UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2005
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT
For the transition period from _________to _________
Commission file number 0-14569
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Maryland 04-2848939
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Beattie Place, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(Registrant's telephone number)
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 whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes ___ No X_
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
(in thousands, except unit data)
June 30, December 31,
2005 2004
(unaudited) (Note)
Assets
Cash and cash equivalents $ 2,955 $ 1,502
Receivables and deposits 951 943
Restricted escrows 214 535
Other assets 1,623 2,584
Investment property:
Land 5,833 5,833
Buildings and related personal property 129,977 127,632
135,810 133,465
Less accumulated depreciation (91,187) (87,489)
44,623 45,976
$ 50,366 $ 51,540
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 295 $ 227
Tenant security deposit liabilities 675 654
Other liabilities 553 575
Mortgage note payable 113,500 113,500
115,023 114,956
Minority interest (Note C) -- --
Partners' Deficit
General partners (3,272) (3,210)
Investor limited partners (649 units issued and
outstanding) (61,385) (60,206)
(64,657) (63,416)
$ 50,366 $ 51,540
Note: The consolidated balance sheet at December 31, 2004 has been derived from
the audited financial statements at that date but does not include all the
information and footnotes required by generally accepted accounting
principles in the United States for complete financial statements.
See Accompanying Notes to Consolidated Financial Statements
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per unit data)
Three Months Ended Six Months Ended
June 30, June 30,
2005 2004 2005 2004
Revenues:
Rental income $ 7,825 $ 7,690 $15,502 $15,347
Other income 431 395 819 741
Casualty gains (Note D) -- 31 155 31
Total revenues 8,256 8,116 16,476 16,119
Expenses:
Operating 3,477 3,297 7,571 6,724
General and administrative 143 156 248 302
Depreciation 1,847 1,853 3,734 3,691
Interest 1,035 625 1,936 1,252
Property taxes 584 494 1,220 989
Bad debt expense 61 62 127 110
Total expenses 7,147 6,487 14,836 13,068
Income before minority interest 1,109 1,629 1,640 3,051
Distributions to minority interest
partner in excess of investment
(Note C) (129) -- (375) --
Net income $ 980 $ 1,629 $ 1,265 $ 3,051
Net income allocated to general
partners (5%) $ 49 $ 81 $ 63 $ 152
Net income allocated to limited
partners (95%) 931 1,548 1,202 2,899
$ 980 $ 1,629 $ 1,265 $ 3,051
Net income per limited partnership
unit $ 1,434 $ 2,385 $ 1,852 $ 4,467
Distributions per limited partnership
unit $ 1,275 $ -- $ 3,669 $ --
See Accompanying Notes to Consolidated Financial Statements
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
(in thousands, except unit data)
Limited Investor
Partnership General Limited
Units Partners Partners Total
Original capital contributions 649 $ -- $ 40,563 $ 40,563
Partners' deficit at
December 31, 2004 649 $(3,210) $(60,206) $(63,416)
Distributions to partners -- (125) (2,381) (2,506)
Net income for the six months
ended June 30, 2005 -- 63 1,202 1,265
Partners' deficit at
June 30, 2005 649 $(3,272) $(61,385) $(64,657)
See Accompanying Notes to Consolidated Financial Statements
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
June 30,
2005 2004
Cash flows from operating activities:
Net income $ 1,265 $ 3,051
Adjustments to reconcile net income to net cash provided
by operating activities:
Distributions to minority interest partner in excess of
investment 375 --
Casualty gain (155) (31)
Depreciation 3,734 3,691
Amortization of loan costs 71 215
Bad debt expense, net 127 110
Change in accounts:
Receivables and deposits (135) (1,094)
Other assets 890 545
Accounts payable (48) (395)
Tenant security deposit liabilities 21 (81)
Other liabilities (22) (171)
Net cash provided by operating activities 6,123 5,840
Cash flows from investing activities:
Property improvements and replacements (2,274) (1,528)
Insurance proceeds received 164 38
Net withdrawals from (deposits to) restricted escrows 321 (15)
Net cash used in investing activities (1,789) (1,505)
Cash flows from financing activities:
Payments on mortgage note payable -- (1,379)
Distributions to partners (2,506) --
Distributions to minority partner (375) --
Loan costs paid -- (85)
Net cash used in financing activities (2,881) (1,464)
Net increase in cash and cash equivalents 1,453 2,871
Cash and cash equivalents at beginning of period 1,502 5,194
Cash and cash equivalents at end of period $ 2,955 $ 8,065
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,864 $ 1,057
Supplemental disclosure of non-cash information:
Property improvements and replacements included in
accounts payable $ 251 $ 166
At December 31, 2004 approximately $135,000 of property improvements and
replacements were included in accounts payable which are included in property
improvements and replacements during the six months ended June 30, 2005.
