SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15(d)
of Securities Exchange Act of 1934
Commission File
For the fiscal year ended December 31, 1996 Number 0-14569
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Maryland 04-2848939
(State of Organization) (I.R.S. Employer Identification No.)
One International Place, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (617) 330-8600
--------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
(Title of Class)
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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
Registrant's revenues for its most recent fiscal year were $24,470,913.
No market exists for the limited partnership interests of the Registrant,
and, therefore, a market value for such interests cannot be determined.
DOCUMENTS INCORPORATED BY REFERENCE
Location in Form 10-KSB Document
In Which Document is
Incorporated
Part I The Confidential Memorandum
attached as Exhibit 28(a) to
the Registrant's Registration
Statement on Form 10 filed on
April 20, 1986, including all
Exhibits thereto.
Transitional Small Business Disclosure Format: Yes ___ No X
<PAGE>
PART I
Item 1. Description of Business.
Organization
Springhill Lake Investors Limited Partnership (the "Registrant") was
organized as a Maryland limited partnership under the Maryland Revised Uniform
Limited Partnership Act on December 28, 1984, for the purpose of investing as a
general partner in First, Second, Third, Fourth, Fifth, Sixth, Seventh, Eighth
and Ninth Springhill Lake Limited Partnerships and Springhill Commercial Limited
Partnership (collectively, the "Operating Partnerships"), each of which is a
Maryland limited partnership owning a section of a garden apartment complex in
Greenbelt, Maryland (the "Project"). The Registrant is the sole general partner
of each Operating Partnership. The limited partner of each Operating Partnership
is Theodore N. Lerner ("Lerner"), a former general partner of the Operating
Partnerships whose interest was converted to that of a limited partner on
January 16, 1985 in conjunction with the Registrant's acquisition of its
interest in the Operating Partnerships. The general partners of the Registrant
are Three Winthrop Properties, Inc. ("Three Winthrop" or the "Managing General
Partner") and Linnaeus-Lexington Associates Limited Partnership ("Linnaeus-
Lexington") (collectively, the "General Partners"). (See "Change in Control.")
Development
The Registrant was initially capitalized with nominal capital
contributions from its General Partners. In April 1985, the Registrant completed
a non-public offering of 649 units of limited partnership interest (the "Units")
pursuant to Regulation D under the Securities Act of 1933 and to the terms of
the Confidential Memorandum dated January 16, 1985 (the "Confidential
Memorandum"), selected portions of which were filed as Exhibits 28(a) - (d) to
the Registration Statement on Form 10, filed on April 20, 1986. The Registrant
raised $40,562,500 in capital contributions from investors who were admitted to
the Registrant as limited partners ("Limited Partners"). The Limited Partners
financed a portion of their capital contributions by promissory notes ("LP
Notes"). As of March 1988, the LP Notes were paid in full.
<PAGE>
The Registrant purchased its interest in the Operating Partnerships on
January 16, 1985, for $73,514,921, of which $58,000,000 was financed by means of
a mortgage loan (the "Original Mortgage Loan"). In April 1993, the Original
Mortgage Loan was refinanced with two new loans (the "New Mortgage Loans") in
the amounts of $58,000,000 and $5,000,000. The New Mortgage Loans bear interest
at 9.3% and have a term of ten years. Monthly payments of principal and interest
totaled $541,696 (based on a 25-year amortization schedule) for the first two
years of the New Mortgage Loans and have increased to $566,137 (based on a
20-year amortization schedule) for the third through tenth years of the loans. A
final payment of $49,016,500 is due on May 1, 2003. In addition to monthly
payments of principal and interest, the New Mortgage Loans require the
Registrant to make payments into various escrow accounts, including escrows for
real estate taxes and capital improvements. See "Item 7, Financial Statements,
Note E" for further information concerning the New Mortgage Loan.
The Registrant's interest in the Operating Partnerships entitles it to
90% of profits and losses for tax purposes, 90% of the Operating Partnerships'
cash flow (after certain priority distributions), and 85% of the proceeds of a
sale or disposition of the Project (after certain priority distributions).
The only business of the Registrant is investing as a general partner
in the Operating Partnerships, and as such, to cause the Operating Partnerships
to own and operate the Project, until such time as a sale, if any, of all or a
portion of the Project appears to be advantageous to the Registrant and is
permitted under the terms of the Operating Partnerships' partnership agreements.
The Operating Partnerships maintain property and liability insurance on
the property which the Registrant believes to be adequate.
Employees
The Registrant does not have any employees. Services are performed for
the Registrant by the General Partners and agents retained by them. For the
period January 1, 1993 through April 30, 1995, the Operating Partnerships
retained Winthrop Management, a Massachusetts general partnership whose general
partners are affiliated with the Managing General Partner, to be
<PAGE>
primarily responsible for performing asset management services, including the
establishment of leasing policies for the Project, the setting of rental rates,
the approval of capital improvement projects and the supervision of the
Project's property management agent. Winthrop Management was entitled to a fee
equal to 1% of gross revenue actually collected, payable monthly, through April
30, 1995, at which time the fee was included in the property management fee as
discussed below.
Until May 1, 1995, Lerner Corporation, a Maryland corporation whose
principal stockholder is Lerner, was the property management agent for the
Project, charged with the responsibility for its day-to-day management and
administrative functions, under a ten-year agreement which expired on January
31, 1995 (the "Lerner Agreement").
The Lerner Agreement provided for a fee equal to 4% of gross revenue
actually collected. On October 17, 1994, the Operating Partnerships sent to
Lerner Corporation written notice of their intent to terminate the Lerner
Agreement pursuant to its terms on January 31, 1995. By letter dated October 24,
1994, Lerner Corporation disputed the termination date set forth in the notice,
purporting that the Lerner Agreement could not be terminated earlier than 90
days following January 31, 1995 (or April 30, 1995). Lerner Corporation refused
to vacate the Project and various legal actions were initiated between the
Registrant and Lerner Corporation and its affiliates pertaining to the change in
property management. The disposition of approximately $1,250,000 of partnership
funds and $300,000 of tenant security deposits also was at issue. (See "Item 3,
Legal Proceedings"). On May 1, 1995, the Registrant removed Lerner Corporation
as managing agent for the Project and engaged Winthrop Management as the
property management agent.
Management services are now performed at the Project by on-site
personnel all of whom are employees of Winthrop Management. All payroll and
associated expenses of such on-site personnel are fully reimbursed by the
Registrant to Winthrop Management. Winthrop Management is paid a fee of 3% of
tenant rent collections and 5% of store commercial income. See "Item 12, Certain
Relationships and Related Transactions".
<PAGE>
Competition
The real estate business is highly competitive and the Registrant's
Project has active competition from similar properties in the vicinity
including, in certain instances, properties owned by affiliates of the
Registrant. Furthermore, various limited partnerships controlled by affiliates
of the Managing General Partner are also engaged in business which may be
competitive with the Registrant. The Registrant is also competing for potential
buyers with respect to the ultimate sale of its properties. See "Item 6,
Management's Discussion and Analysis of Financial Condition and Results of
Operation."
Partnership Agreement Amendment
In August 1995, the Managing General Partner amended Section 11.12 of
the Registrant's partnership agreement to clarify and remove certain ambiguities
pertaining to the requirements for calling and voting at a meeting of limited
partners, or taking action by written consent of partners in lieu thereof. Such
requirements include, among other matters, that any action by written consent
may be initiated only by the General Partner or by one or more Limited Partners
holding not less than 10% of the outstanding Units.
