<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 1997 Commission File Number 0-14569
------------------- -------
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
---------------------------------------------
(exact name of small business issuer as specified in its charter)
Maryland 04-2848939
------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Five Cambridge Center, Cambridge, MA 02142-1493
- ------------------------------------ --------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 234-3000
--------------
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
--------- ----------
<PAGE>
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
PART 1 - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
BALANCE SHEETS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
September 30, December 31,
1997 1996
(Unaudited) (Audited)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
INVESTMENT IN REAL ESTATE AT COST
Land $ 5,833,466 $ 5,833,466
Buildings improvements and personal property 92,550,556 91,230,320
----------------- -----------------
98,384,022 97,063,786
Less accumulated depreciation 44,317,746 41,381,951
----------------- -----------------
54,066,276 55,681,835
OTHER ASSETS:
Cash and cash equivalents 2,484,553 973,927
Accounts receivable 479,335 508,143
Tenant security deposits - funded 446,008 438,621
Escrows and reserves 2,826,842 3,609,266
Prepaid expenses and other assets 1,412,449 872,473
Deferred costs, less accumulated amortization of $881,186 and
$759,587, respectively 1,422,619 1,544,218
----------------- -----------------
TOTAL ASSETS $ 63,138,082 $ 63,628,483
================= =================
LIABILITIES AND PARTNERS' EQUITY
MORTGAGES PAYABLE $ 58,726,328 $ 59,683,891
Other deferred income 549,926 --
OTHER LIABILITIES
Accounts payable and accrued expenses 1,652,654 2,767,786
Tenant security deposits payable 429,455 328,592
Rent deferred credits 175,449 134,439
----------------- -----------------
TOTAL LIABILITIES 61,533,812 62,914,708
----------------- -----------------
MINORITY INTEREST (Note A) 2,938,515 2,476,980
----------------- -----------------
PARTNERS' EQUITY (DEFICIT):
Investor Limited Partners, Unit of Investor Limited
Partnership Interest, 649 units authorized and outstanding, 1,591,880 1,184,368
General Partners (2,926,125) (2,947,573)
----------------- -----------------
(1,334,245) (1,763,205)
----------------- -----------------
TOTAL LIABILITIES AND PARTNERS' EQUITY $ 63,138,082 $ 63,628,483
================= =================
</TABLE>
The accompanying notes are an integral part of these financial statements
-2-
<PAGE>
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Three months ended Nine months ended
September 30, (Unaudited) September 30, (Unaudited)
1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income
Rental income $ 6,046,837 $ 5,937,121 $ 17,759,758 $ 17,364,159
Laundry income 104,654 78,490 261,632 261,632
Interest income 82,779 123,121 164,022 152,121
Other income 1,102,191 281,989 1,526,333 598,240
---------------- --------------- -------------- ---------------
Total income 7,336,461 6,420,721 19,711,745 18,376,152
---------------- --------------- -------------- ---------------
Expenses
Utilities 1,113,778 1,535,127 3,282,232 3,707,078
Repairs & maintenance 649,453 652,818 1,665,499 1,722,106
Real estate taxes 417,558 435,750 1,359,191 1,304,222
Salaries and benefits 750,114 710,062 2,104,913 1,965,465
Operating expense 925,450 156,374 1,293,153 606,650
Administrative expenses 71,747 204,317 211,532 401,793
Bad debt expense 170,526 189,281 591,905 567,776
Advertising & rental expense 91,067 75,940 228,856 206,575
Insurance 87,495 99,403 262,693 298,458
Asset and property management fees 214,998 206,132 626,213 597,177
---------------- --------------- -------------- ---------------
Total operating expenses 4,492,186 4,265,204 11,626,187 11,377,300
---------------- --------------- -------------- ---------------
Other expenses
Interest expense 1,372,910 1,399,411 4,137,669 4,218,614
Depreciation and amortization 1,034,056 881,153 3,057,394 2,841,677
---------------- --------------- -------------- ---------------
Total expenses 6,899,152 6,545,768 18,821,250 18,437,591
---------------- --------------- -------------- ---------------
Net income (loss) before minority interest 437,309 (125,047) 890,495 (61,439)
Minority Interest in Net Earnings of
Operating Partnership 175,470 98,286 461,535 267,772
---------------- --------------- -------------- ---------------
Net income (loss) $ 261,839 $ (223,333) $ 428,960 $ (329,211)
================ =============== ============== ===============
Net income (loss) allocated to general
partners $ 13,092 $ (11,167) $ 21,448 $ (16,461)
================ =============== ============== ===============
Net income (loss )allocated to investor
limited partner $ 248,747 $ (212,166) $ 407,512 $ (312,750)
================ =============== ============== ===============
Net income (loss) per unit of limited
partners interest $ 383 $ (326) $ 627 $ (481)
================ =============== ============== ===============
