estate national office.
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 as well as the Chief Executive Officer of Newkirk MLP Corp.,
the manager of the general partner of The Newkirk Master Limited Partnership, a
real estate company. Mr. Ashner has served as Chief Executive Officer of First
Union Real Estate Equity and Mortgage Investments, a publicly traded real estate
investment trust ("First Union"), since December 31, 2003. Since August 2002,
Mr. Ashner has also served as the Chief Executive Officer and a Director of
Shelbourne Properties I, II and III, three separate publicly traded real estate
investment trusts. Since 1981, Mr. Ashner has been Chairman of Exeter Capital
Corporation, a firm that has organized and administered real estate limited
partnerships. Since August 2001, Mr. Ashner has also served as Chief Executive
Officer of AP-Fairfield GP, LLC, the general partner of Fairfield Inn By
Marriott Limited Partnership, an entity that owns and operates 50 Fairfield
Inns. Mr. Ashner also currently serves on the Boards of Directors of the
following publicly traded companies: Greate Bay Hotel and Casino Inc., a hotel
and casino operator, and NBTY Inc., a manufacturer, marketer and retailed of
nutritional supplements.
Peter Braverman has been a Vice President of WFA and the Managing General
Partner since January 1996. Mr. Braverman also serves as the Executive Vice
President of Newkirk MLP Corp. Mr. Braverman has served as the Executive Vice
President of First Union since January 2004. He has also been an Executive Vice
President of AP-Fairfield GP, LLC since August 2001. Since August 2002, Mr.
Braverman has also served as the Executive Vice President and a Director of
Shelbourne Properties I, II and III.
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 board of directors of the Managing General Partner does not have a separate
audit committee. As such, the board of directors of the Managing General Partner
fulfills the functions of an audit committee. The board of directors has
determined that Martha L. Long meets the requirement of an "audit committee
financial expert".
The director and officers of the Managing General Partner with authority over
the Partnership are all employees of subsidiaries of AIMCO. AIMCO has adopted a
code of ethics that applies to such director and officers that is posted on
AIMCO's website (www.AIMCO.com). AIMCO's website is not incorporated by
reference to this filing.
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, 2003.
Number
Entity of Units Percentage
AIMCO IPLP, L.P.
(an affiliate of AIMCO) 241.15 37.16%
AIMCO Properties, L.P.
(an affiliate of AIMCO) 280.75 43.26%
AIMCO IPLP, L.P. (formerly known as Insignia Financial Group, Inc.) is
ultimately owned by AIMCO. Its business address is 55 Beattie Place, Greenville,
South Carolina 29601.
AIMCO Properties, L.P. is indirectly ultimately controlled by AIMCO. Its
business address is 4582 S. Ulster St. Parkway, Suite 1100, Denver, Colorado
80237.
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.
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 as compensation for providing property management services. The
Partnership paid to such affiliates approximately $953,000, $936,000 and
$1,048,000 for the years ended December 31, 2003, 2002 and 2001, respectively,
which is included in operating expense.
An affiliate of the Managing General Partner received reimbursement of
accountable administrative expenses amounting to approximately $413,000,
$435,000 and $2,474,000 for the years ended December 31, 2003, 2002 and 2001,
respectively, which is included in general and administrative expense. For the
years ended December 31, 2002 and 2001, the first three quarters were based on
estimated amounts and in the fourth quarter the reimbursements were adjusted
based on actual costs (see Item 8. Financial Statements, Note J). 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
December 31, 2002.
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, 2003, 2002 and 2001,
which is included in general and administrative expense.
During the years ended December 31, 2002 and 2001, an affiliate of the Managing
General Partner advanced the Partnership approximately $156,000 and $1,115,000,
respectively. There were no advances made for the year ended December 31, 2003.
Approximately $156,000, $1,853,000 and $1,495,000 was repaid during 2003, 2002
and 2001, respectively. At December 31, 2003, there was no balance due for
advances from affiliate. At December 31, 2002, approximately $156,000 was owed
and is included in advances from affiliate in the accompanying consolidated
balance sheet.
In accordance with the Partnership Agreement, interest is charged at the prime
rate plus 2%. The Partnership recognized approximately $30,000 and $186,000 of
interest expense related to these advances during the years ended December 31,
2002 and 2001, respectively. Interest expense for the year ended December 31,
2003 amounted to less than $1,000.