Change in Control
Three Winthrop is the Registrant's Managing General Partner. Three
Winthrop is a Massachusetts corporation which is a wholly-owned subsidiary of
First Winthrop Corporation, a Delaware corporation which is wholly owned by
Winthrop Financial Associates, A Limited Partnership ("WFA").
Until December 22, 1994, Arthur J. Halleran, Jr. was the sole general
partner of Linnaeus Associates Limited Partnership ("Linnaeus") which is the
sole general partner of WFA. On December 22, 1994, pursuant to an Investment
Agreement entered into among Nomura Asset Capital Corporation ("NACC"), Mr.
Halleran and certain other individuals who comprised the senior management of
WFA, the general partnership interest in Linnaeus was transferred to W.L.
Realty, L.P. ("W.L. Realty"). W.L. Realty is a Delaware limited partnership, the
general partner of which was, until July 18, 1995, A.I. Realty Company, LLC
("Realtyco"). The equity securities of Realtyco were held by certain employees
of NACC.
<PAGE>
On July 18, 1995 Londonderry Acquisition II Limited Partnership, a
Delaware limited partnership ("Londonderry II"), an affiliate of Apollo Real
Estate Advisors, L.P. ("Apollo"), acquired, among other things, Realtyco's
general partner interest in W.L. Realty and a sixty four percent (64%) limited
partnership interest in W.L. Realty. WFA owns the remaining thirty-five percent
(35%) limited partnership interest.
As a result of the foregoing acquisitions (the "Apollo Acquisition"),
Londonderry II is the sole general partner of W.L. Realty which is the sole
general partner of Linnaeus, which in turn is the sole general partner of WFA.
As a result of the foregoing, effective July 18, 1995, Londonderry II became the
controlling entity of the General Partners. In connection with the transfer of
control, the officers and directors of WFA resigned and Londonderry II appointed
new officers and directors. See "Item 9, Directors, Executive Officers Promoters
and Control Persons; Compliance With Section 16(a) of the Exchange Act."
Linnaeus-Lexington is a Massachusetts limited partnership whose general
partners were Mr. Halleran and Jonathan W. Wexler, former directors of Three
Winthrop and First Winthrop Corporation and former employees and officers of
WFA. The other partners of Linnaeus are former employees and officers of First
Winthrop Corporation and WFA. On July 18, 1995, the general partnership interest
was transferred to WFA.
Tender Offer
On February 1, 1995, Aquarius Acquisition, L.P., a Delaware limited
partnership ("Aquarius"), comprised of an entity that was controlled by NACC, as
a general partner and WFA, as limited partner, made a tender offer to purchase
Units for cash consideration of $36,000 per Unit. On March 3, 1995, Aquarius
increased its offer to $36,400 per Unit. On March 21, 1995, Aquarius purchased
all 216.65 Units tendered by Limited Partners, representing 33.4% of the 649
outstanding Units. Subsequently, a number of Limited Partners requested Aquarius
to purchase their Units for the price specified in the tender offer. Subsequent
to the tender offer, Aquarius purchased an additional 19 Units, increasing the
total number of Units purchased to 235.65 or 36.3% of the total Units
outstanding.
<PAGE>
The tender offer was commenced shortly following the mailing on January
19, 1995 of a consent solicitation to the Limited Partners by Greenbelt
Residential Limited Partnership ("Greenbelt'), an affiliate of Lerner. Greenbelt
sought the consent of a majority in interest of the Limited Partners to a
dissolution of the Registrant, with the stated goal of forcing a sale of the
Project. The solicitation was unsuccessful.
As part of the Apollo Acquisition, an affiliate of Apollo acquired the
interests of NACC in Aquarius. See "Item 12, Security Ownership of Certain
Beneficial Owners and Management."
Item 2. Description of Properties.
The Registrant owns no property other than its interest in the
Operating Partnerships.
The Project was initially acquired by the Operating Partnerships in
October 1984 for an initial cost of $73,316,500. The Project consists of 2,899
apartment and townhouse units and an eight-store shopping center situated on 154
acres of landscaped grounds. The Project also contains a clubhouse/community
center, two Olympic-size swimming pools and six tennis courts.
The rental market for the Project began to soften in 1988 as a result of
weakening general economic conditions. In 1990, the rental market became, and
has remained, very competitive. While the Operating Partnerships were able to
implement rent increases through 1992, it also became necessary to offer rent
concessions to attract new tenants as leases expired. As a result, effective
rental rates did not increase during 1995 and 1996.
<PAGE>
The following table sets forth the average annual occupancy rate and
per unit average monthly rental rate at the Project for the years ended December
31, 1996 and 1995:
<TABLE>
Average Rental Average Occupancy
Rate Rate
<S> <C> <C> <C>
1995 $716 91.0%
1996 $716 93.4%
</TABLE>
Upon the acquisition of its interests in the Operating Partnerships,
the Registrant established a capital improvement program for the Project, which
was estimated to cost approximately $12,550,000. Among other improvements to the
grounds and buildings, the planned improvements included the renovation of each
of the 2,899 apartment units. As of December 31, 1996, substantially all of the
units had been renovated. Since 1987, the renovation of apartment units has been
carried out in vacant units only. Accordingly, it has taken several years to
renovate the apartments units and may require a substantial amount of additional
time to renovate the remainder of the apartment units. In addition, due to the
age of the Project and the need to remain competitive in the local apartment
market, the scope of the capital improvement program has expanded over the
years. Through December 31, 1996, the Operating Partnerships have expended
[$22,822,800] on capital improvements, $3,814,843 of which was expended in 1996.
These capital improvements were funded from the $12,550,000 of Limited Partners'
capital contributions, and the balance was funded from net operating income
generated by the Project. The Registrant currently plans to spend an additional
$2,141,650 on capital improvements in 1997.
Set forth below is a table showing the gross carrying value and
accumulated depreciation and federal tax basis of each of the Project as of
December 31, 1996:
Gross
Carrying Accumulated Federal
Value Depreciation Rate Method Tax Basis
$97,063,786 $41,381,951 10-25 yrs. S/L $34,094,169
The realty tax rate and realty taxes paid by the Project in 1996 were
$4.0993/100 and $1,627,144, respectively.
<PAGE>
Item 3. Legal Proceedings.
Three Winthrop Properties, Inc. v. Lerner Corp. (Case No. 129192-V,
filed in the Circuit Court for Montgomery County, Maryland on November 18,
1994). Three Winthrop, in its capacity as the Managing General Partner of the
sole general partner of the Partnerships, filed this action seeking, in Count I,
a declaratory judgment that: (i) Three Winthrop was entitled to terminate the
Lerner Agreement effective as of January 31, 1995 so long as notice has been
given 90 days prior to that date; (ii) Three Winthrop gave Lerner Corporation
proper notice to terminate on October 17, 1994; and (iii) that the Lerner
Agreement terminated on January 31, 1995. In Count II, Three Winthrop sought
monetary damages as the result of Lerner Corporation's failure to cease acting
as property management agent for the project. Three Winthrop filed a summary
judgment motion on Count I, which Lerner Corporation opposed, and, on February
14, 1995, the Circuit Court for Montgomery County, Maryland granted summary
judgment in Three Winthrop's favor on Count I. Lerner Corporation filed a notice
of appeal from this order, as discussed in the immediately following paragraph.
Count II, the damage claim, has been stayed pending Lerner's appeal.