Weighted average number of units
outstanding 649 649 649 649
================ =============== ============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements
-3-
<PAGE>
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Units of
For the nine months ended limited General Limited Total
September 30, 1997 and 1996 Partnership Partners' Partners' Partners'
(Unaudited) interest Capital Capital Capital
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance December 31, 1996 649 $ (2,947,573) $ 1,184,368 $ (1,763,205)
Net income -- 21,448 407,512 428,960
----------------- ---------------- ----------------- ------------------
Balance, September 30, 1997 649 $ (2,926,125) $ 1,591,880 $ (1,334,245)
================= ================ ================= ==================
Balance December 31, 1995 649 $ (2,857,284) $ 2,899,876 $ 42,592
Distributions -- (55,677) (1,057,870) (1,113,547)
Net loss -- (16,461) (312,750) (329,211)
----------------- ----------------- ----------------- ------------------
Balance, September 30, 1996 649 $ (2,929,422) $ 1,529,256 $ (1,400,166)
================= ================= ================= =================
The accompanying notes are an integral part of these financial statements
-4-
<PAGE>
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
For the nine months ended 1997 1996
September 30, (Unaudited) (Unaudited)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flow from operating activities
Net income (loss) $ 428,960 $ (329,211)
Adjustments to reconcile net income to
net cash provided by operating activities
Minority Interest in Net Earnings of Operating Partnerships 461,535 267,772
Depreciation 2,935,795 2,677,220
Amortization 121,599 164,457
Changes in assets and liabilities
Decrease in tenants accounts receivable 28,808 30,369
Net security deposits received 93,476 78,014
Decrease in escrows and reserves 567,669 396,245
Increase in prepaid expenses and other assets (539,976) (419,388)
Increase in rent deferred credits 41,010 --
(Decrease) increase in accounts payable and accrued expenses (1,115,132) 419,860
Increase in other deferred income 549,926 --
---------------- -----------------
Net cash provided by operating activities 3,573,670 3,285,338
---------------- -----------------
Cash flows from investing activities
Replacement reserve contributions (678,753) (303,754)
Replacement reserve withdrawals 893,508 108,280
Improvements to properties (1,320,236) (1,913,204)
---------------- -----------------
Net cash used in investing activities (1,105,481) (2,108,678)
---------------- -----------------
Cash flows from financing activities
Principal payments on mortgage note (957,563) (876,619)
Distributions to partners -- (1,113,547)
---------------- -----------------
Net cash used in financing activities (957,563) (1,990,166)
---------------- -----------------
Net increase (decrease) in cash and cash equivalents 1,510,626 (813,506)
Cash and cash equivalents, beginning of period 973,927 1,561,098
---------------- -----------------
Cash and cash equivalents end of period $ 2,484,553 $ 747,592
================ =================
Supplemental disclosure of cash flow information
Cash paid for interest $ 4,137,669 $ 4,218,614
================ =================
The accompanying notes are an integral part of these financial statements
-5-
<PAGE>
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
September 30, 1997
(Unaudited)
1. ACCOUNTING AND FINANCIAL REPORTING POLICIES
The condensed financial statements included herein have been prepared
by Springhill Lake Investors Limited Partnership (the "Partnership"), without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. The Partnership's accounting and financial reporting policies
conform with generally accepted accounting principles and include adjustments in
interim periods considered necessary for a fair presentation of the results of
operations. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. It is suggested that these financial statements be read in
conjunction with the financial statements and notes thereto included in the
Partnership's Annual Report on Form 10-KSB.
The accompanying consolidated financial statements include the accounts
of the Partnership and the nine limited partnerships (collectively, the
"Operating Partnerships") prepared on the accrual basis of accounting. Theodore
N. Lerner's ownership in the Operating Partnership's has been reflected as a
minority interest in the accompanying consolidated balance sheets and statements
of operations. All significant intercompany accounts and transactions have been
eliminated in consolidation.
The accompanying consolidated financial statements reflect the
Partnership's results of operations for an interim period and are not
necessarily indicative of the results of operations for the year ending December
31, 1997.
2. TAXABLE LOSS
The Partnership's taxable loss for 1997 is expected to differ from that
for financial reporting purposes primarily due to accounting differences in the
recognition of depreciation incurred by the Operating Partnerships.
