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 September 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
2
SECURED INCOME L.P. AND SUBSIDIARIES
Part I - Financial Information
Table of Contents
Item 1 Financial Statements Page
Consolidated Balance Sheets as of September 30, 1998
(Unaudited) and December 31, 1997 3
Consolidated Statements of Operations for the three
and nine month periods ended September 30, 1998 and
1997 (Unaudited) 4
Consolidated Statements of Cash Flows for the nine months
ended September 30, 1998 and 1997 (Unaudited) 5
Notes to Consolidated Financial Statements as of
September 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
September 30,
1998 December 31,
(Unaudited) 1997
ASSETS
Property and equipment (net of accumulated
depreciation of $15,630,583 and
$14,497,189) $ 28,575,529 $ 29,708,923
Cash and cash equivalents 2,176,280 1,317,457
Tenant security deposits 479,516 466,609
Restricted assets and funded reserves 4,028,552 4,280,585
Investment in guaranteed investment contract 19,499
Interest and accounts receivable 66,871 91,297
Prepaid expenses 180,012 437,833
Intangible assets, net of accumulated
amortization 1,654,842 1,826,991
--------------- ------------
$ 37,161,602 $ 38,149,194
============ ============
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Liabilities
Mortgages payable $ 33,895,951 $ 34,449,756
Accounts payable and accrued expenses 467,370 395,028
Tenant security deposits payable 480,739 460,182
Due to general partners and affiliates 3,977,967 4,109,214
Deferred revenue 166,354 152,414
--------------- ---------------
38,988,381 39,566,594
Partners' equity (deficit)
Limited partners' equity - -
General partners' deficit (1,826,779) (1,417,400)
-------------- -------------
(1,826,779) (1,417,400)
$ 37,161,602 $ 38,149,194
============ ============
See notes to consolidated financial statements.
3
SECURED INCOME L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Nine Months Three Month Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
1998 1998 1997 1997
--------------- ------------- ------------ ---------
REVENUE
Rental $ 1,767,686 $ 5,131,031 $1,656,741 $ 4,918,515
Interest 48,241 105,747 46,759 128,609
--------------------------------------------------------
TOTAL REVENUE 1,815,927 5,236,778 1,703,500 5,047,124
------------------------- -------------------------
EXPENSES
Administrative and
management 217,890 589,564 203,478 533,675
Operating and maintenance 308,943 873,344 345,502 949,124
Taxes and insurance 516,424 988,195 286,840 840,911
Financial 693,264 1,889,511 617,419 1,783,031
Depreciation and
amortization 435,181 1,305,543 495,696 1,487,085
-------------------------- ------------- ------------
TOTAL EXPENSES 2,171,702 5,646,157 1,948,935 5,593,826
------------- ------------ ------------ ------------
NET LOSS $ (355,775) $ (409,379) $(245,435) $(546,702)
============ ============ =========== ============
NET LOSS ATTRIBUTABLE TO
Limited partners $ - $ - $ - $ -
General partners (355,775) (409,379) (245,435) (546,702)
------------- ------------- ------------- -------------
$ (355,775) $ (409,379) $(245,435) $( 546,702)
============ ============ =========== ============
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
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(Unaudited)
1998 1997
-------------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (409,379) $ (546,702)
Adjustments to reconcile net loss to
net cash provided by operating
activities
Depreciation and amortization 1,305,543 1,487,085
Increase in tenant security deposits (12,907) (2,258)
Decrease (increase) in restricted assets
and funded reserves 252,033 (456,411)
Decrease (increase) in interest and
accounts receivable 24,426 (9,242)
Decrease (increase) in prepaid expenses 257,821 (90,543)
Increase in accounts payable and
accrued expenses 72,342 44,037
Increase in tenant security deposits
payable 20,557 5,887
Increase in due to general partners
and affiliates1 68,753 64,802
Increase in deferred revenue 13,940 22,653
-------------- ---------------
Net cash provided by operating activities 1,693,129 519,308
------------ --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Principal proceeds from guaranteed
investment contract 19,499 54,815
------------- --------------
Net cash provided by investing activities 19,499 54,815
------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of principal on permanent financing (553,805) (348,530)
Repayment of general partner advances (300,000)
Net cash used in financing activities (853,805) (348,530)
----------- -------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 858,823 225,593
Cash and cash equivalents at beginning
of period 1,317,457 896,433
-------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,176,280 $ 1,122,026
=========== ===========
SUPPLEMENTAL INFORMATION
Financial expenses paid $ 1,755,582 $ 1,652,291
=========== ===========
See notes to consolidated financial statements.
