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 March 31, 2000
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 3
Consolidated Statements of Operations 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
Item 3 Quantitative and Qualitative Disclosure about Market Risk 9
2
SECURED INCOME L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 2000
(Unaudited) December 31, 1999
----------- -----------------
ASSETS
Property and equipment (net of accumulated depreciation
of $17,917,243 and $17,536,766) $ 26,470,324 $ 26,850,801
Cash and cash equivalents 2,141,866 1,910,060
Restricted assets and funded reserves 5,972,632 5,358,448
Tenant security deposits 520,014 514,405
Accounts receivable 94,582 69,596
Prepaid expenses 312,683 597,046
Intangible assets, net of accumulated amortization 1,500,134 1,503,273
------------ ------------
$ 37,012,235 $ 36,803,602
============ ============
LIABILITIES AND PARTNERS' DEFICIT
Liabilities
Mortgages payable $ 33,358,345 $ 33,479,624
Accounts payable and accrued expenses 381,715 231,790
Tenant security deposits payable 520,014 512,762
Due to general partners and affiliates 4,022,212 3,963,807
Deferred revenue 128,506 128,506
------------ -------------
38,410,791 38,316,489
------------ -------------
Partners' deficit
Limited partners - -
General partners (1,398,556) (1,512,887)
------------ -------------
(1,398,556) (1,512,887)
------------ -------------
$ 37,012,235 $ 36,803,602
============ =============
See notes to consolidated financial statements.
3
SECURED INCOME L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(Unaudited)
2000 1999
------ ------
REVENUE
Rental $ 1,887,829 $ 1,779,454
Interest 42,316 16,715
----------- ------------
TOTAL REVENUE 1,930,145 1,769,169
----------- ------------
EXPENSES
Administrative and management 188,690 200,873
Operating and maintenance 277,226 247,269
Taxes and insurance 323,061 317,241
Financial 587,846 535,609
Depreciation and amortization 438,991 435,752
----------- ------------
TOTAL EXPENSES 1,815,814 1,736,744
----------- ------------
NET EARNINGS $ 114,331 $ 59,425
=========== ============
NET EARNINGS ATTRIBUTABLE TO
Limited partners $ - $ -
General partners 114,331 59,425
----------- ------------
$ 114,331 $ 59,425
=========== ============
NET EARNINGS 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
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(Unaudited)
2000 1999
---- -----
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 114,331 $ 59,425
Adjustments to reconcile net earnings to net
cash provided by operating activities
Depreciation and amortization 438,991 435,752
Increase in restricted assets and funded reserves (614,184) (701,177)
Increase in tenant security deposits (5,609) (6,533)
Decrease (increase) in accounts receivable (25,013) 7,809
Decrease in prepaid expenses 284,363 284,460
Increase in accounts payable and accrued expenses 149,924 13,220
Increase in tenant security deposits payable 7,252 8,296
Increase in due to general partners and affiliates 58,405 63,611
Increase in intangible assets (55,375)
---------- --------
Net cash provided by operating activities 353,085 164,863
---------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of principal on permanent financing (121,279) (119,323)
---------- --------
Net cash used in financing activities (121,279) (119,323)
---------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 231,806 45,540
Cash and cash equivalents at beginning of period 1,910,060 1,885,257
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $2,141,866 $1,930,797
========== ==========
SUPPLEMENTAL INFORMATION
Financial expenses paid $ 545,339 $ 491,447
========== ==========
See notes to consolidated financial statements.
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SECURED INCOME L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(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, 1999 and no material contingencies
exist which would require additional disclosure in the report under
Regulation S-X, Rule 10-01 paragraph A-5.
Certain amounts have been reclassified to conform to the current period
presentation.
The results of operations for the three months ended March 31, 2000 are not
necessarily indicative of the results to be expected for the entire year.
2. Additional information, including the audited December 31, 1999
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, 1999 on file with the Securities and
Exchange Commission.