-6-
<PAGE>
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS - CONTINUED
September 30, 1997 (Unaudited)
3. INVESTMENT IN OPERATING PARTNERSHIPS
The following summarizes the results of operations for the Operating
Partnerships:
</TABLE>
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30 (Unaudited) September 30 (Unaudited)
----------------------------------- ------------------------------------
1997 1996 1997 1996
----------------- ----------------- ------------------ -----------------
<S> <C> <C> <C> <C>
Income
Rental income $ 6,450,991 $ 5,937,121 $ 18,359,589 $ 17,364,159
Interest and other income 780,816 380,662 1,090,524 886,503
----------------- ----------------- ------------------ -----------------
7,231,807 6,317,783 19,450,113 18,250,662
----------------- ----------------- ------------------ -----------------
Expenses
Depreciation 1,034,056 822,098 3,057,394 2,677,220
Operating expenses 4,014,794 3,813,738 10,046,065 9,544,326
Taxes and insurance 477,392 535,153 1,580,122 1,602,680
----------------- ----------------- ------------------ -----------------
5,526,242 5,170,989 14,683,581 13,824,226
----------------- ----------------- ------------------ -----------------
Net income $ 1,705,565 $ 1,146,794 $ 4,766,532 $ 4,426,436
================= ================= ================= =================
</TABLE>
4. RELATED PARTY TRANSACTIONS
The Operating Partnerships paid or accrued to an affiliate of Three
Winthrop Properties Inc., (the "Managing General Partner") a property management
fee of $537,879 and $522,177 for the nine months ended September 30, 1997 and
1996, respectively. An asset management fee of $88,334 and $75,000 for the nine
months ended September 30, 1997 and 1996 was paid to an affiliate of the
Managing General Partner.
5. RECLASSIFICATION
Certain items in the 1996 Statement of Operations have been
reclassified to conform with the current year presentation. In addition,
Minority Interest expense for 1996 has been recalculated to include a year-end
adjustment necessary for the fair presentation of the results of operations
through September 30, 1996.
-7-
<PAGE>
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
Liquidity and Capital Resources
Springhill Lake Investor Limited Partnership, (the "Partnership"), has
invested as a general partner in nine limited partnerships (collectively, the
"Operating Partnerships") and, as such, receives distributions of cash flow from
the Operating Partnerships and is responsible for (i) interest payable on the
loan encumbering its assets (ii) administrative expenses and (iii) fees payable
to affiliates of the General Partners. Each Operating Partnership owns a section
of a garden apartment complex in Greenbelt, Maryland (the "project"). The
General Partners believe that funds distributed by the Operating Partnerships to
the Partnership will be sufficient to pay the Partnership's expenses. The
Operating Partnerships' cash and cash equivalents experienced a $1,510,626
increase at September 30, 1997 as compared to December 31, 1996. The increase
was due to $3,573,670 provided by operating activities, which was partially
offset by $1,105,481 used in investing activities and $957,563 used for
principal reduction to the mortgage payable. At September 30, 1997, the
Operating Partnerships' cash reserves were $2,484,553. The Partnership also has
a cash replacement reserve account held by its lender. At September 30, 1997,
the balance in the account was approximately $2,800,000. All other increases
(decreases) in certain assets and liabilities are the result of the timing of
receipt and payment of various operating activities.
The Washington, D.C. area apartment market is stable but remains
competitive. The Partnership continues to make capital improvements to the
Property to enhance its competitiveness within the local market. The Partnership
spent $1,320,236 on capital improvements during the nine months ended September
30, 1997 compared to $1,913,204 during the nine months ending September 30,
1996. Improvements included replacing appliances and bathroom tile in apartment
units along with expenditures on mechanical systems and structural improvements.
Most of the capital improvements are funded by replacement reserves held by the
lender.
The Partnership made cash distributions of $1,113,547 to limited partners
in 1996. The Partnership has made no distributions in 1997 to date, in order to
provide sufficient funds to fund the capital improvements and reserves required
for the project. The General Partner continues to review the Operating
Parterships' needs on a quarterly basis to determine if distributions are
advisable.
On March 25, 1995, an affiliate of the Managing General Partner acquired,
pursuant to a tender offer for a purchase price of $36,400 per unit,
approximately 33.4% of the total limited partnership units of the Registrant
(216.65 units).
-8-
<PAGE>
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION (Continued)
Results of Operations
The Partnership had net income of $428,960 for the nine months ended
September 30, 1997, compared to a net loss of $329,211 for the nine months ended
September 30, 1996. The positive cash flow generated by the Operating
Partnership was used to make improvements to the property and principal
amortization payments on the loan encumbering the property.
The Partnership's revenue increased for the nine months ended September 30,
1997, compared to the nine months ended September 30, 1996 due to increases in
rental, interest and other income. Although average rental rates have remained
relatively constant since 1996, average occupancy has increased from 91.9% to
93.2%. This increase has resulted in an increase in rental revenues of 5.7% from
$17,364,159 for the nine month period ended September 30, 1996 to $17,759,758
for the comparable period in 1997. Other income increased $928,093 from $598,240
at September 30, 1996 to $1,526,333 at September 30, 1997, primarily as a result
of an abatement of a mortgage recording tax in the amount of $908,059.
