FORM 10-QSB--QUARTERLY OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
QUARTERLY OR TRANSITIONAL REPORT
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________to _________
Commission file number 0-14569
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
incorporation or organization) Identification No.)
55 Beattie Place, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
PART I _ FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a)
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
September 30, 1999
Assets
Cash and cash equivalents $ 3,848
Receivables and deposits (net of $274 allowance for
doubtful accounts) 2,751
Restricted escrows 3,047
Other assets 657
Investment properties:
Land $ 5,833
Buildings and related personal property 99,435
105,268
Less accumulated depreciation (52,432) 52,836
$ 63,139
Liabilities and Partners' (Deficit) Capital
Liabilities
Accounts payable $ 1,674
Tenant security deposit liabilities 509
Accrued property taxes 465
Other liabilities 1,064
Mortgage notes payable 55,928
Minority interest 3,552
Partners' (Deficit) Capital
General partners $ (2,863)
Investor limited partners (649 units issued and
outstanding) 2,810 (53)
$ 63,139
See Accompanying Notes to Consolidated Financial Statements
b)
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
Revenues:
Rental income $6,322 $5,882 $18,760 $17,931
Other income 219 268 1,127 755
Casualty (loss) gain -- (32) -- 138
Total revenues 6,541 6,118 19,887 18,824
Expenses:
Operating 2,834 2,737 8,348 8,239
General and administrative 143 81 482 293
Depreciation 1,257 984 3,249 2,929
Interest 1,335 1,369 4,034 4,134
Property taxes 465 446 1,348 1,529
Bad debt expense 358 230 826 727
Total expenses 6,392 5,847 18,287 17,851
Income before minority interest 149 271 1,600 973
Minority interest in net earnings
of operating partnerships (142) (64) (492) (214)
Net income $ 7 $ 207 $1,108 $ 759
Net income allocated to
general partners (5%) $ -- $ 10 $ 55 $ 38
Net income allocated to investor
limited partners (95%) 7 197 1,053 721
$ 7 $ 207 $1,108 $ 759
Net income per limited
partnership unit $ 10 $ 304 $1,622 $1,111
See Accompanying Notes to Consolidated Financial Statements
c)
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' (DEFICIT) CAPITAL
(Unaudited)
(in thousands, except unit data)
Limited Investor
Partnership General Limited
Units Partners Partners Total
Original capital contributions 649 $ -- $40,563 $40,563
Partners' (deficit) capital at
December 31, 1998 649 $(2,918) $ 1,757 $(1,161)
Net income for the nine months
ended September 30, 1999 -- 55 1,053 1,108
Partners' (deficit) capital at
September 30, 1999 649 $(2,863) $ 2,810 $ (53)
See Accompanying Notes to Consolidated Financial Statements
d)
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
1999 1998
Cash flows from operating activities:
Net income $ 1,108 $ 759
Adjustments to reconcile net income to net
cash provided by operating activities:
Minority interest in net earnings of operating
partnerships 492 214
Depreciation 3,249 2,929
Amortization of loan costs 93 93
Bad debt expense 826 727
Casualty gain -- (138)
Change in accounts:
Receivables and deposits (2,205) (1,107)
Other assets 735 816
Accounts payable (63) (450)
Tenant security deposit liabilities 103 (4)
Accrued property taxes 465 446
Other liabilities (164) (411)
Due to affiliates -- (112)
Net cash provided by operating activities 4,639 3,762
Cash flows from investing activities:
Property improvements and replacements (3,437) (1,754)
Net receipts from (deposits to) restricted escrows 473 (703)
Net insurance proceeds from casualty gain -- 160
Net cash used in investing activities (2,964) (2,297)
Cash flows used in financing activities:
Payments on mortgage notes payable (1,155) (1,047)
Net increase in cash and cash equivalents 520 418
Cash and cash equivalents at beginning of period 3,328 2,386
Cash and cash equivalents at end of period $ 3,848 $ 2,804
Supplemental disclosure of cash flow information:
Cash paid for interest $ 3,941 $ 4,048
Supplemental disclosure of non-cash activity:
At September 30, 1998, in connection with a fire at Springhill Lake Apartments,
accounts receivable, accounts payable, and property improvements were adjusted
by approximately $58,000, $23,000, and $29,000, respectively, for non-cash
activity.