Lerner Corporation v. Three Winthrop Properties, Inc., September Term,
1995, No. 421, The Court of Special Appeals of Maryland. On or about March 7,
1995, Lerner Corporation filed a Notice of Appeal from the entry of partial
summary judgment against it as described in the paragraph immediately above. On
January 23, 1996, the Court of Special Appeals of Maryland issued an opinion
dismissing the appeal of Lerner Corporation for lack of jurisdiction. The
holding of the Court of Special Appeals does not prevent Lerner Corporation from
taking another appeal after a determination of the merits of the Partnerships'
pending damage claim as described in the paragraph immediately above. Should
Lerner Corporation choose to take a second appeal concerning the entry of
partial summary judgment against it, Three Winthrop believes it has meritorious
arguments in favor of the affirmance of the lower court's entry of partial
summary judgment against Lerner Corporation.
Theodore N. Lerner v. Three Winthrop Properties, Inc. (Case No. CCB94-3601,
filed in U.S. District Court for the District of Maryland, Southern Division, on
December 27, 1994). Lerner commenced an action against Three Winthrop alleging
that Three
<PAGE>
Winthrop breached its fiduciary duties to Lerner by failing to distribute to
Lerner a percentage of the cash flow of the Partnerships and by denying Lerner
access to the books and records of the Partnerships. Lerner seeks damages for
the alleged breach and an accounting of the books and records of the
Partnerships. Lerner's complaint did not specify a particular monetary amount
which he seeks, but he indicated during discovery that he believed he may be
entitled to more than $800,000, plus interest. Three Winthrop has acknowledged
that Lerner is entitled to approximately $365,000 in distributions for calendar
years 1994 and 1995. Trial in this action commenced on November 4, 1996. Trial
testimony concluded on January 31, 1997. After the conclusion of closing
arguments on March 6, 1997, the Court ruled that the plaintiff was not entitled
to any amounts beyond the $365,000 which Three Winthrop had previously
acknowledged was owed to the plaintiff, as discussed above. The Court also ruled
that Three Winthrop had not committed a breach of fiduciary duty.
Mitchell R. Montgomery, et al. v. Three Winthrop Properties, Inc. (Case
No. 132222, filed in the Circuit Court for Montgomery County, Maryland on
February 7, 1995). Lerner and two Limited Partners of Springhill Lake Investors
Limited Partnership ("Springhill") filed this lawsuit on their behalf and on
behalf of the Partnerships, alleging that Three Winthrop breached its fiduciary
obligations by taking action to terminate the Lerner Agreement and to appoint
Winthrop Management as the new property management agent for the project. The
plaintiffs sought to enjoin Three Winthrop from appointing itself or its
affiliate as property management agent for the project and seeks monetary
damages from Three Winthrop for the alleged breach of its fiduciary duties.
During the pendency of the action, one of the limited partner plaintiffs in
Springhill sold his interest in Springhill and ceased to be a plaintiff. On
January 22, 1996, the Court issued an order on Three Winthrop's motion for
summary judgment pursuant to which summary judgment was entered in favor of
Three Winthrop on all individual claims in the action as well as the claims the
remaining limited partner in Springhill purported to bring. The trial commenced
on June 17, 1996. The Court, after hearing the presentation of plaintiff's case,
granted Three Winthrop's motion for a directed verdict as to all remaining
claims in the case.
First Virginia Bank v. Three Winthrop Properties, Inc. and Lerner
Corporation, (CA #95-651 filed August 4, 1995 in the Circuit Court for the
County of Arlington, Virginia). This case involves a dispute over approximately
$1.3 million in funds belonging to the Partnerships. The money was held in an
account at First Virginia Bank by Lerner Corp. in trust for the Partnerships,
but Lerner Corp. refused to return the money after its Management and Leasing
Agreement with the Partnerships (the "Lerner Agreement") was terminated. First
Virginia filed a bill of interpleader naming Three Winthrop and First Springhill
Lake Ltd. Partnership ("First Springhill"), in whose name the account had been
maintained, and First Virginia was released from the action. First Springhill
and Three Winthrop filed a Petition for Release of Funds and a Third Party
Complaint against Lerner Corp. alleging claims for declaratory judgment that the
funds belonged to the Partnerships, breach of contract, breach of fiduciary duty
and conversion. Lerner Corp. answered claiming that the funds should not be
released because Theodore Lerner claimed some right of set-off against the funds
arising out of potential judgments in other actions involving Mr. Lerner and
Three Winthrop. In November 1995, First Springhill and Three Winthrop moved for
summary judgment on their declaratory judgment and breach of contract claims and
seeking the release of the funds. In December 1995, the Court granted that
motion and ordered that the funds be released to First Springhill and Three
Winthrop and that the remaining claims proceed to trial. In December 1996, First
Springhill Lake Limited Partnership ("First Springhill") and Three Winthrop were
granted summary judgment on their declaratory judgment and breach of contract
claims and the funds at issue in this interpleader action were released to First
Springhill. In December 1996, First Springhill and Three Winthrop filed a
voluntary nonsuit of their breach of fiduciary duty and conversion claims.
Vernon Hines et al., v. Lerner Corporation et al., Civil Action Nos.
AW-95-1120; AW-95-4023; AW-96-631; and AW-96-2350 U.S.D.C. (D.Md)
Approximately 300 current and former maintenance employees at the
Project are seeking back pay and liquidated damages for alleged overtime pay
violations. The basis of this action is that the employees claim that their
overtime pay was improperly calculated using the fluctuating coefficient method.
Cross motions for summary judgment have been brought. A hearing on these motions
is scheduled for April 1997. The Registrant intends to vigorously defend this
action.
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of security holders during the period
covered by this report.
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters.
There is no established public trading market for Units in the
Registrant. Since the inception of the Registrant in 1986 through 1996, trading
in Units was sporadic and occurred through private transactions. Transfers of
Units are subject to limitations set forth in the Registrant's partnership
agreement which require the prior written consent of the Managing General
Partner to any such transfer. The Registrant's partnership agreement was filed
as Exhibit 3 to the Registrant's Registration Statement on Form 10 dated April
30, 1986, as thereafter amended (the "Partnership Agreement"). As of March 15,
1997, there were 439 Limited Partners holding 649 outstanding Units.
The Partnership Agreement requires that Cash Flow (as defined therein)
be distributed by the Registrant to its partners in specified proportions at
reasonable intervals during the fiscal year and, in any event, no later than 60
days after the close of each fiscal year. The Registrant's ability to make
distributions of Cash Flow is limited by the level of the Registrant's reserves
and the extent to which the Operating Partnerships earn more than sufficient
rental income from the Project and interest income on reserves to (a) pay all
operating expenses of the Project and the Operating Partnerships, and (b)
distribute sufficient funds to the Registrant to meet its administrative
expenses and the debt service requirements of the New Mortgage Loans. Cash
distributions to holders of Units amounted to approximately $1,298,000 and
$1,057,870 in the aggregate, or $2,000 and $1,630 per Unit for the years ended
December 31, 1995 and 1996 respectively, which represented the Cash Flow
generated from operations. See "Item 6, Management's Discussion and Analysis or
Plan of Operation," for information relating to the Registrant's ability to make
future distributions.
<PAGE>
Item 6. Management's Discussion and Analysis or Plan of Operation.
Liquidity and Capital Resources.
The Registrant has invested as a general partner in the Operating
Partnerships, and as such, receives distributions of cash flow from the
Operating Partnerships and is responsible for expenditures consisting of (i)
interest payable on the New Mortgage Loans and (ii) fees payable to affiliates
of the General Partners. The General Partners believe that funds distributed by
the Operating Partnerships to the Registrant will be sufficient to pay such
expenditures. As of December 31, 1996, the Registrant's unrestricted cash
balance was $973,927.
In April 1993, the Registrant completed the refinancing of the $58
million Original Mortgage Loan by obtaining the New Mortgage Loans in the
amounts of $58,000,000 and $5,000,000, respectively. The proceeds of the New
Mortgage Loans along with $500,000 of the Registrant's reserves were used to (i)
retire the Original Mortgage Loan; (ii) pay the original mortgage lender a
prepayment penalty of $2,833,074; (iii) establish $1,770,000 in various escrows
and reserves; and (iv) pay third-party closing costs of approximately
$2,300,000.