See Accompanying Notes to Consolidated Financial Statements
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited consolidated financial statements of Springhill Lake
Investors Limited Partnership (the "Partnership" or "Registrant") have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of AIMCO/Springhill Lake Investors GP, LLC
("AIMCO LLC" or the "Managing General Partner"), all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and six months ended June 30,
2005 are not necessarily indicative of the results that may be expected for the
year ending December 31, 2005. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Partnership's Annual Report on Form 10-K for the year ended December 31, 2004.
The Managing General Partner is a wholly owned subsidiary of Apartment
Investment and Management Company ("AIMCO"), a publicly traded real estate
investment trust.
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 First Winthrop Corporation, a Delaware corporation
("FWC") and the sole shareholder of Three Winthrop Properties, Inc.
("Winthrop"), the former managing general partner of the Partnership, with
respect to the acquisition of its general partner interest in the Partnership
(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 Winthrop to AIMCO LLC
was effective, NHP Management Company ("NHP"), an affiliate of AIMCO Properties,
L.P., was vested with the authority to, subject to certain limitations, cause
Winthrop to take such actions as it deems necessary and advisable in connection
with the activities of the Partnership. The transfer of the MGP Interest from
Winthrop to AIMCO LLC became effective on March 31, 2004. As used herein, the
term "Managing General Partner" shall mean Winthrop, with respect to matters
occurring prior to March 31, 2004 and AIMCO LLC for matters occurring from and
after March 31, 2004.
The accompanying consolidated financial statements include the accounts of the
Partnership and the operating partnerships. Theodore N. Lerner's ownership in
the operating partnerships has been reflected as a minority interest in the
accompanying consolidated financial statements. All significant interpartnership
accounts and transactions have been eliminated in consolidation.
Note B - Transactions with Affiliated Parties
The Partnership has no employees and depends 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 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 $483,000 and $479,000 for the six months ended
June 30, 2005 and 2004, respectively, which is included in operating expense.
An affiliate of the Managing General Partner charged the Partnership
reimbursement of accountable administrative expenses amounting to approximately
$181,000 and $210,000 for the six months ended June 30, 2005 and 2004,
respectively, which is included in general and administrative expenses.
In accordance with the Partnership Agreement, the Managing General Partner
earned approximately $50,000 in asset management fees and approximately $5,000
in administrative fees for both the six month periods ended June 30, 2005 and
2004. These fees are included in general and administrative expenses.
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, general
liability and vehicle liability. The Partnership insures its property above the
AIMCO limits through insurance policies obtained by AIMCO from insurers
unaffiliated with the Managing General Partner. During the six months ended June
30, 2005 and 2004, the Partnership was charged by AIMCO and its affiliates
approximately $298,000 and $288,000 for insurance coverage and fees associated
with policy claims administration.
Note C - 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 was zero for the six months
ended June 30, 2005 and 2004. During the six months ended June 30, 2005 and
2004, 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 interest balance to zero.