The direct operating expenses remained relatively constant for the nine
months ended September 30, 1997 as compared to the nine months ended September
30, 1996. Increases in taxes, bad debt, salaries and asset and property
management fees were partially offset by decreases in utilities, administrative
expenses, repairs and maintenance, and insurance. Utilities expense decreased
$424,846 from $3,707,078 at September 30, 1996 to $3,282,232 at September 30,
1997, due to the fact that the property switched from an oil to a gas-based
heating system. Administrative expenses decreased $190,261, from $401,793 at
September 30, 1996 to $211,532 at September 30, 1997, due to reduced
professional fees. Other expense items remained relatively constant.
Interest expense decreased to $4,137,669 for the nine months ended
September 30, 1997, as compared to $4,218,614 for the nine months ended
September 30, 1996, due to a reduction in the outstanding amount of principal
due to the monthly principal payment amounts. In addition, depreciation and
amortization expense for the nine months ended September 30, 1997 was $3,057,394
as compared to $2,841,677 for the prior comparable period. The increased expense
was the result of the higher average cost of assets in service between years.
The increase in operating expenses of $686,503, from $606,650 at September
30, 1996, to $1,293.153 at September 30, 1997, is due primarily to legal
settlements made during 1997.
The results of operations in future quarters may differ from the results of
operations for the quarter ended September 30, 1997, due to inflation and
changing economic conditions which could affect occupancy levels, rental rates
and operating expenses.
-9-
<PAGE>
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
Except as disclosed below, the Partnership is not a party, nor is its property
subject, to any material pending legal proceedings.
Vernon Hines et al v. Lerner Corporation, et al., Civil Action Nos.
AW-95-4023, AW-95-1120, AW-96-631 and AW-96-2350, pending in the U.S.
District Court for the District of Maryland.
In this action, Plaintiffs, approximately 32 current and former maintenance
employees at the property sought back pay of approximately $1,300,000, claiming
the property improperly paid them overtime pursuant to the fluctuating
co-efficient method. The parties settled this matter and the court dismissed all
of the pending suits on October 27, 1997. In conjunction with this settlement,
the Partnership agreed to pay approximately $400,000 to the Plaintiffs.
Theodore N. Lerner v. Three Winthrop Properties, Inc., Case No. CCB94-3601,
filed in the U.S. District Court for the District of Maryland, Southern
Division, on December 27, 1994.
During the third quarter of 1997, the Partnership paid to Lerner the $365,000
plus interest, which the Court had previously concluded was owed to the
Plaintiff.
Item 5 - Other Information
On October 28, 1997, Insignia Financial Group ("Insignia") acquired 100% of
the Class B stock of First Winthrop Corporation, the sole shareholder of the
Registrant's General Partner. In connection with this acquisition, a nominee of
Insignia was elected as a director of the General Partner and has been appointed
to the residential committee of the board of directors of the General Partner.
That committee is generally authorized to cause the General Partner to take such
actions as it deems necessary in connection with the activities of the
Registrant. On October 28, 1997, the partnership terminated Winthrop Management
as the managing agent, and appointed an affiliate of Insignia to assume
management of the property. The General Partner does not believe this
transaction will have a material effect on the affairs and operations of the
Registrant.
An affiliate of the Managing General Partner entered into an agreement to
sell all of its limited partnership units to IPTI, LLC, an affiliate of
Insignia. The transfer of these units took place October 27, 1997.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial Data Schedule
-10-
<PAGE>
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
99. Supplementary Information Required Pursuant to Section 9.4 of
the Partnership Agreement
(b) Reports on Form 8-K
No report on Form 8-K was filed during the three months ended September 30,
1997.
-11-
<PAGE>
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SPRINGHILL LAKE INVESTORS
LIMITED PARTNERSHIP
By: Three Winthrop Properties, Inc.
Managing General Partner
Date: November 14, 1997 By: /s/ Michael L. Ashner
---------------------
Michael L. Ashner
Chief Executive Officer
Date: November 14, 1997 By: /s/ Edward V. Williams
----------------------
Edward V. Williams
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from unaudited
financial statements for the nine month period ending September 30, 1997 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 2,484,553
<SECURITIES> 0
<RECEIVABLES> 479,335
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 98,384,022
<DEPRECIATION> (44,317,746)
<TOTAL-ASSETS> 63,138,082
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> (1,334,245)
<TOTAL-LIABILITY-AND-EQUITY> 63,138,082
<SALES> 0
<TOTAL-REVENUES> 19,711,745
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 18,821,250
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,137,669
<INCOME-PRETAX> 428,960
<INCOME-TAX> 0
<INCOME-CONTINUING> 428,960
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 428,960
<EPS-PRIMARY> 627
<EPS-DILUTED> 627
</TABLE>
