SECURITIES AND EXCHANGE COMMISSION
Washington, DC
-------------------------
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
_____ 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 0-17412
Secured Income L.P.
(Exact name of Registrant as specified in its charter)
Delaware 06-1185846
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
599 West Putnam Avenue
Greenwich, Connecticut
06830
(Address of principal executive offices)
Zip Code
Registrant's telephone number, including area code: (203) 869-0900
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 filing requirements
for the past 90 days.
Yes X No
SECURED INCOME L.P. AND SUBSIDIARIES
Part I - Financial Information
Table of Contents
Item 1 Financial Statements Page
Consolidated Balance Sheets as of June 30, 1998
(Unaudited) and December 31, 1997 3
Consolidated Statements of Operations for the three and six month
periods ended June 30, 1998 and 1997 (Unaudited) 4
Consolidated Statements of Cash Flows for the six months
ended June 30, 1998 and 1997 (Unaudited) 5
Notes to Consolidated Financial Statements as of June 30, 1998
(Unaudited) 6
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
2
SECURED INCOME L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30,
1998 December 31,
(Unaudited) 1997
ASSETS
Property and equipment (net of accumulated depreciation
of $15,252,785 and $14,497,189) $ 28,953,327 $ 29,708,923
Cash and cash equivalents 1,316,337 1,317,457
Tenant security deposits 468,824 466,609
Restricted assets and funded reserves 5,288,494 4,280,585
Investment in guaranteed investment contract 19,499
Interest and accounts receivable 71,470 91,297
Prepaid expenses 24,979 437,833
Intangible assets, net of accumulated
amortization 1,712,225 1,826,991
-------------- ------------
$ 37,835,656 $ 38,149,194
============ ============
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Liabilities
Mortgages payable $ 34,214,340 $ 34,449,756
Accounts payable and accrued expenses 240,186 395,028
Tenant security deposits payable 473,088 460,182
Due to general partners and affiliates 4,215,210 4,109,214
Deferred revenue 163,836 152,414
--------------- ---------------
39,306,660 39,566,594
Partners' Equity (Deficit)
Limited partners' equity - -
General partners' deficit (1,471,004) (1,417,400)
-------------- -------------
(1,471,004) (1,417,400)
$ 37,835,656 $ 38,149,194
============ ============
See notes to consolidated financial statements.
3
SECURED INCOME L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Six Months Three Months Six Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
1998 1998 1997 1997
REVENUE
Rental $1,690,603 $3,363,345 $1,639,172 $3,261,774
Interest 25,838 57,506 38,273 81,850
------------- ---------- ---------- ----------
TOTAL REVENUE 1,716,441 3,420,851 1,677,445 3,343,624
------------- ---------- ----------- ----------
EXPENSES
Administrative and management 202,924 371,674 179,152 330,197
Operating and maintenance 285,019 564,401 234,277 603,622
Taxes and insurance 215,819 471,771 271,120 554,071
Financial 625,030 1,196,247 739,868 1,165,612
Depreciation and amortization 435,181 870,362 495,694 991,389
------------ ------------ ---------- ----------
TOTAL EXPENSES 1,736,973 3,474,455 1,920,111 3,644,891
---------- ----------- ----------- ----------
NET LOSS $ (47,532)$ (53,604) $ (242,666)$ (301,267)
========== ============= =========== ============
NET LOSS ATTRIBUTABLE TO
Limited partners $ - $ - $ - $ -
General partners (47,532) (53,604) (242,666) (301,267)
------------ ----------- ---------- -----------
$ (47,532)$ (53,604) $ (242,666)$ ( 301,267)
========= ============= =========== =========
NET LOSS ALLOCATED PER
UNIT OF LIMITED
PARTNERSHIP INTEREST $ - $ - $ - $ -
============ =========== =========== ======
See notes to consolidated financial statements.
4
SECURED INCOME L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(Unaudited)
1998 1997
--------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (53,604) $ (301,267)
Adjustments to reconcile net loss to net cash
provided by operating activities
Depreciation and amortization 870,362 991,389
Increase in tenant security deposits (2,215) (4,727)
Increase in restricted assets and
funded reserve (1,007,909) (585,620)
Decrease (increase) in interest and
accounts receivable 19,827 (16,310)
Decrease (increase) in prepaid expenses 412,854 118,185
Increase (decrease) in accounts payable
and accrued expenses (154,842) 110,853
Increase in tenant security deposits payable 12,906 5,950
Increase in due to general partners
and affiliate 105,996 1,474
Increase in deferred revenue 11,422 9,303
-------------- ----------------
Net cash provided by operating activities 214,797 329,230
------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Principal proceeds from guaranteed
investment contract 19,499 36,543
------------- --------------
Net cash provided by investing activities 19,499 36,543
------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of principal on permanent financing (235,416) (231,926)
----------- -------------
Net cash used in financing activities (235,416) (231,926)
----------- -------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (1,120) 133,847
Cash and cash equivalents at beginning
of period 1,317,457 896,433
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,316,337 $ 1,030,280
=========== ===========
SUPPLEMENTAL INFORMATION
Financial expenses paid $ 1,038,574 $ 1,078,452
=========== ===========
See notes to consolidated financial statements.
