SECURITIES AND EXCHANGE COMMISSION
Washington, DC
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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, 2005
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.
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(Exact name of Registrant as specified in its charter)
Delaware 06-1185846
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State or other jurisdiction of (IRS Employer
incorporation or organization No.) Identification
340 Pemberwick Road
Greenwich, Connecticut 06831
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(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
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Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes No X
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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 Earnings 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
Item 4 Controls and Procedures 9
2
SECURED INCOME L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30,
2005 December 31,
(Unaudited) 2004
------------ ------------
ASSETS
Property and equipment (net of accumulated depreciation
of $25,854,467 and $25,109,102) $ 19,039,211 $ 19,779,313
Cash and cash equivalents 3,064,108 3,189,581
Restricted assets and funded reserves 2,061,763 1,130,638
Tenant security deposits 604,471 583,295
Accounts receivable 31,973 21,695
Due from affiliate 28,677
Prepaid expenses 38,690 892,000
Intangible assets, net of accumulated amortization 1,821,100 1,877,691
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$ 26,661,316 $ 27,502,890
============ ============
LIABILITIES AND PARTNERS' DEFICIT
Liabilities
Mortgages payable $ 39,950,515 $ 40,255,090
Accounts payable and accrued expenses 247,245 270,883
Tenant security deposits payable 610,309 576,439
Due to general partners and affiliates 22,990
Deferred revenue 68,736 68,736
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40,876,805 41,194,138
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Partners' deficit
Limited partners (12,506,613) (12,003,510)
General partners (1,708,876) (1,687,738)
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(14,215,489) (13,691,248)
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$ 26,661,316 $ 27,502,890
============ ============
See notes to consolidated financial statements.
3
SECURED INCOME L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2005 AND 2004
(Unaudited)
Three Months Six Months Three Months Six Months
Ended Ended Ended Ended
June 30, 2005 June 30, 2005 June 30, 2004 June 30, 2004
------------- ------------- ------------- -------------
REVENUE
Rental $ 2,127,425 $ 4,242,365 $ 2,064,585 $ 4,089,715
Interest 16,962 31,097 5,108 11,311
----------- ----------- ----------- -----------
TOTAL REVENUE 2,144,387 4,273,462 2,069,693 4,101,026
----------- ----------- ----------- -----------
EXPENSES
Administrative and management 222,184 481,093 203,689 423,782
Operating and maintenance 395,052 711,411 480,302 796,064
Taxes and insurance 503,686 1,028,200 572,975 1,055,169
Financial 506,409 963,537 424,132 840,789
Depreciation and amortization 400,977 801,956 401,985 803,969
----------- ----------- ----------- -----------
TOTAL EXPENSES 2,028,308 3,986,197 2,083,083 3,919,773
----------- ----------- ----------- -----------
NET EARNINGS (LOSS) $ 116,079 $ 287,265 $ (13,390) $ 181,253
=========== =========== =========== ===========
NET EARNINGS (LOSS) ATTRIBUTABLE TO
Limited partners $ 114,918 $ 284,392 $ (13,257) $ 179,440
General partners 1,161 2,873 (133) 1,813
----------- ----------- ----------- -----------
$ 116,079 $ 287,265 $ (13,390) $ 181,253
=========== =========== =========== ===========
NET EARNINGS (LOSS) ALLOCATED
PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ .12 $ .29 $ (.02) $ .18
=========== =========== =========== ===========
See notes to consolidated financial statements.
4
SECURED INCOME L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2005 AND 2004
(Unaudited)
2005 2004
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CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 287,265 $ 181,253
Adjustments to reconcile net earnings to net cash provided
by operating activities
Depreciation and amortization 801,956 803,969
Increase in restricted assets and funded reserves (931,125) (967,266)
Increase in tenant security deposits (21,176) (13,234)
Decrease (increase) in accounts receivable (10,278) 15,825
Decrease in prepaid expenses 853,310 870,601
Decrease in accounts payable and accrued expenses (23,638) (29,380)
Increase in tenant security deposits payable 33,870 17,231
Decrease in due to general partners and affiliates (22,990) (13,708)
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Net cash provided by operating activities 967,194 865,291
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Repayment of advance to affiliate 28,677
Capital expenditures (5,263) (45,757)
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Net cash provided by (used in) investing activities 23,414 (45,757)
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CASH FLOWS FROM FINANCING ACTIVITIES
Distributions to partners (811,506) (891,490)
Principal payments on mortgages (304,575) (282,475)
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Net cash used in financing activities (1,116,081) (1,173,965)
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NET DECREASE IN CASH AND CASH EQUIVALENTS (125,473) (354,431)
Cash and cash equivalents at beginning of period 3,189,581 3,729,130
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,064,108 $ 3,374,699
=========== ===========
SUPPLEMENTAL INFORMATION
Financial expenses paid $ 980,718 $ 797,358
=========== ===========
See notes to consolidated financial statements.
