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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2002
[ ] 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 registrant 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, PO Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
Registrant's telephone number (864) 239-1000
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-K 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-K or any amendment to this
Form 10-K [X].
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rate 12b-2). Yes ___ No _X__
State the aggregate market value of the voting partnership interests held by
non-affiliates computed by reference to the price at which the partnership
interests were sold, or the average bid and asked prices of such partnership
interests, as of December 31, 2002. No market exists for the limited partnership
interests of the Registrant, and, therefore, no aggregate market value can be
determined.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
The matters discussed in this report contain certain forward-looking statements,
including, without limitation, statements regarding future financial performance
and the effect of government regulations. The discussions of the Registrant's
business and results of operations, including forward-looking statements
pertaining to such matters, do not take into account the effects of any changes
to the Registrant's business and results of operations. Actual results may
differ materially from those described in the forward-looking statements and
will be affected by a variety of risks and factors including, without
limitation: national and local economic conditions; the terms of governmental
regulations that affect the Registrant and interpretations of those regulations;
the competitive environment in which the Registrant operates; financing risks,
including the risk that cash flows from operations may be insufficient to meet
required payments of principal and interest; real estate risks, including
variations of real estate values and the general economic climate in local
markets and competition for tenants in such markets; and possible environmental
liabilities. Readers should carefully review the Registrant's financial
statements and the notes thereto, as well as the risk factors described in the
documents the Registrant files from time to time with the Securities and
Exchange Commission.
PART I
Item 1. Description of Business
Springhill Lake Investors Limited Partnership (the "Registrant" or the
"Partnership") 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 Springhill Lake Limited
Partnerships I through IX 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" or "Property"). 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 Managing General Partner of the
Registrant is Three Winthrop Properties, Inc. ("Three Winthrop" or "Managing
General Partner") a wholly-owned subsidiary of First Winthrop Corporation
("FWC"), the controlling entities of which are Winthrop Financial Associates, a
Limited Partnership ("WFA"), and Apartment Investment and Management Company
("AIMCO"). The non-managing General Partner is Linnaeus-Lexington Associates
Limited Partnership ("Linnaeus-Lexington"). Both the Managing General Partner
and the non-managing General Partner are hereby collectively known as the
"General Partners". Pursuant to the by-laws of the Managing General Partner, the
Residential Committee of the Managing General Partner as well as the officers
appointed by the Residential Committee have the exclusive authority to manage
the day-to-day affairs of the Managing General Partner in its capacity as the
general partner of the Registrant. The Residential Committee consists of a
director appointed by AIMCO. Accordingly, AIMCO has effective control of the
Managing General Partner in its capacity as general partner of the Registrant.
The Partnership Agreement provides that the Partnership and Operating
Partnerships are to terminate on December 31, 2035 unless terminated prior to
such date.
The Registrant was initially capitalized with nominal capital contributions from
its General Partners. In April 1985, the Registrant completed a private offering
of 649 units of limited partnership interest (the "Units") pursuant to
Regulation D under the Securities Act of 1933 and the terms of the Confidential
Memorandum dated January 16, 1985. The Registrant raised $40,562,500 in capital
contributions from investors who were admitted to the Registrant as limited
partners ("Limited Partners"). Since its initial offering, the Registrant has
not received, nor are limited partners required to make, additional capital
contributions.
The Registrant purchased its interest in the Operating Partnerships on January
16, 1985, for approximately $73,515,000, of which $58,000,000 was financed by
means of a mortgage loan, which was subsequently refinanced in 1993 and again in
2002. See "Item 8. Financial Statements and Supplementary Data - Note E" for
further information concerning the mortgage loan encumbering the Property.
The Registrant's interest in the Operating Partnerships entitles it to 87.26% of
profits and losses for tax purposes, 87.26% 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. See "Item
2. Description of Property" for further information on the project owned by the
Operating Partnerships.
The Registrant has no employees. Management and administrative services are
performed by the Managing General Partner and by agents retained by the Managing
General Partner.
The Partnership receives income from its interest in the Project and is
responsible for operating expenses, capital improvements and debt service
payments under mortgage obligations secured by the Property. The Partnership
financed its investment primarily through non-recourse debt. Therefore, in the
event of default, the lender can generally look only to the subject property for
recovery of amounts due.
Risk Factors
The real estate business in which the Partnership is engaged is highly
competitive. There are other residential properties within the market area of
the Partnership's project. The number and quality of competitive properties,
including those which may be managed by an affiliate of the Managing General
Partner, in such market area could have a material effect on the rental market
for the apartments and commercial space at the Property and the rents that may
be charged for such apartments and space. While the Managing General Partner and
its affiliates own and/or control a significant number of apartment units in the
United States, such units represent an insignificant percentage of total
apartment units in the United States and competition for the apartments is
local.