The New Mortgage Loans bear interest at 9.3% and have a term of ten
years. Monthly payments of principal and interest on the New Mortgage Loans
totaled $541,696 (based on a 25-year amortization schedule) for the first two
years and have increased to $566,137 (based on a 20-year amortization schedule)
for the third through tenth years. A final payment of $49,016,500 is due on May
1, 2003. These payments represent a significant savings relative to the $678,576
monthly payment required by the Original Mortgage Loan.
The savings were initially used to fund various reserves required by the
New Mortgage Loans. The reserves are being used principally to complete capital
projects identified by the lender, including drainage improvements and
structural repairs, as well as ongoing capital improvements and major
replacements, like the purchase of new carpets and appliances. The reserves are
released by the lender to the Registrant as capital improvements are completed
and reserve requests are made, which can be done on a quarterly basis. As of
December 31, 1996, the lender held $3,040,285 in reserves on behalf of the
Registrant, along with escrows for real estate taxes of $568,981.
The Registrant resumed making cash distributions to Limited Partners in
1995. The Registrant made cash distributions to its limited partners of
approximately $1,298,000 ($2,000 per investment Unit) and $1,057,870 ($1,630 per
investment Unit) for the years ended December 31, 1995 and 1996, respectively.
It is not anticipated that a distribution of cash flow will be made by the
Registrant in 1997 from 1996 operations. The Registrant intends to continue to
limit cash distribution to it partners in the foreseeable future. However, the
performance of the Registrant's interest in the Project and its distribution
policy will continue to be reviewed on a quarterly basis.
Subsequent to the tender offer, Aquarius had acquired approximately
35.7% of the Units through its 1995 tender offer (See "Item 1, Description of
Business - Tender Offer"). The General Partners believe that the tender will not
have a significant impact on future operations or the liquidity of the
Registrant.
Several legal proceedings are pending as set forth in "Item 3, Legal
Proceedings." The Managing General Partner does not expect that the outcome of
any of the proceedings will have a material adverse effect on the Registrant's
financial condition
or results of operations.
Inflation and economic conditions could affect vacancy levels, rental
payment defaults and expenses, and thus, could affect the Registrant's revenue's
and net income. The Greenbelt, Maryland apartment market, where the Project is
located, has remained very competitive since 1990. The competitive market
conditions have been caused primarily by stagnant demand for apartments in the
Greenbelt area. Also, as additional on-campus student housing has become
available at the University of Maryland, occupancy levels in the local market
have been negatively affected. In addition, affordable housing costs and low
interest rates have converted many apartment clients into homeowners.
<PAGE>
Results of Operations
Consolidated net operating income (revenue less expenses, excluding
depreciation and amortization, interest expense and abandonment loss) increased
by 4.7% for the year ended December 31, 1996 as compared to the year ended
December 31, 1995 to $9,268,228 from $8,852,885. Total revenue increased by 4.3%
to $24,470,913 from $23,467,823 primarily as a result of increased rental
revenue. Rental revenues increased due to an increase in average occupancy
during 1996. As a result of the increase in occupancy the property recognized
gains of $52,066 and $211,208 in laundry income and other income, respectively.
These increases were partially offset by an decrease in interest income of
$70,949 due to lower average cash balances in 1996 as compared to 1995.
Total operating expenses rose in 1996 as compared to 1995 from
$14,614,938 to $15,202,685. Although repair and maintenance, salaries and
general administrative expenses were lower in 1996 as compared to 1995; these
reductions were more than offset by increases in utilities, taxes, operating
expenses, bad debt expense and advertising and rental expenses. A combination of
reduced staffing levels and improved purchasing and inventory control were the
primary reasons for the reductions in repair and maintenance, salaries and
general and administrative expenses. Utilities increased $1,162,612 in 1996 as
compared to 1995 due to the increased occupancy at the Project and an increase
in utility rates. Similarly, taxes increased due to an increase in the tax rate.
Capital expenditures in 1996 were $3,814,843 compared to $1,322,538 in 1995.
Major capital work completed in 1996 included extensive concrete and asphalt
work, replacement of all unit toilets with more efficient lo-flow units,
exterior of all buildings painted and carpet replacement in the apartment units.
<PAGE>
Item 7. Financial Statements.
Springhill Lake Investors Limited Partnership and Subsidiaries
TABLE OF CONTENTS
INDEPENDENT AUDITORS' REPORT
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF OPERATIONS
CONSOLIDATED STATEMENTS OF CHANGES IN
PARTNERS' EQUITY (DEFICIT)
CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS AND
INDEPENDENT AUDITORS' REPORT
SPRINGHILL LAKE INVESTORS
LIMITED PARTNERSHIP AND SUBSIDIARIES
DECEMBER 31, 1996 AND 1995
INDEPENDENT AUDITORS' REPORT
To the Partners of
Springhill Lake Investors Limited Partnership
We have audited the accompanying consolidated balance sheets of Springhill
Lake Investors Partnership and Subsidiaries as of December 31, 1996 and 1995,
and the related consolidated statements of operations, changes in partners'
equity (deficit) and cash flows for the years then ended. These consolidated
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Springhill
Lake Investors Limited Partnership and Subsidiaries as of December 31, 1996 and
1995, and the results of their operations and their cash flows for the years
then ended, in conformity with generally accepted accounting principles.