5
SECURED INCOME L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2005
(Unaudited)
1. The accompanying unaudited consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information. They do not
include all information and footnotes required by accounting principles
generally accepted in the United States of America for complete financial
statements. The results of operations are impacted significantly by the
results of operations of the Carrollton and Columbia Partnerships
(collectively, the "Operating 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, 2004 and no material contingencies exist which would require
additional disclosure in the report under Regulation S-X, Rule 10-01
paragraph A-5.
The Partnership is considering the sale of the underlying properties of the
Operating Partnerships. It is possible that those sales could be
consummated within approximately four to six months. If those transactions
are consummated, understanding that there is a reasonable possibility that
they may not be consummated at all, the operations of the Partnership would
cease. It is the Partnership's understanding that certain approvals may be
required by the lenders and others. Even if a sale of the properties can be
successfully negotiated, there can be no assurance that all required
approvals to the sales can be obtained. The preliminary offers indicate
that the carrying amount of these long-lived assets is recoverable based on
applying the standard accounting tests for impairment. However, since the
offers are still preliminary, the assets continue to be classified as held
and used assets in the accompanying balance sheets.
The results of operations for the six months ended June 30, 2005 are not
necessarily indicative of the results to be expected for the entire year.
2. Additional information, including the audited December 31, 2004
Consolidated Financial Statements and the Summary of Significant Accounting
Policies, is included in the Partnership's Annual Report on Form 10-K for
the fiscal year ended December 31, 2004 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, certain of
which are restricted in accordance with the terms of the mortgages of the
Operating Partnerships. The Partnership's investments are highly illiquid.
The Partnership is not expected to have access to additional sources of
financing. Accordingly, if unforeseen contingencies arise that cause an
Operating Partnership to require capital in addition to that contributed by the
Partnership and any equity of the Operating General Partners, 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 affect the distribution
from the Operating Partnerships to the Partnership of operating cash flow and
any sale or refinancing proceeds.
Although the Partnership generated cash from operations during the six months
ended June 30, 2005, cash and cash equivalents decreased by approximately
$125,000 primarily as a result of distributions to the limited partners.
Mortgages payable decreased due to principal amortization of approximately
$305,000. Property and equipment decreased by approximately $740,000 due to
depreciation of approximately $745,000, partially offset by capital improvements
of approximately $5,000, 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 estimated service lives. Prepaid expenses decreased
and restricted assets and funded reserves increased in the ordinary course of
operations.
The Partnership made a distribution on or about May 15, 2005 of approximately
$.40 per Unit to Unit holders as of March 31, 2005. In addition, the Partnership
made quarterly distributions to the limited partners in May, August and November
2004 and in March 2005 totaling $1,574,990. Such distributions represent an
annualized return to the limited partners of approximately 8% for the year ended
December 31, 2004. The Partnership's ability to make quarterly distributions on
an ongoing basis is subject to the operating results of the Operating
Partnerships, which are highly contingent upon the interest rates of the
Columbia Partnership's low-floater mortgage and the strength of their respective
rental markets. Accordingly, there can be no assurance that the Operating
Partnerships will continue to generate cash flow sufficient to make quarterly
distributions or that future distributions will be in any specific amounts.
Wilder Richman Resources Corporation ("WRRC"), one of the general partners of
Registrant, is aware of several recent tender offers to purchase Units of
Secured Income L.P. The prices offered in the tender offers ranged from $23.30
per Unit to $34.00 per Unit. The sales of the two properties owned by the
Operating Partnerships are currently being negotiated, and WRRC believes that
Unit holders may realize greater value through a sale of the properties and a
liquidation of the Partnership. WRRC also believes that, barring unforeseen
issues, a sale of the properties could be accomplished within approximately four
to six months. WRRC cannot provide any assurance that one or both of the
properties can be sold at prices that would result in Unit prices higher than
those offered in the tender offers, or that a sale can be completed at a price
that would be acceptable to the Partnership.
If those transactions are consummated, understanding that there is a reasonable
possibility that they may not be consummated at all, the operations of
Registrant would cease. It is Registrant's understanding that certain approvals
may be required by the lenders and others. Even if a sale of the properties can
be successfully negotiated, there can be no assurance that all required
approvals to the sales can be obtained. The preliminary offers indicate that the
carrying amount of these long-lived assets is recoverable based on applying the
standard accounting tests for impairment. However, since the offers are still
preliminary, the assets continue to be classified as held and used assets in the
accompanying balance sheets.
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
Six Months Ended June 30, 2005
During the six months ended June 30, 2005, the Columbia Partnership's and the
Carrollton Partnership's operations resulted in net earnings of approximately
$212,000 and approximately $158,000, respectively. The Columbia Partnership's
earnings include financial expenses and depreciation and amortization of
approximately $665,000 and approximately $585,000, respectively, while the
Carrollton Partnership's earnings include financial expenses and depreciation
and amortization of approximately $299,000 and approximately $201,000,
respectively. Accordingly, the Columbia Partnership and the Carrollton
Partnership generated earnings from operating activities prior to financial
expenses and depreciation and amortization of approximately $1,463,000 and
approximately $657,000, respectively. Mortgage principal payments during the
period for the Columbia Partnership and the Carrollton Partnership were
approximately $214,000 and approximately $91,000, respectively. After
considering the respective mandatory mortgage principal payments and required
deposits to mortgage escrows, among other things, the Complexes generated
combined cash flow of approximately $826,000 during the six months ended June
30, 2005. There can be no assurance that the level of cash flow generated by the
Complexes during the six months ended June 30, 2005 will continue in future
periods.