See Accompanying Notes to Consolidated Financial Statements
e)
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Springhill Lake
Investors Limited Partnership (the "Partnership" or "Registrant") have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Item 310 (b)
of Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of Three Winthrop Properties, Inc. (the
"Managing General Partner"), all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three and nine month periods ended September 30, 1999,
are not necessarily indicative of the results that may be expected for the
fiscal year ending December 31, 1999. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Partnership's Annual Report on Form 10-KSB for the fiscal year ended December
31, 1998.
Reclassifications
Certain reclassifications have been made to the 1998 balances to conform to the
1999 presentation.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the
Partnership and its 90% general partnership interest in Springhill Lake Limited
Partnerships I though IX and Springhill Commercial Limited Partnership (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.
NOTE B - TRANSFER OF CONTROL
On October 28, 1997, Insignia Financial Group, Inc. ("Insignia") acquired 100%
of the Class B stock of First Winthrop Corporation. Pursuant to this
transaction, the by-laws of Three Winthrop were amended to provide for the
creation of a Residential Committee. Pursuant to the amended and restated by-
laws, Insignia has the right to elect one director to Three Winthrop's Board of
Directors and appoint the members of the Residential Committee. The Residential
Committee is generally authorized to cause Three Winthrop to take such actions
as it deems necessary and advisable in connection with the activities of the
Registrant.
Pursuant to a series of transactions which closed on October 1, 1998 and
February 26, 1999, Insignia and Insignia Properties Trust merged into Apartment
Investment and Management Company ("AIMCO"), a publicly traded real estate
investment trust, with AIMCO being the surviving corporation (the "Insignia
Merger"). As a result, AIMCO acquired the rights granted to Insignia in the
October 28, 1997 transaction. The Managing General Partner does not believe
that this transaction will have a material effect on the affairs and operations
of the Partnership.
NOTE C - TRANSACTIONS WITH AFFILIATED PARTIES
The Partnership has no employees and is dependent on the Managing General
Partner and its affiliates for the management and administration of all
Partnership activities. The Limited Partnership Agreement provides for certain
payments to affiliates for services and as reimbursements of certain expenses
incurred by affiliates on behalf of the Partnership, an annual asset management
fee of $100,000 and an annual administration fee of $10,000.
The following transactions with affiliates of the Managing General Partner were
charged to expense for the nine months ended September 30, 1999 and 1998:
1999 1998
(in thousands)
Property management fees (included in
operating expenses) $ 562 $ 551
Reimbursement for services of affiliates
(included in general and administrative
and operating expenses and investment
properties) 368 202
During the nine months ended September 30, 1999 and 1998, affiliates of the
Managing General Partner were entitled to receive 3% of tenant rent collections
and 5% of store commercial income from the Registrant's properties for providing
property management services. The Registrant paid to such affiliates
approximately $562,000 and $551,000 for the nine months ended September 30, 1999
and 1998, respectively.
An affiliate of the Managing General Partner received reimbursement of
accountable administrative expenses amounting to approximately $368,000 and
$202,000 for the nine months ended September 30, 1999 and 1998, respectively.
Included in these expenses is approximately $35,000 and $10,000 in
reimbursements for construction oversight costs for the nine months ended
September 30, 1999 and 1998, respectively.
On May 19, 1999, AIMCO Properties, L.P., an affiliate of the Managing General
Partner, commenced a tender offer to purchase up to 188.96 (approximately 29.12%
of the total outstanding units) units of limited partnership interest in the
Partnership for a purchase price of $20,936 per unit. The offer expired on June
29, 1999. Pursuant to the offer, AIMCO Properties, L.P., acquired 70.50 units.
As a result, AIMCO and its affiliates currently own 312.15 units of limited
partnership interest in the Partnership representing approximately 48.10% of the
total outstanding units. It is possible that AIMCO or its affiliate will make
one or more additional offers to acquire additional limited partnership
interests in the Partnership for cash or in exchange for units in the operating
partnership of AIMCO.
NOTE D _ SEGMENT REPORTING
Description of the types of products and services from which the reportable
segment derives its revenues:
The Partnership has one reportable segment: residential properties, consisting
of an apartment complex located in Greenbelt Maryland. The Partnership rents
apartment units to tenants for terms that are typically twelve months or less.
Measurement of segment profit or loss:
The Partnership evaluates performance based on net income. The accounting
policies of the reportable segment are the same as those of the Partnership as
described in the Partnership's Annual Report on Form 10-KSB for the year ended
December 31, 1998.
Segment information for the nine month periods ended September 30, 1999 and 1998
is shown in the tables below (in thousands). The "Other" column includes
partnership administration related items and income and expense not allocated to
the reportable segment.