/s/ Reznick Fedder & Silverman
Bethesda, Maryland
January 24, 1997, except for note J,
as to which the date is March 6, 1997
<PAGE>
BALANCE SHEETS
<TABLE>
ASSETS
1996 1995
-------------- ---------
INVESTMENT IN REAL ESTATE
<S> <C> <C>
Land $ 5,833,466 $ 5,833,466
Buildings, improvements and personal property 91,230,320 87,415,477
---------- ----------
97,063,786 93,248,943
Less accumulated depreciation 41,381,951 37,586,954
---------- ----------
55,681,835 55,661,989
OTHER ASSETS
Cash and cash equivalents 973,927 259,960
Cash - general receiver - 1,301,138
Tenant accounts receivable 499,712 470,872
Accounts receivable - other 8,431 -
Tenant security deposits - funded 438,621 383,467
Escrows and reserves 3,609,266 3,392,301
Prepaid expenses 872,473 1,004,695
Deferred costs, less accumulated amortization
of $759,587 and $597,456 1,544,218 1,706,349
----------- -----------
TOTAL ASSETS $63,628,483 $64,180,771
========== ==========
</TABLE>
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
<TABLE>
<S> <C> <C>
MORTGAGES PAYABLE $59,683,891 $60,866,515
OTHER LIABILITIES
Accounts payable and accrued expenses 2,767,786 734,536
Tenant security deposits payable 328,592 272,120
Rent deferred credits 134,439 180,358
------------ ------------
62,914,708 62,053,529
MINORITY INTEREST 2,476,980 2,084,650
----------- -----------
CONTINGENCY - -
PARTNERS' EQUITY (DEFICIT)
Investor limited partners, units of investor limited
partnership interest, 649 units authorized and
outstanding 1,184,368 2,899,876
General partners (2,947,573) (2,857,284)
----------- -----------
(1,763,205) 42,592
----------- -------------
TOTAL LIABILITIES AND
PARTNERS' EQUITY (DEFICIT) $63,628,483 $64,180,771
========== ==========
</TABLE>
<PAGE>
STATEMENT OF OPERATIONS
<TABLE>
1996 1995
--------------- ----------
REVENUE
<S> <C> <C>
Rental income $23,207,505 $22,396,740
Laundry income 340,121 288,055
Other income 731,945 520,737
Interest income 191,342 262,291
------------ ----------
24,470,913 23,467,823
---------- ----------
EXPENSES
OPERATING EXPENSES
Utilities 5,165,058 4,002,446
Repairs and maintenance 2,100,292 2,158,161
Taxes 2,218,750 1,877,005
Salaries 1,694,146 1,823,747
Operating expenses 1,177,337 915,480
Administrative expenses 468,627 1,440,737
Bad debt expense 770,878 587,786
Advertising and rental expenses 388,203 264,199
Insurance 409,958 617,803
Asset and property management fees 809,436 927,574
------------ ----------
TOTAL OPERATING EXPENSES 15,202,685 14,614,938
Abandonment loss - -
Interest expense 5,611,020 5,716,730
Depreciation and amortization 3,957,128 3,917,798
----------- ----------
TOTAL EXPENSES 24,770,833 24,249,466
---------- ----------
Loss before minority interest (299,920) (781,643)
Minority interest in net earnings of
operating partnerships (392,330) (379,073)
---------- -----------
NET LOSS $ (692,250) $ (1,160,716)
========== ===========
Net loss allocated to general partners $ (34,612) $ (58,036)
============ =============
Net loss allocated to investor limited partners $ (657,638) $ (1,102,680)
========== ===========
Net loss per unit of investor partnership
interest outstanding $ (1,013) $ (1,699)
============ ==============
Weighted average units of investor limited
partnership interest outstanding $ 649 $ 649
=============== =================
</TABLE>
<TABLE>
Investor
General limited
partners partners Total
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994 $(2,730,932) $ 5,300,556 $ 2,569,624
Distributions to partners (68,316) (1,298,000) (1,366,316)
Net loss (58,036) (1,102,680) (1,160,716)
------------ --------- ----------
Balance, December 31, 1995 (2,857,284) 2,899,876 42,592
Distributions to partners (55,677) (1,057,870) (1,113,547)
Net loss (34,612) (657,638) (692,250)
------------ ---------- -----------
Balance, December 31, 1996 $(2,947,573) $1,184,368 $(1,763,205)
========== ========= ==========
</TABLE>
<PAGE>
STATEMENTS OF CASH FLOWS
<TABLE>
1996 1995
Cash flows from operating activities
<S> <C> <C>
Net loss $ (692,250) $(1,160,716)
Adjustments to reconcile net loss to net
cash provided by operating activities
Minority interest in net earnings of operating partnerships 392,330 379,073
Depreciation 3,794,997 3,698,520
Amortization 162,131 219,278
Increase in tenant accounts receivable (28,840) (211,210)
Increase in accounts receivable - other (8,431) -
Decrease in due to affiliates - (21,375)
Increase in escrows and reserves (216,965) (983,870)
Decrease in other assets - 3,351
Decrease (increase) in prepaid expenses 132,222 (35,619)
Increase in accounts payable and accrued expenses 2,033,250 137,754
Net security deposits received (paid) 1,318 (97,144)
(Decrease) increase in rent deferred credits (45,919) 180,358
------------ ------------
Net cash provided by operating activities 5,523,843 2,108,400
--------- -----------
Cash flows from investing activities
Investment in real estate (3,814,843) (1,322,538)
--------- ----------
Net cash used in investing activities (3,814,843) (1,322,538)
--------- ----------
Cash flows from financing activities
Principal payments on mortgages (1,182,624) (982,086)
Distributions to partners (1,113,547) (1,366,316)
--------- ----------
Net cash used in financing activities (2,296,171) (2,348,402)
--------- ----------
NET DECREASE IN CASH
AND CASH EQUIVALENTS (587,171) (1,562,540)
Cash and cash equivalents, beginning 1,561,098 3,123,638
--------- ----------
Cash and cash equivalents, ending $ 973,927 $ 1,561,098
========== ==========
Supplemental disclosure of cash flow information
Cash paid for interest $5,611,020 $ 5,716,730
========= ===========
</TABLE>
Significant noncash investing and financing activities:
During 1995, fully depreciated rental property of $269,381 was abandoned by
the Operating Partnerships.
See notes to consolidated financial statements
<PAGE>
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Springhill Lake Investors Limited Partnership ("the Partnership"), a
Maryland limited partnership was formed on December 28, 1984, to acquire and
own a 90% general partnership interest in Springhill Lake Limited
Partnerships I through IX and Springhill Commercial Limited Partnership (the
"Operating Partnerships"). The Operating Partnerships own and operate the
Springhill Lake Apartments complex in Greenbelt, Maryland. The complex
consists of 2,899 apartment and townhouse units and an eight- store shopping
center. The Partnership and Operating Partnerships will terminate on
December 31, 2035, or earlier upon the occurrence of certain events
specified in the Partnership Agreement.
Basis or Presentation
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 intercompany accounts and transactions have been eliminated in
consolidation.
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the consolidated financial statements and the reported amounts of revenue
and expenses during the reporting period. Actual results could differ from
those estimates.
Investment in Real Estate
Investment in real estate is carried at cost. Depreciation is provided for
on a straight-line basis using estimated useful lives of 25 years for real
property and 10 years for personal property. For income tax purposes,
accelerated lives and methods are used.
Deferred Costs
Deferred costs are capitalized and amortized on the straight-line method
over the term of the loan agreements.
Rental Income
Rental income is recognized as rentals become due. Rental payments received
in advance are deferred until earned. Leases between the Operating
Partnerships and tenants of the property are operating leases.
Cash equivalents
For purposes of the statement of cash flows, the partnership considers all
highly liquid investments with maturities of less than three months to be
cash equivalents. The carrying amount approximates fair value because of the
short maturity of these instruments.
Income Taxes
No provision for income taxes is reflected in the accompanying consolidated
financial statements. Each partner is required to report on his individual
tax return his allocable share of income, gains, losses, deductions and
credits.
Net Loss Per Unit of Limited Partnership Interest Outstanding
Net loss per unit of limited partnership interest outstanding is calculated
based upon the weighted average number of units outstanding during the year.
<PAGE>
NOTE B - INVESTMENT IN REAL ESTATE
Buildings, improvements and personal property consist of the following:
<TABLE>
Useful December 31,
Life 1996 1995
- ----- ------ ------------ --------
<S> <C> <C> <C>
Buildings 25 $68,640,167 $68,640,167
Building improvements 25 16,459,855 13,983,502
Personal property 10 6,130,298 4,791,808
----------- -----------
91,230,320 87,415,477
Less accumulated depreciation 41,381,951 37,586,954
---------- ----------
$49,848,369 $49,828,523
========== ==========
</TABLE>
NOTE C - TAXABLE LOSS
The Partnership's taxable losses for 1996 and 1995 differ from the net
losses for financial reporting purposes primarily due to the difference in
the recognition of depreciation. The reconciliation of the net loss for
financial reporting purposes to the taxable losses for 1996 and 1995 are as
follows:
<TABLE>
1996 1995
---------- -------
<S> <C> <C>
Net loss for financial reporting purposes $ (692,250) $(1,160,716)
Rent deferred credits (45,919) 180,358
Excess of accelerated depreciation for
income tax purposes (618,750) (485,775)
Other 31,589 (5,507)
------------ --------------
Taxable losses $(1,325,330) $(1,471,640)
========== ==========
</TABLE>
<PAGE>
NOTE D - RELATED PARTY TRANSACTIONS
The property was managed by Lerner Corporation, whose principal stockholder
is a limited partner of the Operating Partnerships through April 30, 1995.