5
SECURED INCOME L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 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 nine months ended September 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 circumstances arise that cause an Operating Partnership to
experience operating deficits, potential sources from which such needs would 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 mandatory 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. 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 nine months ended September 30, 1998, cash and cash equivalents
increased by approximately $859,000 while restricted assets and funded reserves
decreased by approximately $252,000, accounts payable and accrued expenses
increased by approximately $72,000 and mortgages payable decreased due to
principal amortization of approximately $554,000 (which includes accelerated
payments on the Columbia mortgages of $200,000). Due to general partners and
affiliates decreased primarily as a result of the repayment of $300,000 of
advances to the Columbia Operating General Partners, partially offset by accrued
interest on advances. Property and equipment decreased by approximately
$1,133,000 due to depreciation, while intangible assets decreased by
approximately $172,000 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 September 30, 1998, the balance in the Columbia Partnership's Pledged Cap
Account (see discussion below) is approximately $2,587,000. 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 had
been conducting 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 concerning the Pledged
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 cause the Pledged Cap Account to decline below a balance
of $1,000,000. An interest rate cap may be purchased upon the Pledged Cap
Account reaching such minimum threshold or in the event the low floater rate
rises above 7% for 90 consecutive days or 7.5% for 30 consecutive days. In
addition, the lender agreed to eliminate and reduce certain partner guarantees,
thereby releasing certain restricted assets in the accompanying balance sheet as
of December 31, 1997 of approximately $1,000,000, of which $300,000 was repaid
to the Columbia Operating General Partners. Although the Columbia Operating
General Partners continue to explore alternative financing opportunities in
order to obtain a lower effective borrowing rate, there can be no assurance that
the lender would approve any alternative utilization of the Pledged Capital
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 nine months ended September 30, 1998, the Columbia Partnership and
the Carrollton Partnership generated income from operating activities of
approximately $2,026,000 and approximately $771,000, respectively. Mortgage
principal payments during the nine months ended September 30, 1998 for the
Columbia Partnership and the Carrollton Partnership were approximately $464,000
and approximately $90,000, 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 nine months ended September 30, 1998.
Deposits to the Pledged Cap Account and the Bond Retirement Escrow during the
nine months ended September 30, 1998 were approximately $394,000 and
approximately $175,000, respectively. Pursuant to the terms of the Columbia
Partnership's mortgages, the lender is entitled to a credit enhancement fee of
2.5% per annum based on the outstanding loan balance. During the nine months
ended September 30, 1998, the Columbia Partnership incurred approximately
$472,000 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 $111,000 during the nine months ended
September 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 3.30% weighted average rate during the nine months
ended September 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 ($200,000 of such
additional payments were made during the nine months ended September 30, 1998).
Although the Complexes generated cash flow during the nine months ended
September 30, 1998, there can be no assurance that the level of operating income
generated by the Complexes will continue in future periods.
During the nine months ended September 30, 1997, the Columbia Partnership and
the Carrollton Partnership generated income from operating activities of
approximately $2,017,000 and approximately $723,000, respectively. Mortgage
principal payments during the nine months ended September 30, 1997 for the
Columbia Partnership and the Carrollton Partnership were approximately $264,000
and approximately $84,000, respectively. Deposits to the Pledged Cap Account and
the Bond Retirement Escrow during the nine months ended September 30, 1997 were
approximately $309,000 and approximately $127,000, respectively. The Complexes
generated combined cash flow of approximately $282,000 during the nine months
ended September 30, 1997.
Taxes and insurance expenses for the nine months ended September 30, 1998 have
increased as compared to the nine months ended September 30, 1997 due primarily
to an increase in the Columbia Partnership's real estate taxes, which includes
charges for 1997 real estate taxes not billed until 1998, net of a refund of
certain prior years' taxes. Based on the current assessment of the Columbia
Property, annual real estate taxes of the Columbia Partnership are expected to
increase by approximately $300,000.
As of September 30, 1998, the occupancy of Fieldpointe Apartments was
approximately 99% and the occupancy of The Westmont was approximately 100% as to
both residential units and 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
An affiliate of the WRRC General Partner filed a tender offer dated July
24, 1998, offering to acquire up to 394,000 Units of limited partnership
interest at $6.50 per Unit. The offering price was increased to $7 per Unit on
August 7, 1998 and the offer expired, as extended, on August 31, 1998.
Approximately $41,500 Units were tendered in connection with the offer.
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: November 16, 1998 /s/ Richard Paul Richman
-------------------------
Richard Paul Richman
President, Chief Executive Officer
and Director
10