For the six months ended June 30, 2005, distributions to the minority interest
partner of approximately $375,000 were made in excess of the minority partner's
investment in the operating partnerships. There were no distributions for the
six months ended June 30, 2004. 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 $5,195,000
and $2,083,000 at June 30, 2005 and 2004, respectively. No income is allocated
to the minority partner until all previous losses recognized by the majority
partner are recovered. For the six months ended June 30, 2005 and 2004,
approximately $398,000 and $578,000, 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 $2,737,000 at June
30, 2005 is recovered.
Note D - Casualty Gain
During the six months ended June 30, 2005, a casualty gain of approximately
$93,000 was recorded at the Partnership's investment property related to a power
loss to one of the property's chillers which resulted in some flooding damage.
The gain was the result of the receipt of insurance proceeds of approximately
$93,000. The damaged equipment was fully depreciated.
During the six months ended June 30, 2005, a casualty gain of approximately
$62,000 was recorded at the Partnership's investment property related to a fire
that occurred in September 2004 which caused damage to the business office at
the property. The gain was the result of the receipt of insurance proceeds of
approximately $71,000 offset by the write off of approximately $9,000 of
undepreciated property improvements and replacements.
During September 2003, Hurricane Isabel caused damages to some of the apartment
buildings at the property. During the six months ended June 30, 2004, all work
was completed to repair the damage and the property recorded a casualty gain of
approximately $31,000. The gain was the result of the receipt of insurance
proceeds of approximately $38,000 offset by approximately $7,000 of
undepreciated damaged assets being written off.
Note E - Casualty Event
On June 13, 2005, a fire damaged thirty three units in three buildings at the
Partnership's investment property. The Managing General Partner is currently
evaluating the status of the three buildings damaged in the fire. The current
plan is to complete repairs at one of the buildings which sustained only
electrical and smoke damage. The other two buildings were severely damaged and
the current plan is to not rebuild these two buildings. Insurance proceeds are
expected to be received which will cover any replacement costs along with the
insurable value of the buildings not restored.
Note F - Contingencies
As previously disclosed, AIMCO Properties L.P. and NHP Management Company, both
affiliates of the Managing General Partner, are defendants in a lawsuit alleging
that they 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 attempts to bring 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. and
NHP Management Company failed to compensate maintenance workers for time that
they were required to be "on-call". Additionally, the complaint alleges AIMCO
Properties L.P. and NHP Management Company failed to comply with the FLSA in
compensating maintenance workers for time that they worked in excess of 40 hours
in a week. On June 23, 2005 the Court conditionally certified the collective
action on both the on-call and overtime issues. The Court ruling allows
plaintiffs to provide notice of the collective action to all non-exempt
maintenance workers from August 7, 2000 through the present. Those employees
will have the opportunity to opt-in to the collective action. Defendants have
asked the Court to reconsider its ruling or in the alternative certify the
ruling for appeal on that issue. After the notice goes out, defendants will have
the opportunity to move to decertify the collective action. The Court further
denied plaintiffs' Motion for Certification of the state subclass. Although the
outcome of any litigation is uncertain, AIMCO Properties, L.P. does not believe
that the ultimate outcome will have a material adverse effect on its
consolidated financial condition or results of operations. Similarly, the
Managing General Partner does not believe that the ultimate outcome will have a
material adverse effect on the Partnership's consolidated financial condition or
results of 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.
Environmental
Various Federal, state and local laws subject property owners or operators to
liability for management, and the costs of removal or remediation, of certain
hazardous substances present on a property. Such laws often impose liability
without regard to whether the owner or operator knew of, or was responsible for,
the release or presence of the hazardous substances. The presence of, or the
failure to manage or remedy properly, hazardous substances may adversely affect
occupancy at affected apartment communities and the ability to sell or finance
affected properties. In addition to the costs associated with investigation and
remediation actions brought by government agencies, and potential fines or
penalties imposed by such agencies in connection therewith, the presence of
hazardous substances on a property could result in claims by private plaintiffs
for personal injury, disease, disability or other infirmities. Various laws also
impose liability for the cost of removal, remediation or disposal of hazardous
substances through a licensed disposal or treatment facility. Anyone who
arranges for the disposal or treatment of hazardous substances is potentially
liable under such laws. These laws often impose liability whether or not the
person arranging for the disposal ever owned or operated the disposal facility.