The management agreement provided for a management fee equal to 4% of
monthly income. The amount charged to operations during 1995 amounted to
$302,002.
Winthrop Management, an affiliate of the general partner, began managing the
property as of May 1, 1995. The management agreement provides for a
management fee equal to 3% of tenant rent collections and 5% of store
commercial income. The amount charged to operations during 1996 and 1995
amounted to $699,436 and $440,071, respectively. For the period January 1,
1993 through April 30, 1995, Winthrop Management supervised the management
agent in the performance of its duties and the capital improvement program.
The management fee for these services was equal to 1% of monthly income
through April 30, 1995, and is included in the property management fee on
the statement of operations. This fee amounted to $75,501 in 1995.
The Operating Partnerships paid Springfield Facilities, Inc., an affiliate,
a rental fee for the use of the recreational facilities. This fee is based
on the affiliate's cost of operating these facilities. Rent expense charged
to operations for the years ended December 31, 1996 and 1995 was $36,914 and
$225,888, respectively.
Winthrop Financial Associates, an affiliate of the general partner, receives
an annual asset management fee of $100,000, which was charged to operations
for the years ended December 31, 1996 and 1995.
Asset and property management fees for 1996 and 1995 include an annual fee
of $10,000 to Winthrop Financial Co., Inc., an affiliate of the general
partner, for administration of the Partnership.
<PAGE>
NOTE E - MORTGAGES PAYABLE
The Partnership has two mortgages having original principal balances of
$58,000,000 and $5,000,000. The mortgages bear interest at a rate of 9.3%
and a final payment of $49,016,500 is due on May 1, 2003. The monthly
principal and interest installments, which commenced on April 30, 1993, are
as follows:
<TABLE>
Mortgage* Monthly
Period Term Installment
<S> <C> <C> <C>
Years 1-2 25 yrs $541,696
Years 3-10 20 yrs $566,137
</TABLE>
* Mortgage term represents the period over which monthly principal and
interest payments are based.
The Partnership expensed interest on the mortgages totaling $5,611,020 and
$5,716,730 in 1996 and 1995, respectively.
Based on the interest rates of loans with similar maturities currently
available to the Partnership, the combined estimated fair value of the
mortgages payable is $62,085,0371.
Aggregate principal payments required under the mortgages at December 31,
1996 are as follows:
<TABLE>
<S> <C> <C>
1997 $ 1,287,440
1998 1,412,410
1999 1,549,510
2000 1,699,918
2001 1,864,926
Thereafter 51,869,687
$59,683,891
</TABLE>
The mortgages are secured by a pledge of the Partnership's interest in the
Operating Partnerships, and joint and several guarantees by the Operating
Partnerships which, in
<PAGE>
turn, are secured by an indemnity first mortgage on the Operating
Partnerships and a pledge of the stock of Springfield Facilities, Inc., an
affiliate.
NOTE F - OPERATING LEASES
One of the Operating Partnerships leases retail space to tenants in the
shopping center under the terms of operating leases expiring in various
years through March 31, 2001. The leases call for base monthly rentals plus
additional charges for passthroughs and percentage rent. Minimum future
rental payments to be received subsequent to December 31, 1996 are as
follows:
<TABLE>
<S> <C>
Year ending December 31, 1997 $ 84,814
1998 53,032
1999 40,316
2000 27,600
2001 27,600
--------
$233,362
</TABLE>
NOTE G - CONCENTRATION OF CREDIT RISK
At December 31, 1996, the Partnership and the Operating Partnerships have
cash in the amount of $3,322,017 and $287,249, respectively, held by the
mortgage lender. These accounts are insured by the Federal Deposit Insurance
Corporation up to $100,000 for each account. The uninsured portion of the
balance at December 31, 1996 is $3,222,017 and $187,249, respectively.
As of December 31, 1996, the Operating Partnerships have bank deposits in
excess of federally insured limits totaling $343,526.
NOTE H - DEFERRED COSTS
The following is a summary of deferred costs and the unamortized balances at
December 31, 1996 and 1995:
<TABLE>
Unamortized Unamortized
Balance Balance
Amortization December December
Period Cost 31, 1996 31, 1995
<S> <C> <C> <C> <C>
Refinancing Costs 5/93 - 5/03 $1,244,386 $ 807,118 $912,549
Attorney Fees 5/93 - 4/95 114,419 - -
Other Deferred Costs 5/93 - 12/09 945,000 737,100 793,800
---------- ---------- ----------
$2,303,805 $1,544,218 $1,706,349
========= ========= =========
</TABLE>
NOTE I - INVESTMENT IN OPERATING PARTNERSHIPS
The condensed, summarized combined financial statements of the Operating
Partnerships as of December 31, 1996 and 1995 and for each of the two years
in the period ended December 31, 1996 are as follows:
SUMMARIZED COMBINED BALANCE SHEETS
<TABLE>
December 31, 1996 and 1995
ASSETS
1996 1995
---------- -------
<S> <C> <C>
Buildings, improvements and personal
property net of accumulated
depreciation of $41,381,951 and
$37,586,954 $49,848,369 $49,828,523
Land 5,833,466 5,833,466
Other assets 3,066,047 3,335,115
----------- -----------
TOTAL ASSETS $58,747,882 $58,997,104
========== ==========
LIABILITIES AND PARTNERS' EQUITY
Liabilities
Accounts payable and
accrued expenses $ 2,755,328 $ 634,010
Other liabilities 463,031 452,478
------------ ------------
3,218,359 1,086,488
----------- -----------
Partners' equity
Springhill Lake Investors
Limited Partnership 53,052,543 55,825,966
Other limited partners 2,476,980 2,084,650
----------- -----------
55,529,523 57,910,616
---------- ----------
TOTAL LIABILITIES AND PARTNERS' EQUITY $58,747,882 $58,997,104
========== ==========
</TABLE>
<PAGE>
NOTE I - INVESTMENT IN OPERATING PARTNERSHIPS (Continued)
SUMMARIZED COMBINED STATEMENTS OF EARNINGS
Years ended December 31, 1996 and 1995
<TABLE>
1996 1995
---------- -------
Revenue
<S> <C> <C>
Rental income $23,207,505 $22,396,740
Interest and other income 1,101,927 904,625
----------- ------------
24,309,432 23,301,365
Expenses
Depreciation 3,794,997 3,698,520
Operating expenses 12,339,389 11,667,031
Taxes and insurance 2,628,708 2,494,808
----------- -----------
18,763,094 17,860,359
Net Earnings $ 5,546,338 $ 5,441,006
=========== ===========
</TABLE>
NOTE J - LITIGATION
In November 1994, Three Winthrop Properties, Inc. ("Three Winthrop") brought
suit in its capacity as managing general partner of Springhill Lake
Investors Limited Partnership as general partner of the Operating
Partnerships against the defendant, manager of the Partnerships' apartment
complex. Three Winthrop sought to enforce the notice and termination
provisions of the management and leasing agreement with the defendant and to
recover damages for the defendants' refusal to comply therewith.
On or about February 13, 1995, the Court granted partial summary judgement
in favor of Three Winthrop regarding its interpretation of the notice and
termination provisions of the management and leasing agreement.
Defendant appealed the Court's entry of partial summary judgment against it,
as discussed below. The Operating Partnerships' damage claim, which along
with discovery was stayed during the pendency of the defendant's appeal,
remains pending.