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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 are
restricted in accordance with the terms of the mortgages of the Operating
Partnerships. The General Partners do not anticipate significant cash flow
distributions from the properties given the restrictions on cash flow
distributions of the Columbia Partnership resulting from the restructuring of
its refinancing in 1993, unless the Columbia Operating General Partners are
successful in replacing Citibank as the credit enhancer (see discussion below).
The Partnership's investments are highly illiquid.
Prior to the modification of the mortgages of the 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 mortgages with significantly lower mandatory
payment terms, certain restrictions were placed on the Operating Partnerships in
connection with distributions, among other things. Prior to the refinancing, the
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 Operating General Partners would provide additional funds to the extent
they may be needed. The Partnership is not expected to have access to additional
sources of financing. Accordingly, if unforeseen circumstances arise that cause
an Operating Partnership to require additional capital, potential sources from
which such capital needs will be able to be satisfied (other than reserves)
would be additional equity contributions of the Operating General Partners or
other equity reserves, if any, which could adversely impact the distribution
from the Operating Partnerships to the Partnership of operating cash flow and
sale or refinancing proceeds.
During the three months ended March 31, 2000, as a result of the cash flows
generated by the operations of the Complexes, cash and cash equivalents
increased by approximately $232,000 and restricted assets and funded reserves
increased by approximately $614,000. Mortgages payable decreased due to
principal amortization of approximately $121,000. Due to general partners and
affiliates increased primarily as a result of the accrual of interest on
advances provided by the Columbia Operating General Partners and the accrual of
investor services fees. Property and equipment decreased by approximately
$380,000 due to depreciation, while intangible assets decreased by approximately
$3,000 due to amortization of approximately $58,000, partially offset by
approximately $55,000 of costs incurred in connection with the potential
refinancing of the Columbia Partnership's mortgages (see discussion below).
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 while accounts payable and accrued expenses
increased in the ordinary course of operations. 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.
As of March 31, 2000, the balance in the Columbia Partnership's Pledged Cap
Account (see discussion below) is approximately $3,583,000. Although the
original outside date for the Pledged Cap Account to be utilized for its
intended purpose was October 31, 1996, during 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 above 7.5% for 30 consecutive days. The Columbia Operating General
Partners have engaged an agent of the Federal Home Loan Mortgage Corporation
("Freddie Mac") to replace Citibank as the credit enhancer with Freddie Mac,
refinance the Columbia Partnership's mortgages, modify the structure and
utilization of the mortgage escrows and eliminate the current cash distribution
restrictions. Pursuant to current discussions, credit enhancement would be
provided for $24.2 million in tax exempt bonds and an $8.55 million conventional
mortgage. As of the date of this report, both Freddie Mac's agent and the issuer
of the new bonds have issued a commitment letter and a closing has been
tentatively scheduled for June 2000. After the payment of costs expected to be
incurred in connection with the refinancing and the establishment of certain
reserves, the Columbia Partnership would have an estimated surplus of between
$11.5 million and $12.5 million. The General Partners understand that it is the
intention of the Columbia Operating General Partners that a substantial portion
of such
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SECURED INCOME L.P. AND SUBSIDIARIES
surplus would be used to make a distribution to the Partnership and repay
operating deficit loans and other advances provided by the Columbia General
Partners, including accrued interest, of approximately $3,275,000. The General
Partners anticipate that the majority of the funds received from the Columbia
Partnership would be distributed to the Partnership's limited partners and that
such distribution would be between $7 and $10 per Unit. The amount of any
distribution to the Partnership's limited partners will be impacted by, among
other things, the amount distributed by the Columbia Partnership to the
Partnership following the refinancing, the payment of outstanding obligations of
the Partnership and the potential establishment of an operating reserve. There
can be no assurance that the Columbia Operating General Partners will be
successful in closing with Freddie Mac, replacing Citibank as the credit
enhancer and in achieving the other related goals. Even if the proposed
refinancing does occur, the terms of such refinancing and, accordingly, the
amount of the distribution to the Partnership, may be substantially modified. In
addition, in the event of a change in current market conditions, such change
could materially impact both the Columbia Partnership's distribution to the
Partnership and the Partnership's distribution to the limited partners. If the
refinancing does not occur, the Partnership's distribution to the limited
partners is unlikely to occur. There can be no assurance as to the timing of any
distribution by the Partnership to the limited partners.