1999 Residential Other Totals
Rental income $18,760 $ -- $18,760
Other income 778 349 1,127
Interest expense 4,034 -- 4,034
Depreciation 3,249 -- 3,249
General and administrative expense -- 482 482
Minority interest in net earnings
of operating partnerships -- 492 492
Segment income (loss) 1,733 (625) 1,108
Total assets 61,423 1,716 63,139
Capital expenditures 3,437 -- 3,437
1998 Residential Other Totals
Rental income $17,931 $ -- $17,931
Other income 716 39 755
Casualty gain 138 -- 138
Interest expense 4,134 -- 4,134
Depreciation 2,929 -- 2,929
General and administrative expense -- 293 293
Minority interest in net earnings
of operating partnerships -- 214 214
Segment income (loss) 1,227 (468) 759
Total assets 60,297 1,748 62,045
Capital expenditures 1,754 -- 1,754
NOTE E - LEGAL PROCEEDINGS
Grady v. Springhill Lake Apartments (Pending before the Prince George's County
Human Relations Commission, case no. AP94-1233). This public accommodation
discrimination claim was filed on December 16, 1994, however, the Commission
failed to notify the Registrant of the charge until September 8, 1996. In his
charge, the Complainant claims that he was denied information regarding the
rental of an apartment for commercial use because of his race (African
American). In fact, the Property does not lease apartments for commercial use,
and, at the time, the Property had no commercial space available for lease. In
addition, the Registrant believes that the almost two year delay in notifying
the Registrant of the charge is so prejudicial that the charge should be
dismissed. The Registrant is vigorously defending this matter. On December 26,
1996, the Registrant filed its position statement in this matter. No decision
has yet been rendered.
The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature arising in the ordinary course of business.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The matters discussed in this Form 10-QSB contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the
disclosures contained in this Form 10-QSB and the other filings with the
Securities and Exchange Commission made by the Registrant from time to time.
The discussion of the Registrant's business and results of operations, including
forward-looking statements pertaining to such matters, does not take into
account the effects of any changes to the Registrant's business and results of
operations. Accordingly, actual results could differ materially from those
projected in the forward-looking statements as a result of a number of factors,
including those identified herein.
The Operating Partnerships' investment property is a complex which consists of
apartment and townhouse units and an eight store shopping center. The following
table sets forth the average occupancy of the property for the nine months ended
September 30, 1999 and 1998:
Average
Occupancy
1999 1998
Springhill Lake Apartments
Greenbelt, Maryland 92% 91%
Results of Operations
The Registrant's net income for the nine months ended September 30, 1999 was
approximately $1,108,000 as compared to approximately $759,000 for the
corresponding period in 1998. The Registrant's net income for the three months
ended September 30, 1999 was approximately $7,000 as compared to approximately
$207,000 for the same period in 1998. Income before minority interest for the
nine months ended September 30, 1999 was approximately $1,600,000 as compared to
approximately $973,000 for the corresponding period in 1998. Income before
minority interest for the three months ended September 30, 1999 was
approximately $149,000 as compared to approximately $271,000 for the
corresponding period in 1998. The increase in income before minority interest
for the nine months ended September 30, 1999 is primarily the result of an
increase in total revenues which is partially offset by an increase in total
expenses. The increase in total revenues is attributable to an increase in
rental and other income which more than offset a casualty gain that was recorded
during the nine months ended September 30, 1998. Rental income increased due to
an increase in average annual rental rates and a slight increase in occupancy at
the property, which was partially offset by an increase in concessions offered
to tenants. Other income increased primarily due to the receipt of a court
granted motion for summary judgment and attorney fees and costs in favor of the
Registrant in connection with a legal dispute which was disclosed in the prior
quarter. In addition, other income increased due to increases in late charges.
Offsetting the increase in total revenues was a decrease in casualty gain. A
casualty gain of approximately $138,000 was recognized at September 30, 1998 as
a result of three separate fires at Springhill Lake Apartments which occurred
late in 1997.
