Washington, DC
-------------------------
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
_____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to ____________
Commission file number 0-17412
Secured Income L.P.
(Exact name of Registrant as specified in its charter)
Delaware 06-1185846
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
599 West Putnam Avenue
Greenwich, Connecticut 06830
(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code: (203) 869-0900
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to filing requirements
for the past 90 days.
Yes [X] No____
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SECURED INCOME L.P. AND SUBSIDIARIES
Part I - Financial Information
Table of Contents
Item 1 Financial Statements Page
-------------------- ----
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
Item 3 Quantitative and Qualitative Disclosure about Market Risk 8
2
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<TABLE>
<CAPTION>
SECURED INCOME L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 2000
(Unaudited) December 31, 1999
----------- -----------------
<S> <C> <C>
ASSETS
Property and equipment (net of accumulated depreciation
of $18,678,197 and $17,536,766) $ 25,709,370 $ 26,850,801
Cash and cash equivalents 4,237,410 1,910,060
Restricted assets and funded reserves 887,162 5,358,448
Tenant security deposits 530,913 514,405
Accounts receivable 85,244 69,569
Prepaid expenses 286,537 597,046
Intangible assets, net of accumulated amortization 2,464,938 1,503,273
------------ ------------
$ 34,201,574 $ 36,803,602
============ ============
LIABILITIES AND PARTNERS' DEFICIT
Liabilities
Mortgages payable $ 42,431,530 $ 33,479,624
Accounts payable and accrued expenses 330,390 231,790
Tenant security deposits payable 527,866 512,762
Due to general partners and affiliates 812,397 3,963,807
Deferred revenue 128,506 128,506
------------- ------------
44,230,689 38,316,489
------------- ------------
Partners' deficit
Limited partners' equity (8,219,481) -
General partners' deficit (1,809,634) (1,512,887)
------------- ------------
(10,029,115) (1,512,887)
------------- ------------
$ 34,201,574 $ 36,803,602
============= ============
</TABLE>
See notes to consolidated financial statements.
3
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<TABLE>
<CAPTION>
SECURED INCOME L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Nine Months Three Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
2000 2000 1999 1999
--------------- --------------- ---------------- ----------------
REVENUE
<S> <C> <C> <C> <C>
Rental $ 1,960,282 $ 5,773,904 $ 1,813,699 $ 5,376,269
Interest 103,601 281,602 37,187 71,368
----------- --------------- ----------- ------------
TOTAL REVENUE 2,063,883 6,055,506 1,850,886 5,447,637
----------- ------------- ----------- ------------
EXPENSES
Administrative and management 189,831 556,793 190,413 587,098
Operating and maintenance 426,470 1,067,311 326,695 917,140
Taxes and insurance 310,179 963,146 308,406 930,834
Financial 709,263 1,949,178 579,663 1,685,276
Write-off of financing costs 444,322 444,322
Depreciation and amortization 392,259 1,270,242 424,004 1,295,508
------------ ------------- ------------ -------------
TOTAL EXPENSES 2,472,324 6,250,992 1,829,181 5,415,856
------------ ------------- ------------ -------------
NET EARNINGS (LOSS) $ (408,441) $ (195,486) $ 21,705 $ 31,781
============ ============= ============ =============
NET EARNINGS (LOSS) ATTRIBUTABLE TO
Limited partners $ - $ - $ - $ -
General partners (408,441) (195,486) 21,705 31,781
------------ ------------- ------------ -------------
$ (408,441) $ (195,486) $ 21,705 $ 31,781
============ ============ ============ =============
NET EARNINGS (LOSS) ALLOCATED
PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ - $ - $ - $ -
============ ============ ============ =============
</TABLE>
See notes to consolidated financial statements.