5
SECURED INCOME L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
(Unaudited)
1. The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information. They do not include all information and
footnotes required by generally accepted accounting principles for complete
financial statements. The results of operations are impacted significantly by
the results of operations of the Carrollton and Columbia Partnerships, which
is provided on an unaudited basis during interim periods. Accordingly, the
accompanying consolidated financial statements are dependent on such
unaudited information. In the opinion of the General Partners, the
consolidated financial statements include all adjustments necessary to
reflect fairly the results of the interim periods presented. All adjustments
are of a normal recurring nature. No significant events have occurred
subsequent to December 31, 1997 and no material contingencies exist which
would require additional disclosure in the report under Regulation S-X, Rule
10-01 paragraph A-5.
The results of operations for the six months ended June 30, 1998 are not
necessarily indicative of the results to be expected for the entire year.
2. Additional information, including the audited December 31, 1997 Consolidated
Financial Statements and the Summary of Significant Accounting Policies, is
included in Partnership's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997 on file with the Securities and Exchange Commission.
6
SECURED INCOME L.P. AND SUBSIDIARIES
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
The Partnership's primary sources of funds are rents generated by the Operating
Partnerships and interest derived from investments and deposits which include
restricted deposits in accordance with the terms of the mortgages of the
Operating Partnerships. The guaranteed investment contracts which were acquired
to provide distributions to the Limited Partners were fully amortized as of
January 15, 1995. One guaranteed investment contract owned by the Columbia
Partnership became fully amortized on January 15, 1998, the proceeds of which
were utilized for investor service charges of the Columbia Partnership through
December 1997. The Partnership's investments are highly illiquid.
The Partnership is not expected to have access to additional sources of funds.
Accordingly, if unforeseen occurences arise that cause an Operating Partnership
to experience operating deficits, potential sources from which such needs will
be able to be satisfied (other than reserves) would be limited, if any. Prior to
the modification of the mortgages of the respective Operating Partnerships
during 1993, the rents generated by the Operating Partnerships were generally
not sufficient to fully cover the operating expenses and debt service
requirements of the Operating Partnerships. Although the Operating Partnerships
were successful in refinancing their respective mortgages with significantly
lower mandatory payment terms, certain restrictions were placed on the
respective Operating Partnerships in connection with distributions, among other
things. Prior to the refinancings, the respective Operating General Partners
provided funds necessary to cover operating deficits in the form of advances and
fee deferrals; however, there can be no assurance that the respective Operating
General Partners would provide additional funds to the extent they may be
needed.
During the six months ended June 30, 1998, investment in guaranteed investment
contract decreased by approximately $19,000 as a result of the amortization of
principal from the final quarterly payment from such contract. The payments of
principal and interest from such contracts were previously utilized by the
Partnership to make distributions to the partners (through December 1994) and
cover a portion of the investor services expenses incurred by the Partnership
(through December 1997). Virtually all distributions to partners to date have
been generated from the investment in guaranteed investment contracts. The
General Partners do not anticipate significant cash flow distributions from the
Operating Partnerships given the restrictions on cash flow distributions of the
Columbia Partnership resulting from the restructuring of its financing in 1993.
During the six months ended June 30, 1998, cash and cash equivalents decreased
by approximately $1,000 while accounts payable and accrued expenses decreased by
approximately $155,000 and mortgages payable decreased due to principal
amortization of approximately $235,000. Due to general partners and affiliates
increased primarily as a result of accrued interest on advances provided by the
Columbia Operating General Partners. Property and equipment decreased by
approximately $756,000 due to depreciation, while intangible assets decreased by
approximately $57,000 due to amortization. Property and equipment and intangible
assets are expected to decrease annually as the cost of these assets is
allocated to future periods over their remaining lives. Prepaid expenses
decreased in the ordinary course of operations.
As of June 30, 1998, the balance in the Columbia Partnership's Pledged Cap
Account (see discussion below) is approximately $2,418,000. Although the
original outside date for the Pledged Cap Account to be utilized for its
intended purpose was October 1996, the Columbia Operating General Partners have
been conducting ongoing discussions with the lender in order to address other
potential uses of such account, including utilizing such funds for costs in
connection with a potential refinancing of the mortgages with another lender.