Total expenses increased primarily due to an increase in operating, general and
administrative, bad debt and depreciation expenses. Operating expense increased
primarily due to increases in interior painting, exterior building repairs,
property legal expenses related to tenant eviction and collection, and referral
fees. General and administrative expense increased due to increases in general
partner reimbursements and Partnership legal expenses. Bad debt expense
increased due to additional write-offs of tenant receivables and charges that
were deemed to be uncollectible. Depreciation expense increased due to the
completion of capital improvements and replacements at the property. Partially
offsetting the increase in total expenses were decreases in property tax and
interest expense. Property tax expense decreased primarily due to the payment,
during the nine months ended September 30, 1998, of two property tax bills from
a prior year that were previously in dispute. Interest expense decreased due to
scheduled principal payments, which reduced the carrying balance of the debt
encumbering the property. Included in general and administrative expense for
both of the nine months ended September 30, 1999 and 1998 are reimbursements to
the Managing General Partner allowed under the Partnership Agreement. In
addition, costs associated with the quarterly and annual communications with
investors and regulatory agencies and the annual audit required by the
Partnership Agreement are also included.
As part of the ongoing business plan of the Registrant, the Managing General
Partner monitors the rental market environment of its investment property to
assess the feasibility of increasing rents, maintaining or increasing occupancy
levels, and protecting the Registrant from increases in expenses. As part of
this plan, the Managing General Partner attempts to protect the Registrant from
the burden of inflation-related increases in expenses by increasing rents and
maintaining a high overall occupancy level. However, due to changing market
conditions, which can result in the use of rental concessions and rental
reductions to offset softening market conditions, there is no guarantee that the
Managing General Partner will be able to sustain such a plan.
Liquidity and Capital Resources
At September 30, 1999, the Registrant had cash and cash equivalents of
approximately $3,848,000 as compared to approximately $2,804,000 at September
30, 1998. The increase in cash and cash equivalents of approximately $520,000
for the nine months ended September 30, 1999 from the Registrant's year end is
primarily due to approximately $4,639,000 of cash provided by operating
activities, which was partially offset by approximately $2,964,000 of cash used
in investing activities and approximately $1,155,000 of cash used in financing
activities. Cash used in investing activities consisted of property
improvements and replacements and was partially offset by net receipts from
restricted escrow accounts maintained by the mortgage lender. Cash used in
financing activities consisted of principal payments made on the mortgages
encumbering the Registrant's property. The Registrant invests its working
capital reserves in money market accounts.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the property to adequately maintain the physical assets
and other operating needs of the Registrant and to comply with Federal, state,
local, legal and regulatory requirements. Capital improvements planned for the
Registrant's property is detailed below.
Springhill Lake
Based on a report received from an independent third party consultant analyzing
necessary exterior improvements and estimates made by the Managing General
Partner on interior improvements, it is estimated that Springhill Lake requires
approximately $15,000,000 of capital improvements over the next few years. The
Partnership has budgeted capital improvements of approximately $14,672,000 for
1999 which include certain of the required improvements and consist of interior
and exterior building improvements. As of September 30, 1999, the Partnership
has spent approximately $3,437,000 on capital improvements consisting primarily
of a roofing project, swimming pool and air conditioning improvements, sewer
upgrades, flooring replacement, office equipment, electrical upgrades, grounds
lighting, drapery, appliance purchases, landscaping, plumbing and other building
improvements. These improvements were funded from cash flow and replacement
reserves.
The additional capital expenditures will be incurred only if cash is available
from operations and Partnership reserves. To the extent that such budgeted
capital improvements are completed, the Registrant's distributable cash flow, if
any, may be adversely affected at least in the short term.
The Registrant's current assets are thought to be sufficient for any near term
needs (exclusive of capital improvements) of the Registrant. The mortgage
indebtedness of approximately $55,928,000 is amortized over 120 months with a
balloon payment of approximately $49,017,000 due May 2003. The Managing General
Partner will attempt to refinance such indebtedness and/or sell the property
prior to such maturity date. If the property cannot be refinanced or sold for a
sufficient amount, the Registrant will risk losing the property through
foreclosure.
The Partnership did not make any distributions to its partners during the nine
months ended September 30, 1999 or 1998. Future cash distributions will depend
on the levels of net cash generated from operations, the availability of cash
reserves, and the timing of debt maturities, refinancings, and/or sale of the
property. The Partnership's distribution policy is reviewed on a semi-annual
basis. There can be no assurance, however, that the Partnership will generate
sufficient funds from operations, after planned capital expenditures, to permit
distributions to its partners during the remainder of 1999 or subsequent
periods.
Tender Offer
On May 19, 1999, AIMCO Properties, L.P., an affiliate of the Managing General
Partner, commenced a tender offer to purchase up to 188.96 (approximately 29.12%
of the total outstanding units) units of limited partnership interest in the
Partnership for a purchase price of $20,936 per unit. The offer expired on June
29, 1999. Pursuant to the offer, AIMCO Properties, L.P., acquired 70.50 units.