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 years ended December 31, 2003, 2002 and
2001, the Partnership was charged by AIMCO and its affiliates approximately
$273,000, $331,000 and $393,000, respectively, for insurance coverage and fees
associated with policy claims administration.
AIMCO and its affiliates owned 521.90 limited partnership units (the "Units") in
the Partnership representing 80.42% of the outstanding Units at December 31,
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 AIMCO Properties, L.P., 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.
Item 14. Principal Accounting Fees and Services
The Managing General Partner has reappointed Ernst & Young LLP as independent
auditors to audit the financial statements of the Partnership for 2004.
Audit Fees. The Partnership paid to Ernst & Young LLP audit fees of
approximately $32,000 and $31,000 for 2003 and 2002, respectively.
Tax Fees. The Partnership paid to Ernst & Young LLP fees for tax services for
2003 and 2002 of approximately $29,000 and $38,000, respectively.
Item 15. Exhibits and Reports on Form 8-K
(a) Exhibits:
See Exhibit Index
(b) Reports on Form 8-K filed during the quarter ended December 31, 2003:
Current Report on Form 8-K dated December 18, 2003 and filed on
December 23, 2003 disclosing a Redemption and Contribution Agreement
dated December 11, 2003 between AIMCO Properties, L.P., and First
Winthrop Corporation.
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/Martha L. Long
Martha L. Long
Vice President - Residential
By: /s/Thomas M. Herzog
Thomas M. Herzog
Vice President - Residential
and Chief Accounting Officer
Date: March 29, 2004
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.
/s/Martha L. Long Vice President - Residential Date: March 29, 2004
Martha L. Long and Director
/s/Thomas M. Herzog Vice President - Residential Date: March 29, 2004
Thomas M. Herzog and Chief Accounting Officer
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)
(j) Consolidated, Amended and Restated Multifamily Note dated November 1,
2002 between Springhill Lake Investors Limited Partnership and GMAC
Commercial Mortgage Corporation (2)
(k) Guaranty dated November 1, 2002 by AIMCO Properties, L.P., for the
benefit of GMAC Commercial Mortgage Corporation (2)
(l) Consolidated, Amended and Restated Payment Guaranty dated November 1,
2002 by the Operating Partnerships (2)
(m) Completion/Repair and Security Agreement dated November 1, 2002
between the Operating Partnerships and GMAC Commercial Mortgage
Corporation (2)
(n) Replacement Reserve and Security Agreement dated November 1, 2002
between the Operating Partnerships and GMAC Commercial Mortgage
Corporation (2)
(o) Promissory Note dated November 1, 2002 between Springhill Lake
Investors Limited Partnership and the Operating Partnerships (2)
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.
(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 Current Report on Form
8-K dated November 14, 2002, as filed November 29, 2002.
(3) Incorporated herein by reference to the Registrant's Current Report on Form
8-K dated August 23, 1995, as filed September 5, 1995.
Exhibit 31.1
CERTIFICATION
I, Martha L. Long, certify that:
1. I have reviewed this annual report on Form 10-K of Springhill Lake
Investors Limited 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: March 29, 2004
/s/Martha L. Long
Martha L. Long
Vice President - Residential of Three Winthrop
Properties, Inc., equivalent of the chief
executive officer of the Partnership
Exhibit 31.2
CERTIFICATION
I, Thomas M. Herzog, certify that:
1. I have reviewed this annual report on Form 10-K of Springhill Lake
Investors Limited 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: March 29, 2004
/s/Thomas M. Herzog
Thomas M. Herzog
Vice President - Residential and Chief
Accounting Officer 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 Annual Report on Form 10-K of Springhill Lake Investors
Limited Partnership (the "Partnership"), for the year ended December 31, 2003 as
filed with the Securities and Exchange Commission on the date hereof (the
"Report"), Martha L. Long, as the equivalent of the Chief Executive Officer of
the Partnership, and Thomas M. Herzog, 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/Martha L. Long
Name: Martha L. Long
Date: March 29, 2004
/s/Thomas M. Herzog
Name: Thomas M. Herzog
Date: March 29, 2004
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.