Laws benefiting disabled persons may result in the Partnership's incurrence of
unanticipated expenses. Under the Americans with Disabilities Act of 1990, or
ADA, all places intended to be used by the public are required to meet certain
Federal requirements related to access and use by disabled persons. Likewise,
the Fair Housing Amendments Act of 1988, or FHAA, requires apartment properties
first occupied after March 13, 1990 to be accessible to the handicapped. These
and other Federal, state and local laws may require modifications to the
Property, or restrict renovations of the Property. Noncompliance with these laws
could result in the imposition of fines or an award of damages to private
litigants and also could result in an order to correct any non-complying
feature, which could result in substantial capital expenditures. Although the
Managing General Partner believes that the Property is substantially in
compliance with present requirements, the Partnership may incur unanticipated
expenses to comply with the ADA and the FHAA.
Both the income and expenses of operating the Project are subject to factors
outside of the Partnership's control, such as changes in the supply and demand
for similar properties resulting from various market conditions,
increases/decreases in unemployment or population shifts, changes in the
availability of permanent mortgage financing, changes in zoning laws, or changes
in patterns or needs of users. In addition, there are risks inherent in owning
and operating residential properties because such properties are susceptible to
the impact of economic and other conditions outside of the control of the
Partnership.
There have been, and it is possible there may be other, Federal, state and local
legislation and regulations enacted relating to the protection of the
environment. The Partnership is unable to predict the extent, if any, to which
such new legislation or regulations might occur and the degree to which such
existing or new legislation or regulations might adversely affect the Project.
The Partnership monitors the Property for evidence of pollutants, toxins and
other dangerous substances, including the presence of asbestos. In certain cases
environmental testing has been performed, which resulted in no material adverse
conditions or liabilities. In no case has the Partnership received notice that
it is a potentially responsible party with respect to an environmental clean up
site.
Insurance coverage is becoming more expensive and difficult to obtain. The
current insurance market is characterized by rising premium rates, increasing
deductibles, and more restrictive coverage language. Recent developments have
resulted in significant increases in insurance premiums and have made it more
difficult to obtain certain types of insurance. As an example, many insurance
carriers are excluding mold-related risks from their policy coverages, or are
adding significant restrictions to such coverage. Continued deterioration in
insurance market place conditions may have a negative effect on the
Partnership's operating results.
A further description of the Partnership's business is included in "Management's
Discussion and Analysis or Plan of Operations" included in "Item 7." of this
Form 10-K.
Item 2. Description of Property
The Registrant owns no property other than its interest in the Operating
Partnerships. The following table sets forth the Registrant's investments in
property through its Operating Partnerships:
Date of
Property Purchase Type of Ownership Use
Springhill Lake Apartments 10/84 Fee ownership subject Apartment
Greenbelt, Maryland to a first mortgage. 2,899 units
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.
Schedule of Property
Set forth below for the Registrant's property is the gross carrying value,
accumulated depreciation, depreciable life, method of depreciation and federal
tax basis.
Gross
Carrying Accumulated Federal
Property Value Depreciation Rate Method Tax Basis
(in thousands) (in thousands)
Springhill Lake $126,302 $72,740 10-30 yrs S/L $31,995
See "Item 8. Financial Statements, Note A" for a description of the
Partnership's capitalization and depreciation policies.
Schedule of Property Indebtedness
The following table sets forth certain information relating to the loan
encumbering the Registrant's property.
Principal Principal Principal
Balance At Balance At Stated Balance
December 31, December 31, Interest Period Maturity Due At
Property 2002 2001 Rate Amortized Date Maturity (1)
(in thousands) (in thousands)
Springhill Lake
1st mortgage $113,100 $51,788 (2) 30 years 09/07 $99,940
(1) See "Item 8. Financial Statements and Supplementary Data - Note E" for
information with respect to the Registrant's ability to prepay this loan
and other specific details about the loan.
(2) Adjustable rate based on the Fannie Mae discounted mortgage-backed
security index ("DMBS") plus 85 basis points. The rate at December 31,
2002 was 2.16%.