4
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<TABLE>
<CAPTION>
SECURED INCOME L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(Unaudited)
2000 1999
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net earnings (loss) $ (195,486) $ 31,781
Adjustments to reconcile net earnings to net cash provided
by operating activities
Depreciation and amortization 1,270,242 1,295,508
Write-off of financing costs 444,322
Decrease (increase) in restricted assets and funded reserves 4,471,286 (1,482,857)
Increase in tenant security deposits (16,508) (16,297)
Decrease (increase) in accounts receivable (15,675) 9,257
Decrease in prepaid expenses 310,509 287,732
Increase in intangible assets (1,534,798)
Increase in accounts payable and accrued expenses 98,600 37,684
Increase in tenant security deposits payable 15,104 16,837
Increase (decrease) in due to general partners and affiliates (1,450,730) 183,126
-------------- ------------
Net cash provided by operating activities 3,396,866 362,771
-------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Mortgage proceeds 9,249,082
Repayment of general partner advances (1,700,680)
Distributions to partners (8,320,742)
Payments of principal on permanent financing (297,176) (359,410)
-------------- -------------
Net cash used in financing activities (1,069,516) (359,410)
-------------- -------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,327,350 3,361
Cash and cash equivalents at beginning of period 1,910,060 1,885,257
------------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,237,410 $ 1,888,618
============= ===========
SUPPLEMENTAL INFORMATION
Financial expenses paid $ 3,421,916 $ 1,552,790
============= ===========
NON-CASH FINANCING ACTIVITY
Reduction in mortgages payable with refinancing proceeds $ 23,500,918
=============
</TABLE>
See notes to consolidated financial statements.
5
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SECURED INCOME L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(Unaudited)
1. The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information. They do not include all information and
footnotes required by generally accepted accounting principles for complete
financial statements. The results of operations are impacted significantly
by the results of operations of the Carrollton and Columbia Partnerships,
which is provided on an unaudited basis during interim periods.
Accordingly, the accompanying consolidated financial statements are
dependent on such unaudited information. In the opinion of the General
Partners, the consolidated financial statements include all adjustments
necessary to reflect fairly the results of the interim periods presented.
All adjustments are of a normal recurring nature. No significant events
have occurred subsequent to December 31, 1999 and no material contingencies
exist which would require additional disclosure in the report under
Regulation S-X, Rule 10-01 paragraph A-5, except as described below in Note
3 and in Part II, Item 5.
The results of operations for the nine months ended September 30, 2000 are
not necessarily indicative of the results to be expected for the entire
year.
2. Additional information, including the audited December 31, 1999
Consolidated Financial Statements and the Summary of Significant Accounting
Policies, is included in Partnership's Annual Report on Form 10-K for the
fiscal year ended December 31, 1999 on file with the Securities and
Exchange Commission.
3. On June 7, 2000, the Columbia Partnership's mortgages were refinanced with
the Federal Home Loan Mortgage Corporation ("Freddie Mac") replacing
Citibank as the credit enhancer. Credit enhancement has been provided for
$24.2 million in tax exempt bonds and an $8.55 million conventional
mortgage. The Columbia Partnership was able to utilize the mortgage escrows
that had been restricted previously and the cash distribution restrictions
no longer apply. After the payment of costs incurred in connection with the
refinancing and the establishment of certain reserves, the Columbia
Partnership had a surplus of approximately $12.6 million. The Columbia
Partnership utilized approximately $3,246,000 to repay the Columbia
Operating General Partners for operating deficit loans and accrued interest
thereon. During July and September 2000, the Partnership received
distributions from the Columbia Partnership totaling approximately
$9,104,000 and accrued investor service fees of approximately $177,000. The
Partnership made a distribution in July 2000 of approximately $8,219,000,
representing $8.35 per Unit, to Unit holders of record as of June 30, 2000.
6
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SECURED INCOME L.P. AND SUBSIDIARIES
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations
Liquidity and Capital Resources
The Partnership's primary sources of funds are rents generated by the Operating
Partnerships and interest derived from investments and deposits which are
restricted in accordance with the terms of the mortgages of the Operating
Partnerships. The Partnership's investments are highly illiquid.