In connection with the ownership, operation and management of its property, the
Partnership could potentially be liable for environmental liabilities or costs
associated with its property.
Mold
The Partnership is aware of lawsuits against owners and managers of multifamily
properties asserting claims of personal injury and property damage caused by the
presence of mold, some of which have resulted in substantial monetary judgments
or settlements. The Partnership has only limited insurance coverage for property
damage loss claims arising from the presence of mold and for personal injury
claims related to mold exposure. Affiliates of the Managing General Partner have
implemented a national policy and procedures to prevent or eliminate mold from
its properties and the Managing General Partner believes that these measures
will minimize the effects that mold could have on residents. To date, the
Partnership has not incurred any material costs or liabilities relating to
claims of mold exposure or to abate mold conditions. Because the law regarding
mold is unsettled and subject to change the Managing General Partner can make no
assurance that liabilities resulting from the presence of or exposure to mold
will not have a material adverse effect on the Partnership's consolidated
financial condition or results of operations.
SEC Investigation
The Central Regional Office of the United States Securities and Exchange
Commission (the "SEC") continues its formal investigation relating to certain
matters. Although the staff of the SEC is not limited in the areas that it may
investigate, AIMCO believes the areas of investigation have included AIMCO's
miscalculated monthly net rental income figures in third quarter 2003,
forecasted guidance, accounts payable, rent concessions, vendor rebates,
capitalization of payroll and certain other costs, tax credit transactions, and
tender offers for limited partnership interests. AIMCO is cooperating fully.
AIMCO is not able to predict when the investigation will be resolved. AIMCO does
not believe that the ultimate outcome will have a material adverse effect on its
consolidated financial condition or results of operations. Similarly, the
Managing General Partner does not believe that the ultimate outcome will have a
material adverse effect on the Partnership's consolidated financial condition or
results of operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The matters discussed in this report contain certain forward-looking statements,
including, without limitation, statements regarding future financial performance
and the effect of government regulations. Actual results may differ materially
from those described in the forward-looking statements and will be affected by a
variety of risks and factors including, without limitation: national and local
economic conditions; the terms of governmental regulations that affect the
Registrant and interpretations of those regulations; the competitive environment
in which the Registrant operates; financing risks, including the risk that cash
flows from operations may be insufficient to meet required payments of principal
and interest; real estate risks, including variations of real estate values and
the general economic climate in local markets and competition for tenants in
such markets; litigation, including costs associated with prosecuting and
defending claims and any adverse outcomes, and possible environmental
liabilities. Readers should carefully review the Registrant's financial
statements and the notes thereto, as well as the risk factors described in the
documents the Registrant files from time to time with the Securities and
Exchange Commission.
The Partnership's sole asset is a 2,899 unit apartment complex, which consists
of apartment and townhouse units and a four-store shopping center, known as
Springhill Lake Apartments located in Greenbelt, Maryland. Average occupancy for
the six months ended June 30, 2005 and 2004 was 92% and 95%, respectively. The
decrease in occupancy is primarily attributable to tenants leaving to purchase
homes and property management raising the qualifying conditions for prospective
tenants in order to attract a more stable tenant population.
The Partnership's financial results depend upon a number of factors including
the ability to attract and maintain tenants at the investment property, interest
rates on mortgage loans, costs incurred to operate the investment property,
general economic conditions and weather. As part of the ongoing business plan of
the Partnership, the Managing General Partner monitors the rental market
environment of its investment property to assess the feasibility of increasing
rents, maintaining or increasing occupancy levels and protecting the Partnership
from increases in expenses. As part of this plan, the Managing General Partner
attempts to protect the Partnership from the burden of inflation-related
increases in expenses by increasing rents and maintaining a high overall
occupancy level. However, 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. Further, a number of factors that are outside the
control of the Partnership such as the local economic climate and weather can
adversely or positively affect the Partnership's financial results.