On November 14, 2002, the Partnership refinanced its existing mortgage
encumbering Springhill Lake Apartments. This loan was initially refinanced under
an interim credit facility ("Interim Credit Facility") which had a term of three
months. The Interim Credit Facility included properties in other partnerships
that are affiliated with the Partnership. However, the Interim Credit Facility
created separate loans for each property that are not cross-collateralized or
cross-defaulted with the other property loans. During the term of the Interim
Credit Facility, the Property was required to make interest-only payments. The
first month's interest, which was paid at the date of the refinancing, was
calculated at LIBOR plus 70 basis points. Interest for the following month was
calculated at LIBOR plus 150 basis points.
During December 2002 the loan was sold to Fannie Mae under a permanent credit
facility ("Permanent Credit Facility"). The Permanent Credit Facility has a
maturity of five years, with one five-year extension option. This Permanent
Credit Facility also creates separate loans for each property that are not
cross-collateralized or cross-defaulted with the other property loans. Each note
under this Permanent Credit Facility will begin as a variable rate loan with the
option of converting to a fixed rate loan after three years. The interest rate
on the variable rate loans is the Fannie Mae discounted mortgage-backed security
index plus 85 basis points. The rate was 2.16% at December 31, 2002 and will
reset monthly. Each loan will automatically renew at the end of each month. In
addition, monthly principal payments are required based on a 30-year
amortization schedule, using the interest rate in effect during the first month
that any property is on the Permanent Credit Facility. The loans are prepayable
without penalty.
The refinancing of the existing Springhill Lake Apartments loan replaced the
first mortgage of approximately $50,300,000 with a new mortgage in the amount of
$113,100,000. Total capitalized loan costs were approximately $2,058,000 during
the year ended December 31, 2002. Additional loan costs of approximately $16,000
were capitalized subsequent to December 31, 2002. The Partnership recognized a
loss on the early extinguishment of debt of approximately $58,000 during the
year ended December 31, 2002 due to the write off of unamortized loan costs. In
addition, approximately $7,783,000 was deposited in an escrow account to be used
to complete required repairs at the property.
Rental Rates and Occupancy
Average annual rental rate and occupancy for 2002 and 2001 for the Property:
Average Annual Average Annual
Rental Rates Occupancy
(per unit)
Property 2002 2001 2002 2001
Springhill Lake $10,899 $10,527 97% 97%
As noted under "Item 1. Description of Business," the real estate industry is
highly competitive. The Property is subject to competition from other
residential complexes in the area. The Managing General Partner believes that
the Property is adequately insured. The Property is a predominately residential
complex which leases units for lease terms of one year or less. No residential
tenant leases 10% or more of the available rental space. The Property is in good
physical condition, subject to normal depreciation and deterioration as is
typical for assets of this type and age.
Real Estate Taxes and Rates
Real estate taxes and rates in 2002 for the Property were:
2002 2002
Billing Rate
(in thousands)
Springhill Lake $1,851 4.55%
Capital Improvements
The Partnership completed approximately $3,679,000 in capital expenditures at
Springhill Lake during the year ended December 31, 2002, consisting primarily of
floor covering and appliance replacements, plumbing fixtures, air conditioning
and electrical upgrades, building and structural improvements and interior
decorations. These improvements were funded primarily from insurance proceeds,
replacement reserves and cash flow from operations. The Partnership is currently
evaluating the capital improvement needs of the Property for the upcoming year
and currently expects to budget approximately $870,000 and does not include any
amounts that will be incurred during 2003 to complete repairs and improvements
at the property required to be made in connection with the November 2002
refinancing of the Property. At closing of this loan the Partnership was
required to fund a replacement reserve account with approximately $7,783,000.
Additional improvements may be considered and will depend on the physical
condition of the Property as well as replacement reserves and anticipated cash
flow generated by the Property.
Item 3. Legal Proceedings
The Partnership is unaware of any pending or outstanding litigation that is not
of a routine nature arising in the ordinary course of business.
Item 4. Submission of Matters to a Vote of Security Holders
During the quarter ended December 31, 2002, no matter was submitted to a vote of
unit holders through the solicitation of proxies or otherwise.
PART II
Item 5. Market for the Partnership Equity and Related Partner Matters
The Partnership, a publicly-held limited partnership, offered and sold 649
limited partnership units aggregating $40,562,500. The Partnership currently has
143 holders of record owning an aggregate of 649 Units. Affiliates of the
Managing General Partner owned 521.90 units or 80.42% of the outstanding units
at December 31, 2002. No public trading market has developed for the Units, and
it is not anticipated that such a market will develop in the future.