On June 7, 2000, the Columbia Partnership's mortgages were refinanced (the
"Refinancing") with the Federal Home Loan Mortgage Corporation ("Freddie Mac")
replacing Citibank as the credit enhancer. Credit enhancement has been provided
for $24.2 million in tax exempt bonds (the "First Mortgage") and an $8.55
million conventional mortgage (the "Second Mortgage"). The First Mortgage
requires monthly payments of interest only until the maturity of the Second
Mortgage (see below). The monthly interest rate is based on a variable low
floater index. In connection with the First Mortgage, the Columbia Partnership
purchased an interest rate cap. In addition to the interest, monthly fees
totaling approximately $24,000 are required, which fees include a credit
enhancement fee and approximately $4,000 that is deposited to an escrow for the
purchase of a future interest rate cap. The Second Mortgage bears interest at
8.07% and requires monthly principal and interest payments of $82,054 through
maturity in July 2015. As a result of the Refinancing, the Columbia Partnership
was able to utilize the mortgage escrows that had been restricted previously and
the cash distribution restrictions no longer apply. After the payment of costs
incurred in connection with the Refinancing and the establishment of certain
reserves, the Columbia Partnership had a surplus of approximately $12.6 million.
The Columbia Partnership utilized approximately $3,246,000 to repay the Columbia
Operating General Partners for operating deficit loans and accrued interest
thereon. During July and September 2000, the Partnership received distributions
from the Columbia Partnership totaling approximately $9,104,000 and accrued
investor service fees of approximately $177,000. The Partnership made a
distribution in July 2000 of approximately $8,219,000, representing $8.35 per
Unit, to Unit holders of record as of June 30, 2000.
The Partnership is not expected to have access to additional sources of
financing. Accordingly, if unforeseen circumstances arise that cause an
Operating Partnership to require additional capital, potential sources from
which such capital needs will be able to be satisfied (other than reserves)
would be additional equity contributions of the Operating General Partners or
other equity reserves, if any, which could adversely impact the distribution
from the Operating Partnerships to the Partnership of operating cash flow and
sale or refinancing proceeds.
During the nine months ended September 30, 2000, as a result of the Refinancing,
the Partnership's distribution to Unit holders and cash flows generated by the
operations of the Complexes, cash and cash equivalents increased by
approximately $2,327,000 and restricted assets and funded reserves decreased by
approximately $4,471,000. Mortgages payable increased due to the mortgage
proceeds in connection with the Refinancing, partially offset by regular
principal amortization of approximately $297,000. Due to general partners and
affiliates decreased primarily as a result of the repayment of the advances
provided by the Columbia Operating General Partners and accrued interest
thereon. Property and equipment decreased by approximately $1,141,000 due to
depreciation. Intangible assets increased by approximately $962,000 due to costs
incurred in connection with the Refinancing of approximately $1,535,000,
partially offset by the write-off of unamortized financing costs at the date of
the Refinancing of approximately $444,000 and amortization of approximately
$129,000. Property and equipment and intangible assets are expected to decrease
annually as the cost of these assets is allocated to future periods over their
remaining lives. Prepaid expenses decreased while accounts payable and accrued
expenses increased in the ordinary course of operations.
Results of Operations
Nine Months Ended September 30, 2000
During the nine months ended September 30, 2000, the Columbia Partnership and
the Carrollton Partnership generated income from operating activities of
approximately $2,741,000 and approximately $744,000, respectively. Mortgage
principal payments during the period for the Columbia Partnership and the
Carrollton Partnership were approximately $196,000 and approximately $101,000,
respectively. Deposits to the Pledged Cap Account and the Bond Retirement Escrow
during the period, prior to the Refinancing, were approximately $278,000 and
approximately $339,000, respectively. Pursuant to the terms of the Columbia
Partnership's mortgages, the former lender was entitled to a credit enhancement
fee of 2.5% per annum based on the outstanding loan balance. Prior to the
Refinancing, the Columbia Partnership incurred approximately $270,000 in
connection with such fee. After considering the respective mandatory mortgage
principal payments, required deposits to mortgage escrows and payments for the
credit enhancement fee, among other things, the Complexes generated combined
cash flow of approximately $695,000 during the nine months ended September 30,
2000. However, there can be no assurance that the level of cash flow generated
by the Complexes during the nine months ended September 30, 2000 will continue
in future periods.