As a result, AIMCO and its affiliates currently own 312.15 units of limited
partnership interest in the Partnership representing approximately 48.10% of the
total outstanding units. It is possible that AIMCO or its affiliate will make
one or more additional offers to acquire additional limited partnership
interests in the Partnership for cash or in exchange for units in the operating
partnership of AIMCO.
Year 2000 Compliance
General Description of the Year 2000 Issue and the Nature and Effects of the
Year 2000 on Information Technology (IT) and Non-IT Systems
The Year 2000 issue is the result of computer programs being written using two
digits rather than four digits to define the applicable year. The Partnership
is dependent upon the Managing General Partner and its affiliates for management
and administrative services ("Managing Agent"). Any of the computer programs or
hardware that have date-sensitive software or embedded chips may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
Over the past two years, the Managing Agent has determined that it will be
required to modify or replace significant portions of its software and certain
hardware so that those systems will properly utilize dates beyond December 31,
1999. The Managing Agent presently believes that with modifications or
replacements of existing software and certain hardware, the Year 2000 issue can
be mitigated. However, if such modifications and replacements are not made, or
not completed in time, the Year 2000 issue could have a material impact on the
operations of the Partnership.
The Managing Agent's plan to resolve Year 2000 issues involves four phases:
assessment, remediation, testing, and implementation. To date, the Managing
Agent has fully completed its assessment of all the information systems that
could be significantly affected by the Year 2000, and has begun the remediation,
testing and implementation phases on both hardware and software systems.
Assessments are continuing in regards to embedded systems. The status of each
is detailed below.
Status of Progress in Becoming Year 2000 Compliant, Including Timetable for
Completion of Each Remaining Phase
Computer Hardware:
During 1997 and 1998, the Managing Agent identified all of the computer systems
at risk and formulated a plan to repair or replace each of the affected systems.
In August 1998, the main computer system used by the Managing Agent became fully
functional. In addition to the main computer system, PC-based network servers,
routers and desktop PCs were analyzed for compliance. The Managing Agent has
begun to replace each of the non-compliant network connections and desktop PCs
and, as of September 30, 1999, had virtually completed this effort.
The total cost to the Managing Agent to replace the PC-based network servers,
routers and desktop PCs is expected to be approximately $1.5 million of which
$1.3 million has been incurred to date.
Computer Software:
The Managing Agent utilizes a combination of off-the-shelf, commercially
available software programs as well as custom-written programs that are designed
to fit specific needs. Both of these types of programs were studied, and
implementation plans written and executed with the intent of repairing or
replacing any non-compliant software programs.
In April 1999 the Managing Agent embarked on a data center consolidation project
that unifies its core financial systems under its Year 2000 compliant system.
The estimated completion date for this project is October 1999.
During 1998, the Managing agent began converting the existing property
management and rent collection systems to its management properties Year 2000
compliant systems. The estimated additional costs to convert such systems at
all properties, is $200,000, and the implementation and testing process was
completed in June 1999.
The final software area is the office software and server operating systems.
The Managing Agent has upgraded all non-compliant office software systems on
each PC and has upgraded virtually all of the server operating systems.
Operating Equipment:
The Managing Agent has operating equipment, primarily at the property sites,
which needed to be evaluated for Year 2000 compliance. In September 1997, the
Managing Agent began taking a census and inventory of embedded systems
(including those devices that use time to control systems and machines at
specific properties, for example elevators, heating, ventilating, and air
conditioning systems, security and alarm systems, etc.).
The Managing Agent has chosen to focus its attention mainly upon security
systems, elevators, heating, ventilating and air conditioning systems, telephone
systems and switches, and sprinkler systems. While this area is the most
difficult to fully research adequately, management has not yet found any major
non-compliance issues that put the Managing Agent at risk financially or
operationally.
A pre-assessment of the properties by the Managing Agent has indicated virtually
no Year 2000 issues. A complete, formal assessment of all the properties by the
Managing Agent was virtually completed by September 30, 1999. Any operating
equipment that is found non-compliant will be repaired or replaced.
The total cost incurred for all properties managed by the Managing Agent as of
September 30, 1999 to replace or repair the operating equipment was
approximately $75,000. The Managing Agent estimates the cost to replace or
repair any remaining operating equipment is approximately $125,000.