Results of Operations
Three Months Ended March 31, 2000
During the three months ended March 31, 2000, the Columbia Partnership and the
Carrollton Partnership generated income from operating activities of
approximately $884,000 and approximately $265,000, respectively. Mortgage
principal payments during the period for the Columbia Partnership and the
Carrollton Partnership were approximately $88,000 and approximately $33,000,
respectively. No amounts were utilized from the operating deficit reserve during
the three months ended March 31, 2000. Deposits to the Pledged Cap Account and
the Bond Retirement Escrow during the period were approximately $144,000 and
approximately $152,000, 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 three months
ended March 31, 2000, the Columbia Partnership incurred approximately $156,000
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 $123,000 during the three months ended March 31,
2000. 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 3.27% weighted average rate during the period) 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, will be
deposited to the Bond Retirement Escrow to make additional mortgage principal
payments. However, there can be no assurance that the level of cash flow
generated by the Complexes during the three months ended March 31, 2000 will
continue in future periods.
Results of operations improved for the three months ended March 31, 2000 as
compared to the three months ended March 31, 1999. Financial expenses increased
primarily as a result of an increase in the weighted average interest rate on
the Columbia Partnership's mortgages from approximately 2.47% during the three
months ended March 31, 1999 to approximately 3.27% during the three months ended
March 31, 2000. Operating and maintenance expenses increased for the three
months ended March 31, 2000 as compared to the three months ended March 31, 1999
as a result of scheduled repairs and improvements.
As of March 31, 2000, the occupancy of Fieldpointe Apartments was approximately
96% and the occupancy of The Westmont was approximately 99% 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.
Three Months Ended March 31, 1999
During the three months ended March 31, 1999, the Columbia Partnership and the
Carrollton Partnership generated
8
SECURED INCOME L.P. AND SUBSIDIARIES
income from operating activities of approximately $797,000 and approximately
$271,000, respectively. Mortgage principal payments during the period for the
Columbia Partnership and the Carrollton Partnership were approximately $88,000
and approximately $31,000, respectively. Deposits to the Pledged Cap Account and
the Bond Retirement Escrow during the period were approximately $180,000 and
approximately $14,000, respectively. During the three months ended March 31,
1999, the Columbia Partnership incurred approximately $154,000 in connection
with the credit enhancement 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 $235,000 during the three months ended March
31, 1999. As of March 31, 1999, the occupancy of Fieldpointe Apartments was
approximately 97% and the occupancy of The Westmont was approximately 99% as to
residential units and 100% as to commercial space.
Year 2000 Compliance
The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process data fields containing a
two-digit year is commonly referred to as the year 2000 compliance ("Y2K")
issue. As the year 2000 unfolds, certain systems may be unable to accurately
process certain databased information. Many businesses may need to upgrade
existing systems or purchase new ones to correct the Y2K issue. The Partnership
has performed an assessment of its computer software and hardware and believes
it has made the necessary upgrades in an effort to ensure compliance. However,
there can be no assurance that the systems of other entities on which the
Partnership relies, including Carrolton and Columbia which report to the
Partnership on a periodic basis for the purpose of the Partnership's reporting
to its investors, have been or will be sufficiently converted. The total cost
associated with Y2K implementation is not expected to materially impact the
Partnership's financial position or results of operations in any given year.
However, there can be no assurance that a failure to convert by the Partnership
or another entity would not have a material adverse impact on the Partnership.
Item 3 Quantitative and Qualitative Disclosure about Market Risk
The Partnership has market risk sensitivity with regard to financial instruments
concerning potential interest rate fluctuations in connection with the low
floater rates associated with the Columbia Partnership's mortgages. Accordingly,
an increase in the low floater interest rates could have a material adverse
impact on the Partnership's results of operations.
9
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
10
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: May 15, 2000 /s/ Richard Paul Richman
-----------------------------
Richard Paul Richman
President, Chief Executive
Officer and Director
11