During the years ended December 31, 2001 and 2000, there were no cash
distributions. The Partnership distributed the following amounts during the year
ended December 31, 2002 and subsequent to December 31, 2002 (in thousands,
except per unit data):
Per Limited
Partnership
Aggregate Unit
01/01/02 - 12/31/02 (1) $51,806 $79,365
01/01/03 - 02/28/03 (2) 4,650 7,023
(1) Consists of approximately $5,966,000 of cash from operations and
$45,840,000 of cash from the proceeds of the November 2002 refinancing of
the mortgage encumbering Springhill Lake Apartments.
(2) Consists of approximately $1,832,000 of cash from operations and
$2,818,000 of cash from the proceeds of the November 2002 refinancing of
the mortgage encumbering Springhill Lake Apartments.
Future cash distributions will depend on the levels of net cash generated from
operations, the availability of cash reserves, and the timing of the debt
maturity, refinancing, and/or Property sale. The Registrant's cash available for
distribution is reviewed on a monthly basis. There can be no assurance that the
Registrant will generate sufficient funds from operations after required capital
improvement expenditures to permit any further distributions to its partners
during 2003 or subsequent periods.
AIMCO and its affiliates owned 521.90 limited partnership units (the "Units") in
the Partnership representing 80.42% of the outstanding Units at December 31,
2002. A number of these Units were acquired pursuant to tender offers made by
AIMCO or its affiliates or Three Winthrop's affiliates. It is possible that
AIMCO or its affiliates will acquire additional units of limited partnership
interest in the Partnership in exchange for cash or a combination of cash and
units in the operating partnership of AIMCO either through private purchases or
tender offers. Under the Partnership Agreement, unitholders holding a majority
of the Units are entitled to take action with respect to a variety of matters.
As a result of its ownership of 80.42% of the outstanding Units, AIMCO is in a
position to control all voting decisions with respect to the Registrant.
Although the Managing General Partner owes fiduciary duties to the limited
partners of the Partnership, the Managing General Partner also owes fiduciary
duties to AIMCO as its sole stockholder. As a result, the duties of the Managing
General Partner, as managing general partner, to the Partnership and its limited
partners may come into conflict with the duties of the Managing General Partner
to AIMCO, as its sole stockholder.
Item 6. Selected Financial Data (in thousands, except unit data):
2002 2001 2000 1999 1998
Total revenues from
rental operations $ 32,290 $ 31,004 $ 27,220 $ 26,159 $ 24,940
Net income $ 3,213 $ 2,387 $ 1,725 $ 1,056 $ 196
Net income per limited
partnership unit $ 4,703 $ 3,495 $ 2,525 $ 1,545 $ 287
Limited partnership
units outstanding 649 649 649 649 649
Total assets $ 71,425 $ 67,310 $ 64,900 $ 61,613 $ 62,353
Mortgage note payable $ 113,100 $ 51,788 $ 53,689 $ 55,402 $ 57,083
The above selected financial data should be read in conjunction with the
Partnership's financial statements and notes thereto appearing in "Item 8.
Financial Statements and Supplementary Data."
Item 7. Management's Discussion and Analysis or Plan of Operation
This item should be read in conjunction with the consolidated financial
statements and other items contained elsewhere in this report.
Results of Operations
2002 Compared with 2001
The Registrant's net income for the year ended December 31, 2002 was
approximately $3,213,000 compared to net income of approximately $2,387,000 for
the year ended December 31, 2001 (See "Item 8. Financial Statements and
Supplementary Data - Note C" for a reconciliation of these amounts to the
Registrant's federal taxable income). Income before minority interest for the
year ended December 31, 2002 was approximately $5,377,000 compared to
approximately $3,328,000 for the year ended December 31, 2001. The increase in
income before minority interest is due to an increase in total revenues and a
decrease in total expenses. The increase in total revenues is primarily due to
the casualty gain recognized in 2002 resulting from a fire at the Property in
April 2001 and an increase in rental income attributable to an increase in the
average rental rates at Springhill Lake Apartments.
During April 2001, a fire occurred at Springhill Lake Apartments which resulted
in damage to two buildings. The Property initially received $145,000 of
insurance proceeds during August 2001 and received the remaining balance of
$445,000 in June 2002. All work has been completed with the total costs to
restore the buildings totaling approximately $595,000. A casualty gain was
recognized during 2002 of approximately $466,000 as a result of the receipt of
$590,000 in total insurance proceeds less the write-off of approximately
$124,000 in undepreciated assets.
During March 2002 a fire occurred at Springhill Lake Apartments which resulted
in damage to eleven apartment units. Subsequent to December 31, 2002, all work
was completed with the costs to restore the property totaling $114,000. No loss
is expected to be incurred by the Partnership as a result of the fire.