Results of operations for the six months ended June 30, 2005 have improved as
compared to the six months ended June 30, 2004. Rental revenue has increased
primarily as a result of higher average occupancy of the Columbia property.
Administrative and management expenses have increased in part as a result of
costs incurred by the Partnership in connection with the tender offers noted
above. Operating and maintenance expenses have decreased as a result of
scheduled improvements in 2004, but such expenses are reasonable when compared
to the calendar 2004 total. Financial expenses have increased primarily as a
result of the weighted average interest rate on the Columbia Partnership's first
mortgage increasing from approximately .98% for the first six months of 2004 to
approximately 2.18% for the first six months of 2005.
As of June 30, 2005, the occupancy of Fieldpointe Apartments (Carrollton) was
approximately 99% and the occupancy of The Westmont (Columbia) was approximately
97% as to residential units and approximately 88% as to commercial space as a
result of one of the commercial tenants breaking its lease in the second quarter
of 2003. Any prospective tenant must be approved by the lender; the space has
not been rented as of August 2005. The future operating results of the Complexes
will be extremely dependent on market conditions and therefore may be subject to
significant volatility.
Six Months Ended June 30, 2004
During the six months ended June 30, 2004, the Columbia Partnership's and the
Carrollton Partnership's operations resulted in net earnings of approximately
$141,000 and approximately $83,000, respectively. The Columbia Partnership's
earnings include financial expenses and depreciation and amortization of
approximately $536,000 and approximately $584,000, respectively, while the
Carrollton Partnership's earnings include financial expenses and depreciation
and amortization of approximately $304,000 and approximately $204,000,
respectively. Accordingly, the Columbia Partnership and the Carrollton
Partnership generated earnings from operating activities prior to financial
expenses and depreciation and amortization of approximately $1,261,000 and
approximately $590,000, respectively. Mortgage principal payments during the
period for the Columbia Partnership and the Carrollton Partnership were
approximately $197,000 and approximately $85,000, respectively. After
considering the respective mandatory mortgage principal payments and required
deposits to mortgage escrows, among other things, the Complexes generated
combined cash flow of approximately $688,000 during the six months ended June
30, 2004. As of June 30, 2004, the occupancy of Fieldpointe Apartments
(Carrollton) was 100% and the occupancy of The Westmont (Columbia) was
approximately 96% as to residential units and 88% as to commercial space (see
discussion above).
8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Critical Accounting Policies and Estimates
The consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America, which requires
the Partnership to make certain estimates and assumptions. The following section
is a summary of certain aspects of those accounting policies that may require
subjective or complex judgments and are most important to the portrayal of the
Partnership's financial condition and results of operations. The Partnership
believes that there is a low probability that the use of different estimates or
assumptions in making these judgments would result in materially different
amounts being reported in the consolidated financial statements.
The Partnership records its real estate assets at cost less accumulated
depreciation and, if there are indications that impairment exists, adjusts the
carrying value of those assets in accordance with Statement of Financial
Accounting Standards No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets."
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 first mortgage.
Accordingly, a fluctuation in the low-floater interest rates of .25% would have
a $60,500 annualized impact on the Partnership's results of operations.
Item 4. Controls and Procedures
As of June 29, 2005, under the direction of the Chief Executive Officer and
Chief Financial Officer, Registrant evaluated the effectiveness of its
disclosure controls and procedures and concluded that such disclosure controls
and procedures were effective as of June 29, 2005. No changes occurred during
the quarter ended June 29, 2005 that materially affected, or are reasonably
likely to materially affect, Registrant's internal control over financial
reporting.
9
SECURED INCOME L.P. AND SUBSIDIARIES
Part II - Other Information
Item 1 Legal Proceedings
Registrant is not aware of any material legal proceedings.
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
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
Exhibit 31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief
Executive Officer
Exhibit 31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief
Financial Officer
Exhibit 32.1 Section 1350 Certification of Chief Executive Officer
Exhibit 32.2 Section 1350 Certification of Chief Financial Officer
10
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Registrant has duly caused this report to be signed on its behalf
by the undersigned, hereunto duly authorized on the 15th day of August 2005.
SECURED INCOME L.P.
By: Wilder Richman Resources Corporation, General Partner
By: /s/Richard Paul Richman
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Richard Paul Richman - Chief
Executive Officer
By: /s/Neal Ludeke
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Neal Ludeke - Chief Financial Officer
By: WRC-87A Corporation, General Partner
By: /s/Richard Paul Richman
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Richard Paul Richman - Executive
Vice President and Treasurer
11