During April 1998, the lender agreed to restructure the original terms of the
Pledge Cap Account whereby the account may be utilized for potential debt
service shortfalls ( in the event the low floater rate is higher than the stated
note rate of 4.66%), but not because the Pledged Cap Account to decline below a
balance of $1,000,000. An interest rate cap may be purchased upon the Pledge cap
Account reaching such minimum threshold or in the event the low floater rates
rise above 7% for 30 consecutive days. In addition, the lender agreed to
eliminate and reduce certain partner guarantees, thereby releasing certain
restricted fund in the accompanying balance sheets of approximately $700,000.
Although the Columbia Operating General Partners have been conducting
discussions with other potential credit enhancers and continue to explore
alternatives in order to obtain a lower effective borrowing rate, there can be
no assurance that the lender would approve any alternative utilization of such
account, or that the Columbia Operating General Partners will procure suitable
alternative financing.
7
SECURED INCOME L.P. AND SUBSIDIARIES
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Results of Operations
During the six months ended June 30, 1998, the Columbia Partnership and the
Carrollton Partnership generated income from operating activities of
approximately $1,503,000 and approximately $518,000, respectively. Mortgage
principal payments during the six months ended June 30, 1998 for the Columbia
Partnership and the Carrollton Partnership were approximately $176,000 and
approximately $59,000, respectively. In the case of the Columbia Partnership,
the maximum amount permitted to be deposited to the Operating Deficit Reserve
($500,000) was achieved during 1994; accordingly, no additional deposits to the
Operating Deficit Reserve are required other than to maintain the account at a
balance of $500,000. No amounts were utilized from the Operating Deficit Reserve
during the six months ended June 30, 1998. Deposits to the Pledged Cap Account
and the Bond Retirement Escrow during the six months ended June 30, 1998 were
approximately $224,000 and approximately $118,000, respectively. Pursuant to the
terms of the Columbia Partnership's mortgages, commencing February 1, 1997 the
lender is entitled to a credit enhancement fee of 2.5% per annum based on the
outstanding loan balance. During the six months ended June 30, 1998, the
Columbia Partnership incurred approximately $315,000 in connection with such
fee. After considering the respective mandatory mortgage principal payments,
required deposits to mortgage escrows and payments for the credit enhancement
fee, among other things, the Complexes generated combined cash flow of
approximately $297,000 during the six months ended June 30, 1998. Any savings
realized on the difference between the initial note rate on the Columbia
Partnership's mortgages of 4.66% and the actual low floater rate (approximately
3.34% weighted average rate during the six months ended June 30, 1998) are
deposited into the Pledged Cap Account. To the extent the future cash flow
generated by the Columbia Partnership is not utilized to fund the Operating
Deficit Reserve or Pledged Cap Account, such cash flow, under the Citibank loan
terms, must be deposited to the Bond Retirement Escrow to make additional
mortgage principal payments. Although the Complexes generated cash flow during
the six months ended June 30, 1998, there can be no assurance that the level of
operating income generated by the Complexes during the six months ended June 30,
1998 will continue in future periods.
During the six months ended June 30, 1997, the Columbia Partnership and the
Carrollton Partnership generated income from operating activities of
approximately $1,368,000 and approximately $503,000, respectively. Mortgage
principal payments during the six months ended June 30, 1997 for the Columbia
Partnership and the Carrollton Partnership were approximately $176,000 and
approximately $56,000, respectively. No amounts were utilized from the Operating
Deficit Reserve during the six months ended June 30, 1997. Deposits to the
Pledged Cap Account and the Bond Retirement Escrow during the six months ended
June 30, 1997 were approximately $206,000 and approximately $113,000,
respectively. The Complexes generated combined cash flow of approximately
$224,000 during the six months ended June 30, 1997.
As of June 30, 1998, the occupancy of Fieldpointe Apartments was approximately
99% and the occupancy of The Westmont was approximately 100% as to residential
units and 100% as to commercial space. The future operating results of the
Complexes will be extremely dependent on market conditions and therefore may be
subject to significant volatility. The Complexes are generally in good physical
condition and are being managed by experienced management companies.
8
SECURED INCOME L.P. AND SUBSIDIARIES
Part II - Other Information
Item 1 Legal Proceedings
None
Item 2 Changes in Securities
None
Item 3 Defaults Upon Senior Securities
None
Item 4 Submission of Matters to a Vote of Security Holders
None
Item 5 Other Information
None
Item 6 Exhibits and Reports on Form 8-K
None
9
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.
SECURED INCOME L.P.
By: Wilder Richman Resources Corporation
General Partner
Date: August 10, 1998 /s/ Richard Paul Richman
-------------------------
Richard Paul Richman
President, Chief Executive Officer
and Director
10