<PAGE>
NOTE J - LITIGATION (Continued)
On or about March 7, 1995, Lerner Corporation filed a Notice of Appeal from
the entry of partial summary judgment against it as described immediately
above. On January 23, 1996, the Court of Special Appeals of Maryland issued
an opinion dismissing the appeal of Lerner Corporation for lack of
jurisdiction. The holding of the Court of Special Appeals does not prevent
Lerner Corporation from taking another appeal after a determination on the
merits of Three Winthrop pending damage claim as described immediately
above. Should Lerner Corporation choose to take a second appeal concerning
the entry of partial summary judgment against it as described above, Three
Winthrop believes it has meritorious arguments in favor of the affirmance of
the lower court's entry of partial summary judgment against Lerner
Corporation.
In December 1994, Three Winthrop was sued by a limited partner in the
Operating Partnerships. Plaintiff's complaint asserted claims against Three
Winthrop for an accounting and breach of fiduciary duty. The plaintiff
contends, in substance, that Three Winthrop, as managing general partner of
the general partner of the Operating Partnerships, has failed to make
certain distributions to him. Plaintiff's complaint does not specify a
particular monetary amount which he seeks, but plaintiff's expert witness
has indicated that he believes that plaintiff may be entitled to
approximately $600,000 in distributions.
Three Winthrop has acknowledged that the plaintiff is entitled to
approximately $365,000 in distributions for calendar years 1994 and 1995,
but was unable to make those distributions to plaintiff because the
plaintiff's closely-held corporation, which previously served as the
property manager for the Operating Partnerships' property, refused to hand
over control of the Operating Partnerships' operating accounts.
Discovery has concluded and trial commenced on November 4, 1996, Trial
testimony concluded on January 31, 1997.
After the conclusion of closing arguments on March 6, 1997, the Court ruled
that the plaintiff was not entitled to any amounts beyond the $365,000
which Three Winthrop had previously acknowledged was owed to the plaintiff,
as discussed above. The Court also ruled that Three Winthrop had not
committed a breach of fiduciary duty.
Two limited partners in Springhill Lake Investors Limited Partnership (the
"Investor Partnership") and one limited partner in the Operating
Partnerships brought suit against Three Winthrop in its capacity as
managing general partner of the Investor Partnership which in turn is the
general partner of the Operating Partnerships. Plaintiffs purported to
assert individual claims and claims of the respective Partnerships.
Plaintiffs alleged that Three Winthrop breached its fiduciary duty be
discharging the managing agent for the Partnerships' property and replacing
it with an affiliate of Three Winthrop.
<PAGE>
NOTE J - LITIGATION (Continued)
During the pendency of the action, one of the limited partner plaintiffs in
the Investor Partnership sold his interest in the Investor Partnership and
ceased to be a plaintiff. On January 22, 1996, the Court issued an order on
Three Winthrop's motion for summary judgment pursuant to which summary
judgment was entered in favor of Three Winthrop on all of the plaintiffs'
individual claims.
On June 17, 1996, trial commenced. The Court, after hearing the presentation
of the plaintiff's case, granted Three Winthrop's motion for a directed
verdict as to all remaining claims in the case on June 17, 1996.
Springhill Lake and/or Lerner Corporation is currently a defendant in a
lawsuit brought against them by approximately 30 employees seeking back pay
and liquidated damages for alleged overtime pay violations and one racial
discrimination lawsuit. All are still in discovery stages.
Partnership's management does not expect that the outcome of any of the
suits will have a material adverse effect on the Partnership's or the
Operating Partnerships' financial conditions or results of operations.
<PAGE>
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance With Section 16(a) of the Exchange
Act.
The Registrant has no directors or officers. Three Winthrop and
Linnaeus-Lexington are the General Partners of the Registrant. Three Winthrop is
the Managing General Partner. As of March 1, 1997, the names of the directors
and executive officers of Three Winthrop and the position held by each of them,
are as follows:
Has Served as
Position Held with a Director or
Name Three Winthrop Officer Since
Michael L. Ashner Chief Executive Officer 1-96
and Director
Richard J. McCready President and
Chief Operating Officer 7-95
Jeffrey Furber Executive Vice President 7-95
and Clerk
Edward Williams Chief Financial Officer 4-96
Vice President and
Treasurer
Peter Braverman Senior Vice President 1-96
Michael L. Ashner, age 45, has been the Chief Executive Officer of
Winthrop Financial Associates, A Limited Partnership ("WFA") since January 15,
1996. From June 1994 until January 1996, Mr. Ashner was a Director, President
and Co-chairman of National Property Investors, Inc., a real estate investment
company ("NPI"). Mr. Ashner was also a Director and executive officer of NPI
Property Management Corporation ("NPI Management") from April 1984 until January
1996. In addition, since 1981 Mr. Ashner has been President of Exeter Capital
Corporation, a firm which has organized and administered real estate limited
partnerships.
Richard J. McCready, age 38, is the President and Chief Operating Officer
of WFA and its subsidiaries. Mr. McCready previously served as a Managing
Director, Vice President and Clerk of WFA and a Director, Vice President and
Clerk of the Managing General Partner and all other subsidiaries of WFA. Mr.
McCready joined the Winthrop organization in 1990.
Jeffrey Furber, age 37, has been the Executive Vice President of WFA
and the President of Winthrop Management since January 1996. Mr. Furber served
as a Managing Director of WFA from January 1991 to December 1995 and as a Vice
President from June 1984 until December 1990.
Edward V. Williams, age 56, has been the Chief Financial Officer of WFA
since April 1996. From June 1991 through March 1996, Mr. Williams was Controller
of NPI and NPI Management. Prior to 1991, Mr. Williams held other real estate
related positions including Treasurer of Johnstown American Companies and Senior
Manager at Price Waterhouse.
Peter Braverman, age 45, has been a Senior Vice President of WFA since
January 1996. From June 1995 until January 1996, Mr. Braverman was a Vice
President of NPI and NPI Management. From June 1991 until March 1994, Mr.
Braverman was President of the Braverman Group, a firm specializing in
management consulting for the real estate and construction industries. From 1988
to 1991, Mr. Braverman was a Vice President and Assistant Secretary of Fischbach
Corporation, a publicly traded, international real estate and construction firm.
One or more of the above persons are also directors or officers of a
general partner (or general partner of a general partner) of the following
limited partnerships which either have a class of securities registered pursuant
to Section 12(g) of the Securities and Exchange Act of 1934, or are subject to
the reporting requirements of Section 15(d) of such Act: Winthrop Partners 79
Limited Partnership; Winthrop Partners 80 Limited Partnership; Winthrop Partners
81 Limited Partnership; Winthrop Residential Associates I, A Limited
Partnership; Winthrop Residential Associates II, A Limited Partnership; Winthrop
Residential Associates III, A Limited Partnership; 1626 New York Associates
Limited Partnership; 1999 Broadway Associates Limited Partnership; Indian River
Citrus Investors Limited Partnership; Nantucket Island Associates Limited
Partnership; One Financial Place Limited Partnership; Presidential Associates I
Limited Partnership; Riverside Park Associates Limited Partnership; Twelve AMH
Associates Limited Partnership; Winthrop California Investors Limited
Partnership; Winthrop Growth Investors I Limited Partnership; Winthrop Interim
Partners I, A Limited Partnership; Southeastern Income Properties Limited
Partnership; Southeastern Income Properties II Limited Partnership; Winthrop
Miami Associates Limited Partnership and Winthrop Apartment Investors Limited
Partnership.
Except as indicated above, neither the Registrant nor Three Winthrop
has any significant employees within the meaning of Item 401(b) of Regulation
S-B. There are no family relationships among the officers and directors of Three
Winthrop.