Results of Operations
The Partnership's net income for the six months ended June 30, 2005 was
approximately $1,265,000 compared to approximately $3,051,000 for the
corresponding period in 2004. Income before minority interest for the six months
ended June 30, 2005 was approximately $1,640,000 compared to approximately
$3,051,000 for the corresponding period in 2004. The Partnership's net income
for the three months ended June 30, 2005 was approximately $980,000 compared to
approximately $1,629,000 for the corresponding period in 2004. Income before
minority interest for the three months ended June 30, 2005 was approximately
$1,109,000 compared to approximately $1,629,000 for the corresponding period in
2004. The decrease in income before minority interest for the three and six
months ended June 30, 2005 is primarily due to an increase in total expenses
partially offset by an increase in total revenues.
The increase in total revenues is due to an increase in rental income, other
income and for the six months ended June 30, 2005, the recognition of casualty
gains. Rental income increased due to an increase in the average rental rate at
the Partnership's investment property partially offset by a decrease in
occupancy as discussed above. Other income increased due to an increase in
resident utility reimbursements and lease cancellation fees at Springhill Lake
Apartments.
During the six months ended June 30, 2005, a casualty gain of approximately
$93,000 was recorded at the Partnership's investment property related to a power
loss to one of the property's chillers which resulted in some flooding damage.
The gain was the result of the receipt of insurance proceeds of approximately
$93,000. The damaged equipment was fully depreciated.
During the six months ended June 30, 2005, a casualty gain of approximately
$62,000 was recorded at the Partnership's investment property related to a fire
that occurred in September 2004 which caused damage to the business office at
the property. The gain was the result of the receipt of insurance proceeds of
approximately $71,000 offset by the write off of approximately $9,000 of
undepreciated property improvements and replacements.
During September 2003, Hurricane Isabel caused damages to some of the apartment
buildings at the property. During the six months ended June 30, 2004, all work
was completed to repair the damage and the property recorded a casualty gain of
approximately $31,000. The gain was the result of the receipt of insurance
proceeds of approximately $38,000 offset by approximately $7,000 of
undepreciated damaged assets being written off.
Total expenses for the six months ended June 30, 2005 increased due to increases
in operating, depreciation, interest, property tax and bad debt expenses
partially offset by a decrease in general and administrative expenses. Operating
expense increased due to an increase in property and administrative expenses
offset by a decrease in maintenance expenses. Property expenses increased due to
increases in salaries and related employee benefits and utility costs, mainly
natural gas. Administrative expenses increased due to increases in temporary
agency help and an increase in the business license and permits that is required
to be paid for each unit at the investment property. Maintenance expenses
decreased due to decreases in contract services as more work is now being
performed by on-site employees. Depreciation expense increased due to property
improvements and replacements placed into service during the past twelve months
which are now being depreciated. Interest expense increased due to a change in
the monthly variable interest rate on the property's mortgage and to an increase
in the mortgage principal balance during the third quarter of 2004. Property tax
expense increased due to an increase in the assessed value of the Partnership's
investment property by the local taxing authority. Bad debt expense increased
slightly due to a number of evictions of residents.
Total expenses for the three months ended June 30, 2005 increased due to
increases in operating, interest and property tax expenses partially offset by a
decrease in general and administrative expense as discussed above and below.
Depreciation and bad debt expenses remained relatively constant between
comparable periods.
General and administrative expenses decreased for the three and six months ended
June 30, 2005 due to a decrease in accountable reimbursements charged to the
Partnership in accordance with the Partnership Agreement. 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.