7
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SECURED INCOME L.P. AND SUBSIDIARIES
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Results of operations improved for the nine months ended September 30, 2000 as
compared to the nine months ended September 30, 1999, with the exception of the
write-off of unamortized financing costs of $444,322 in connection with the
Refinancing, which charge had no impact on the Property's cash flow. Financial
expenses increased primarily as a result of an increase in the weighted average
interest rate on the Columbia Partnership's first mortgage from approximately
2.85% during the nine months ended September 30, 1999 to approximately 3.86%
during the nine months ended September 30, 2000 and as a result of the
additional borrowing in connection with the Refinancing. Interest revenue
increased during the nine months ended September 30, 2000 as compared to the
nine months ended September 30, 1999 as a result of the timely recording of
interest on restricted assets and funded reserves in 2000. Operating and
maintenance expenses increased for the nine months ended September 30, 2000 as
compared to the nine months ended September 30, 1999 as a result of scheduled
repairs and improvements.
As of September 30, 2000, the occupancy of Fieldpointe Apartments was
approximately 98% and the occupancy of The Westmont was 100% as to both
residential units and commercial space. The future operating results of the
Complexes will be extremely dependent on market conditions and therefore may be
subject to significant volatility. The Complexes are generally in good physical
condition and are being managed by experienced management companies.
Nine Months Ended September 30, 1999
During the nine months ended September 30, 1999, the Columbia Partnership and
the Carrollton Partnership generated income from operating activities of
approximately $2,355,000 and approximately $731,000, respectively. Mortgage
principal payments during the period for the Columbia Partnership and the
Carrollton Partnership were approximately $264,000 and approximately $95,000,
respectively. Deposits to the Pledged Cap Account and the Bond Retirement Escrow
during the period were approximately $452,000 and approximately $15,000,
respectively. During the nine months ended September 30, 1999, the Columbia
Partnership incurred approximately $467,000 in connection with the credit
enhancement fee. After considering the respective mandatory mortgage principal
payments, required deposits to mortgage escrows and payments for the credit
enhancement fee, among other things, the Complexes generated combined cash flow
of approximately $621,000 during the nine months ended September 30, 1999. As of
September 30, 1999, the occupancy of Fieldpointe Apartments was approximately
96% and the occupancy of The Westmont was approximately 97% as to residential
units and 100% as to commercial space.
Year 2000 Compliance
The Partnership successfully completed a program to ensure Year 2000 readiness.
As a result, the Partnership had no Year 2000 problems that affected its
business, results of operations or financial condition.
Item 3 Quantitative and Qualitative Disclosure about Market Risk
The Partnership has market risk sensitivity with regard to financial instruments
concerning potential interest rate fluctuations in connection with the low
floater rates associated with the Columbia Partnership's first mortgage.
Accordingly, a fluctuation in the low-floater interest rates of .25% would have
a $60,500 annualized impact on the Partnership's results of operations.
8
<PAGE>
SECURED INCOME L.P. AND SUBSIDIARIES
Part II - Other Information
Item 1 Legal Proceedings
Registrant is not aware of any material legal proceedings.
Item 2 Changes in Securities
None
Item 3 Defaults upon Senior Securities
None
Item 4 Submission of Matters to a Vote of Security Holders
None
Item 5 Other Information
On June 7, 2000, the Columbia Partnership's mortgages were
refinanced (the "Refinancing") with the Federal Home Loan Mortgage
Corporation ("Freddie Mac") replacing Citibank as the credit
enhancer. See further discussion regarding the Refinancing in Item 2
- Management's Discussion and Analysis of Financial Condition and
Results of Operations.
On September 29, 2000, an affiliate of Real Estate Equity Partners
L.P., one of the general partners of Registrant, acquired 154,106
Units of Registrant in a private transaction at a price of $13.25 per
Unit. Such acquisition represents approximately 15.6% of the
outstanding Units.
Item 6 Exhibits and Reports on form 8-K
None
9
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SECURED INCOME L.P.
By: Wilder Richman Resources
Corporation
General Partner
Date: November 14, 2000 /s/ Richard Paul Richman
---------------------------------
Richard Paul Richman
President, Chief Executive Officer
and Director
10