Based solely upon a review of Forms 3 and 4 and amendments thereto
furnished to the Registrant under Rule 16a-3(e) during the Registrant's most
recent fiscal year and Forms 5 and amendments thereto furnished to the
Registrant with respect to its most recent fiscal year, the Registrant is not
aware of any director, officer or beneficial owner of more than ten percent of
the units of limited partnership interest in the Registrant that failed to file
on a timely basis, as disclosed in the above Forms, reports required by section
16(a) of the Exchange Act during the most recent fiscal year or prior fiscal
years.
Item 10. Executive Compensation.
The Registrant is not required to and did not pay any compensation to
the officers or directors of the Managing General Partner. The Managing General
Partner does not presently pay any compensation to any of its officers and
directors (See "Item 12, Certain Relationships and Related Transactions").
Item 11. Security Ownership of Certain Beneficial Owners and
Management.
(a) Security Ownership of Certain Beneficial Owners.
Three Winthrop and Linnaeus-Lexington own all the outstanding general
partnership interests in the Registrant. As General Partners, they are entitled
in the aggregate to 5% of the Registrant's net income or loss for tax purposes,
5% of the Registrant's Cash Flow distributions and, after certain priority
distributions, 29.4% of the proceeds from a Capital Transaction (as defined in
the Registrant's Partnership Agreement).
<PAGE>
On March 21, 1995, Aquarius Acquisition, L.P., a Delaware limited
partnership ("Aquarius"), presently comprised of an entity affiliated with
Apollo, as a general partner and WFA, as limited partner, acquired 216.65 Units
tendered by Limited Partners, representing 33.4% of the 649 outstanding Units.
Subsequent to the tender offer, Aquarius purchased an additional 19 Units,
increasing the total number of Units purchased to 235.65 or 36.3% of the total
Units outstanding.
No other person or group is known by the Registrant to be the
beneficial owner of more than 5% of the outstanding partnership interests in the
Registrant as of the date hereof.
(b) Security Ownership of Management.
Except with respect to the tender offer, no executive officer, director
or general partner of Three Winthrop or Linnaeus-Lexington or WFA own any units
of the Registrant, or has the right to acquire beneficial ownership of
additional Units.
(c) Changes in Control.
There exists no arrangement known to the Registrant which may at a
subsequent date result in a change in control of the Registrant.
Item 12. Certain Relationships and Related Transactions.
(a) Transactions with Management and Others.
The General Partners and their affiliates are entitled to receive
certain cash distributions from and allocations of taxable profits and losses of
the Registrant. In addition, the General Partners and their affiliates receive
certain fees and compensation paid by the Registrant and the Operating
Partnerships for services rendered in connection with the management of the
Registrant and the Operating Partnerships.
The following table sets forth the amounts of the fees and cash
distributions which the Registrant and the Operating Partnerships paid to or
accrued for the account of the General Partners or their affiliates for the
years ended December 31, 1996 and 1995:
<PAGE>
<TABLE>
Recipient Type of Compensation 1996 1995
<S> <C> <C> <C>
Winthrop Financial Partnership Admin. Fee $100,000 $100,000
Associates
Winthrop Financial Co., Partnership Admin. Fee 10,000 10,000
Inc.
Winthrop Management Asset Management Fee - 75,501
Winthrop Management Management Fee 699,436 440,071
Three Winthrop Cash Distributions 1,114 1,366
Linnaeus-Lexington Cash Distributions 54,563 66,949
</TABLE>
As a result of its ownership of 235.65 limited partnership Units,
Aquarius could be in a position to significantly influence all voting decisions
with respect to the Registrant. Under the Registrant's partnership agreement,
unitholders holding a majority of the Units are entitled to take action with
respect to a variety of matters. When voting on matters, Aquarius would in all
likelihood vote the Units it acquired in a manner favorable to the interest of
the Managing General Partner because of its affiliation with the Managing
General Partner.
There is no indebtedness to the Registrant by Three Winthrop,
Linnaeus-Lexington or any of their officers, directors or partners.
<PAGE>
Part IV
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits:
The Exhibits listed on the accompanying Index to Exhibits are filed as
part of this Annual Report and incorporated in this Annual Report as
set forth in said Index.
(b) Reports on Form 8-K - None
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has caused this Report on Form 10-KSB to be
signed on its behalf by the undersigned, thereunto duly authorized.
SPRINGHILL LAKE INVESTORS LIMITED
PARTNERSHIP
By: THREE WINTHROP PROPERTIES, INC.
Managing General Partner
By: /s/ Michael L. Ashner
Michael L. Ashner
Chief Executive Officer
Date: March 29, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature/Name Title Date
/s/ Michael L. Ashner Chief Executive March 29, 1997
- ---------------------
Michael L. Ashner Officer and Director
/s/ Edward V. Williams Chief Financial Officer March 29, 1997
Edward V. Williams
<PAGE>
Index to Exhibits
Exhibit
Number Document
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 (3)
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)
(b) Loan Agreement dated as of April 30, 1993 between
Springhill Lake Investors Limited Partnership and
Marvin M. Franklin, Mark P. Snyderman and J. Grant
Monahon, as Trustees of AEW #207 Trust(2)
(m) $58,000,000 Amended and Restated Promissory Note from
Springhill Lake Investors Limited Partnership to Marvin
M. Franklin, Mark P. Snyderman and J. Grant Monahon, as
Trustees of AEW #207 Trust dated April 30, 1993(2)
(n) $5,000,000 Second Promissory Note from Springhill Lake
Investors Limited Partnership to Marvin M. Franklin,
Mark P. Snyderman and J. Grant Monahon, as Trustees of
AEW #207 Trust dated April 30, 1993(2)
(o) Amended and Restated Indemnity and Deed of Trust and
Security Agreement between the Operating Partnerships
and James C. Oliver and Fred Wolf, II, Trustees, dated
as of April 30, 1993(2)
(p) Second Indemnity and Deed of Trust and Security
Agreement between the Operating Partnerships and James
C. Oliver and Fred Wolf, II, Trustees, dated as of
April 30, 1993(2)
<PAGE>
(q) Indemnity Agreement dated as of April 30, 1993 between
Springhill Lake Investors Limited Partnership and
Winthrop Financial Associates, A Limited Partnership(2)
(r) Amended and Restated Guaranty and Indemnity Agreement
of Property Owners dated as of April 30, 1994 between
the Operating Partnerships and Marvin M. Franklin, Mark
P. Snyderman and J. Grant Monahon, as Trustees of AEW
#207 Trust(2)
(s) Second Guaranty and Indemnity Agreement of Property
Owners dated as of April 30, 1994 between the Operating
Partnerships and Marvin M. Franklin, Mark P. Snyderman
and J. Grant Monahon, as Trustees of AEW #207 Trust(2)
- ---------------
(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 Annual Report on
Form 10-K for the year ended December 31, 1993.
(3) Incorporated herein by reference to the Registrant's Current Report on
Form 8-K dated August 23, 1995, as filed September 5, 1995.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial
information extracted from audited financial
statements for the one year period ending
December 31, 1996 and is qualified in its
entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0000763399
<NAME> SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 973,927
<SECURITIES> 0
<RECEIVABLES> 508,143
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,409,426
<PP&E> 97,063,786
<DEPRECIATION> (41,381,951)
<TOTAL-ASSETS> 63,628,483
<CURRENT-LIABILITIES> 3,230,817
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> (1,763,205)
<TOTAL-LIABILITY-AND-EQUITY> 63,628,483
<SALES> 23,207,505
<TOTAL-REVENUES> 24,270,913
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 19,552,143
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,611,020
<INCOME-PRETAX> (692,250)
<INCOME-TAX> (692,250)
<INCOME-CONTINUING> (692,250)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (692,250)
<EPS-PRIMARY> (1,066.64)
<EPS-DILUTED> (1,066.64)
</TABLE>