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 was zero for the six months
ended June 30, 2005 and 2004. During the six months ended June 30, 2005 and
2004, 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 six months ended June 30, 2005, distributions to the minority interest
partner of approximately $375,000 were made in excess of the minority partner's
investment in the operating partnerships. There were no distributions for the
six months ended June 30, 2004. 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 $5,195,000
and $2,083,000 at June 30, 2005 and 2004, respectively. No income is allocated
to the minority partner until all previous losses recognized by the majority
partner are recovered. For the six months ended June 30, 2005 and 2004,
approximately $398,000 and $578,000, 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 $2,737,000 at June
30, 2005 is recovered.
Liquidity and Capital Resources
At June 30, 2005, the Partnership had cash and cash equivalents of approximately
$2,955,000 as compared to approximately $8,065,000 at June 30, 2004. Cash and
cash equivalents increased approximately $1,453,000 from December 31, 2004 due
to approximately $6,123,000 of cash provided by operating activities offset by
approximately $2,881,000 and $1,789,000 of cash used in financing and investing
activities, respectively. Cash used in investing activities consisted of
property improvements and replacements partially offset by the withdrawal of
restricted escrows and the receipt of insurance proceeds. Cash used in financing
activities consisted of distributions to partners. 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. For
example, 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. Capital improvements planned for the
Partnership's property are detailed below.
During the six months ended June 30, 2005, the Partnership completed
approximately $2,390,000 of capital improvements at Springhill Lake Apartments
consisting primarily of structural improvements, appliances, water and sewer
upgrades, roof and floor covering replacements, water heater, air conditioning
and plumbing upgrades, exterior painting and major landscaping. These
improvements were funded from operations, replacement reserves and insurance
proceeds. The Partnership regularly evaluates the capital improvement needs of
the property during the year. During 2005, the Partnership anticipates
completing the repairs and improvements at the property required to be made in
connection with the July 2004 refinancing of the mortgage encumbering the
property. In connection with the refinancing, approximately $675,000 was
deposited in an escrow account to fund such repairs and improvements. At June
30, 2005, the balance in the escrow account was approximately $214,000.
Additional improvements and routine capital expenditures are anticipated during
2005. Such capital expenditures will depend on the physical condition of the
property as well as replacement reserves and anticipated cash flow generated by
the property. The additional capital expenditures will be incurred only if cash
is available from operations or from Partnership reserves. To the extent that
capital improvements are completed the Partnership's distributable cash flow, if
any, may be adversely affected at least in the short term.
On June 13, 2005, a fire damaged thirty three units in three buildings at the
Partnership's investment property. The Managing General Partner is currently
evaluating the status of the three buildings damaged in the fire. The current
plan is to complete repairs at one of the buildings which sustained only
electrical and smoke damage. The other two buildings were severely damaged and
the current plan is to not rebuild these two buildings. Insurance proceeds are
expected to be received which will cover any replacement costs along with the
insurable value of the buildings not restored.
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 $113,500,000 requires monthly payments of interest until its
maturity. The mortgage bears interest at a variable rate and has a balloon
payment of $113,500,000 due on August 1, 2011. The interest rate on the variable
rate loan is the Freddie Mac discounted mortgage-backed security index plus 63
basis points. The rate was 3.486% at June 30, 2005. The Managing General Partner
may attempt to refinance such indebtedness and/or sell the property prior to
such maturity date. If the property cannot be refinanced or sold for a
sufficient amount, the Partnership will risk losing the property through
foreclosure.
The Partnership distributed the following amounts during the six months ended
June 30, 2005 and 2004 (in thousands, except per unit data):
Six Months Per Limited Six Months Per Limited
Ended Partnership Ended Partnership
June 30, 2005 Unit June 30, 2004 Unit
Operations $2,506 $3,669 $ -- $ --
Future cash distributions will depend on the levels of net cash generated from
operations, the timing of the debt maturity, property sale and/or refinancing.
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
significant additional distributions to its partners during 2005 or subsequent
periods.