The Managing Agent continues to have "awareness campaigns" throughout the
organization designed to raise awareness and report any possible compliance
issues regarding operating equipment within its enterprise.
Nature and Level of Importance of Third Parties and Their Exposure to the Year
2000
The Managing Agent has banking relationships with three major financial
institutions, all of which have designated their compliance. The Managing Agent
has updated data transmission standards with all of the financial institutions.
All financial institutions have communicated that they are Year 2000 compliant
and accordingly no accounts were required to be moved from the existing
financial institutions.
The Partnership does not rely heavily on any single vendor for goods and
services, and does not have significant suppliers and subcontractors who share
information systems (external agent). To date, the Partnership is not aware of
any external agent with a Year 2000 compliance issue that would materially
impact the Partnership's results of operations, liquidity, or capital resources.
However, the Partnership has no means of ensuring that external agents will be
Year 2000 compliant.
The Managing Agent does not believe that the inability of external agents to
complete their Year 2000 remediation process in a timely manner will have a
material impact on the financial position or results of operations of the
Partnership. However, the effect of non-compliance by external agents is not
readily determinable.
Costs to Address Year 2000
The total cost of the Year 2000 project to the Managing Agent is estimated at
$3.5 million and is being funded from operating cash flows. To date, the
Managing Agent has incurred approximately $2.9 million ($0.7 million expenses
and $2.2 million capitalized for new systems and equipment) related to all
phases of the Year 2000 project. Of the total remaining project costs,
approximately $0.5 million is attributable to the purchase of new software and
operating equipment, which will be capitalized. The remaining $0.2 million
relates to repair of hardware and software and will be expensed as incurred.
The Partnership's portion of these costs are not material.
Risks Associated with the Year 2000
The Managing Agent believes it has an effective program in place to resolve the
Year 2000 issue in a timely manner. As noted above, the Managing Agent has not
yet completed all necessary phases of the Year 2000 program. In the event that
the Managing Agent does not complete any additional phases, certain worst case
scenarios could occur. The worst case scenarios could include elevators,
security and heating, ventilating and air conditioning systems that read
incorrect dates and operate with incorrect schedules (e.g., elevators will
operate on Monday as if it were Sunday). Although such a change would be
annoying to residents, it is not business critical.
In addition, disruptions in the economy generally resulting from Year 2000
issues could also adversely affect the Partnership. The Partnership could be
subject to litigation for, among other things, computer system failures,
equipment shutdowns or failure to properly date business records. The amount of
potential liability and lost revenue cannot be reasonably estimated at this
time.
Contingency Plans Associated with the Year 2000
The Managing Agent has contingency plans for certain critical applications and
is working on such plans for others. These contingency plans involve, among
other actions, manual workarounds and selecting new relationships for such
activities as banking relationships and elevator operating systems.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Grady v. Springhill Lake Apartments (Pending before the Prince George's County
Human Relations Commission, case no. AP94-1233). This public accommodation
discrimination claim was filed on December 16, 1994, however, the Commission
failed to notify the Registrant of the charge until September 8, 1996. In his
charge, the Complaintant claims that he was denied information regarding the
rental of an apartment for commercial use because of his race (African
American). In fact, the Property does not lease apartments for commercial use,
and, at the time, the Property had no commercial space available for lease. In
addition, the Registrant believes that the almost two year delay in notifying
the Registrant of the charge is so prejudicial that the charge should be
dismissed. The Registrant is vigorously defending this matter. On December 26,
1996, the Registrant filed its position statement in this matter. No decision
has yet been rendered.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibit 27, Financial Data Schedule, is filed as an exhibit to this report.
b) Reports on Form 8-K: None filed during the quarter ended September 30,
1999.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant 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
By: /s/Patrick J. Foye
Patrick J. Foye
Executive Vice President and Director
By: /s/Martha L. Long
Martha L. Long
Senior Vice President and
Controller
Date:
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Springhill
Lkae Investors Limited Partnership 1999 Third Quarter 10-QSB and is qualified in
its entirety by reference to such 10-QSB filing.
</LEGEND>
<CIK> 0000763399
<NAME> SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 3,848
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 105,268
<DEPRECIATION> 52,432
<TOTAL-ASSETS> 63,139
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 55,928
0
0
<COMMON> 0
<OTHER-SE> (53)
<TOTAL-LIABILITY-AND-EQUITY> 63,139
<SALES> 0
<TOTAL-REVENUES> 19,887
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 18,287
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,034
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,108
<EPS-BASIC> 1,622<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