Other
AIMCO and its affiliates owned 522.65 limited partnership units (the "Units") in
the Partnership representing 80.53% of the outstanding Units at June 30, 2005. A
number of these Units were acquired pursuant to tender offers made by AIMCO or
its 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 80.53% of the
outstanding Units, AIMCO and its affiliates are in a position to control all
voting decisions with respect to the Partnership. Although the Managing General
Partner owes fiduciary duties to the limited partners of the Partnership, the
Managing General Partner also owes fiduciary duties to AIMCO as its sole
stockholder. As a result, the duties of the Managing General Partner, as
managing general partner, to the Partnership and its limited partners may come
into conflict with the duties of the Managing General Partner to AIMCO as its
sole stockholder.
Critical Accounting Policies and Estimates
The consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States, which require the
Partnership to make estimates and assumptions. The Partnership believes that of
its significant accounting policies, the following may involve a higher degree
of judgment and complexity.
Impairment of Long-Lived Assets
The Partnership's investment property is recorded at cost, less accumulated
depreciation, unless considered impaired. If events or circumstances indicate
that the carrying amount of the property may be impaired, the Partnership will
make an assessment of its recoverability by estimating the undiscounted future
cash flows, excluding interest charges, of the property. If the carrying amount
exceeds the aggregate future cash flows, the Partnership would recognize an
impairment loss to the extent the carrying amount exceeds the fair value of the
property.
Real property investments are subject to varying degrees of risk. Several
factors may adversely affect the economic performance and value of the
Partnership's investment property. These factors include, 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 impairment of 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. The Partnership will offer rental concessions during
particularly slow months or in response to heavy competition from other similar
complexes in the area. Rental income attributable to leases, net of any
concessions, is recognized on a straight-line basis over the term of the lease.
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership is exposed to market risks from adverse changes in interest
rates. In this regard, changes in U.S. interest rates affect the interest earned
on the Partnership's cash and cash equivalents as well as interest paid on its
indebtedness. As a policy, the Partnership does not engage in speculative or
leveraged transactions, nor does it hold or issue financial instruments for
trading purposes. The Partnership is exposed to changes in interest rates
primarily as a result of its borrowing activities used to maintain liquidity and
fund business operations. The debt encumbering the Property bears interest at a
variable rate. Based on interest rates at June 30, 2005, a 100 basis point
increase or decrease in market interest rates would affect net income by
approximately $1.1 million.
The Partnership's debt obligations at June 30, 2005 consists of a mortgage of
$113,500,000 which is due on August 1, 2011. The mortgage bears interest at a
variable rate and requires monthly payments of interest only. The interest rate
on the variable rate loan is the Freddie Mac discounted mortgage-backed security
index ("DMBS") plus 63 basis points. The rate was 3.486% at June 30, 2005 and
resets monthly. Management believes that the fair value of the Partnership's
debt approximates its carrying value as of June 30, 2005.
ITEM 4. CONTROLS AND PROCEDURES
(a) Disclosure Controls and Procedures. The Partnership's management, with the
participation of the principal executive officer and principal financial officer
of the Managing General Partner, who are the equivalent of the Partnership's
principal executive officer and principal financial officer, respectively, has
evaluated the effectiveness of the Partnership's disclosure controls and
procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end
of the period covered by this report. Based on such evaluation, the principal
executive officer and principal financial officer of the Managing General
Partner, who are the equivalent of the Partnership's principal executive officer
and principal financial officer, respectively, have concluded that, as of the
end of such period, the Partnership's disclosure controls and procedures are
effective.
(b) Internal Control Over Financial Reporting. There have not been any changes
in the Partnership's internal control over financial reporting (as such term is
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the
fiscal quarter to which this report relates that have materially affected, or
are reasonably likely to materially affect, the Partnership's internal control
over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As previously disclosed, AIMCO Properties L.P. and NHP Management Company, both
affiliates of the General Partner, are defendants in a lawsuit alleging that
they 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 attempts to bring 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. and NHP
Management Company failed to compensate maintenance workers for time that they
were required to be "on-call". Additionally, the complaint alleges AIMCO
Properties L.P. and NHP Management Company failed to comply with the FLSA in
compensating maintenance workers for time that they worked in excess of 40 hours
in a week. On June 23, 2005 the Court conditionally certified the collective
action on both the on-call and overtime issues. The Court ruling allows
plaintiffs to provide notice of the collective action to all non-exempt
maintenance workers from August 7, 2000 through the present. Those employees
will have the opportunity to opt-in to the collective action. Defendants have
asked the Court to reconsider its ruling or in the alternative certify the
ruling for appeal on that issue. After the notice goes out, defendants will have
the opportunity to move to decertify the collective action. The Court further
denied plaintiffs' Motion for Certification of the state subclass. Although the
outcome of any litigation is uncertain, AIMCO Properties, L.P. does not believe
that the ultimate outcome will have a material adverse effect on its
consolidated financial condition or results of operations. Similarly, the
Managing General Partner does not believe that the ultimate outcome will have a
material adverse effect on the Partnership's consolidated financial condition or
results of operations.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
See Exhibit Index.
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: AIMCO/Springhill Lake Investors GP,
LLC
Managing General Partner
By: /s/Martha L. Long
Martha L. Long
Senior Vice President
By: /s/Stephen B. Waters
Stephen B. Waters
Vice President
Date: August 15, 2005
Springhill Lake Investors Limited Partnership
Index to Exhibits
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 (2)
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)
(p) Maryland Amended and Restated Multifamily Note dated July 22,
2004 between Springhill Lake Investors Limited Partnership and
GMAC Commercial Mortgage Corporation (3)
(q) Amended and Restated Limited Guaranty dated July 22, 2004 by
AIMCO Properties, L.P., for the benefit of GMAC Commercial
Mortgage Corporation (3)
(r) Amended and Restated Payment Guaranty dated July 22, 2004 by
the Operating Partnerships (3)
(s) Repair Escrow Agreement dated July 22, 2004 between the
Springhill Lake Investors Limited Partnership and the
Operating Partnerships and GMAC Commercial Mortgage
Corporation (3)
(t) Replacement Reserve Agreement dated July 22, 2004 between the
Springhill Lake Investors Limited Partnership and the
Operating Partnerships and GMAC Commercial Mortgage
Corporation (3)
(u) Maryland Amended and Restated Promissory Note dated July 22,
2004 between Springhill Lake Investors Limited Partnership and
the Operating Partnerships (3)
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 of the equivalent of the Chief Executive
Officer and Chief Financial Officer 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 August 23, 1995, as filed
September 5, 1995.
(3) Incorporated herein by reference to the Registrant's Current
Report on Form 8-K dated July 22, 2004, as filed August 4,
2004.
Exhibit 31.1
CERTIFICATION
I, Martha L. Long, certify that:
1. I have reviewed this quarterly report on Form 10-Q 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: August 15, 2005
/s/Martha L. Long
Martha L. Long
Senior Vice President of AIMCO/Springhill
Lake Investors GP, LLC, equivalent of the
chief executive officer of the Partnership
Exhibit 31.2
CERTIFICATION
I, Stephen B. Waters, certify that:
1. I have reviewed this quarterly report on Form 10-Q 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: August 15, 2005
/s/Stephen B. Waters
Stephen B. Waters
Vice President of AIMCO/Springhill Lake
Investors GP, LLC equivalent of the chief
financial officer of the Partnership
Exhibit 32.1
Certification of CEO and CFO
Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report on Form 10-Q of Springhill Lake
Investors Limited Partnership (the "Partnership"), for the quarterly period
ended June 30, 2005 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 Stephen B. Waters, 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: August 15, 2005
/s/Stephen B. Waters
Name: Stephen B. Waters
Date: August 15, 2005
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.