Total expenses decreased due to decreases in operating, general and
administrative, bad debt, and interest expenses partially offset by an increase
in depreciation expense. The decrease in operating expense is primarily due to
decreases in maintenance expenses, utility charges and advertising costs at the
Partnership's investment property and property management fees paid to an
affiliate of the Managing General Partner. The decrease in maintenance expenses
is due primarily to the capitalization of certain direct and indirect project
costs, primarily payroll related costs, at the Property (see Item 8. Financial
Statements and Supplementary Data, Note A - Organization and Significant
Accounting Policies). General and administrative expense decreased due to a
decrease in the cost of services provided by the Managing General Partner as
allowed under the Partnership Agreement. Bad debt expense decreased due to
occupancy levels being constant and the renovation efforts at the Property which
is attracting more desirable tenants. Interest expense decreased due to advances
from an affiliate of the Managing General Partner being paid in full during 2002
and the scheduled monthly principal payments on the mortgage encumbering the
Property prior to the refinancing in November 2002. Depreciation expense
increased due to property improvements and replacements placed into service
during the past twelve months which are now being depreciated.
Minority interest in net earnings of the Operating Partnerships totaled
approximately $1,066,000 and $941,000 for the years ended December 31, 2002 and
2001. The increase was due primarily to the increase in income before minority
interest as described above. Distributions to the minority partner reduced the
investment balance to zero during the year ended December 31, 2002. When the
Partnership makes distributions in excess of the minority partner's investment
balance, the Partnership as the majority partner, records a charge equal to the
minority partner's excess distribution over the investment balance, even though
there is no economic impact, cost or risk to the Partnership. The charge is
classified as distributions to minority partner in excess of investment on the
accompanying consolidated statements of operations. Distributions to the
minority partner in excess of investment totaled approximately $1,098,000 for
the year ended December 31, 2002.
2001 Compared with 2000
The Registrant's net income for the year ended December 31, 2001 was
approximately $2,387,000 compared to net income of approximately $1,725,000 for
the year ended December 31, 2000 (See "Item 8. Financial Statements and
Supplementary Data - Note C" for a reconciliation of these amounts to the
Registrant's federal taxable income). Income before minority interest for the
year ended December 31, 2001 was approximately $3,328,000 compared to
approximately $2,523,000 for the year ended December 31, 2000. The increase in
income before minority interest is due to an increase in total revenues
partially offset by an increase in total expenses. The increase in total
revenues is attributable to an increase in rental income partially offset by a
decrease in other income. Rental income increased due to an increase in average
annual rental rates combined with a significant increase in average occupancy
and a significant decrease in concessions offered to tenants. Other income
decreased due to decreases in ancillary income and interest income which was
offset by an increase in tenant reimbursements.
Total expenses increased due to an increase in operating, depreciation, general
and administrative and property tax expenses partially offset by a decrease in
bad debt expense. Operating expense increased primarily due to an increase in
utility expenses, especially natural gas, interior and exterior common area
painting projects, insurance premiums, contract work and property management
expense which is charged as a percentage of tenant rent collections.
Depreciation expense increased due to the completion of property improvements
and replacements at the Property during the past twelve months which are now
being depreciated. Property tax expense increased due to an increase in the
assessed value by the local taxing authority. Bad debt expense decreased due to
increased occupancy and tenant retention and the renovation project attracting
more desirable tenants.
General and administrative expenses increased due to an increase in the costs of
services included in the management reimbursements to affiliates of the Managing
General Partner allowed under the Partnership Agreement associated with its
management of the Partnership.
Also included in general and administrative expense for the years ended December
31, 2002, 2001 and 2000 are costs associated with the quarterly and annual
communications with investors and regulatory agencies and the annual audits
required by the Partnership Agreement are also included.
As part of the ongoing business plan of the Partnership, 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 expense. 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 Reserves
At December 31, 2002, the Registrant had cash and cash equivalents of
approximately $5,559,000, compared to approximately $2,277,000 at December 31,
2001. The increase of approximately $3,282,000 was due to approximately
$11,027,000 of cash provided by operating activities partially offset by
approximately $5,862,000 and $1,883,000 of cash used in investing and financing
activities, respectively. Cash used in investing activities consisted of
property improvements and replacements and net deposits to restricted escrows
partially offset by a refund of construction service fees from an affiliate of
the Managing General Partner and the receipt of insurance proceeds. Cash used in
financing activities consisted of distributions to partners, the repayment and
scheduled principal payments on the mortgage encumbering the Property, payments
on advances from an affiliate of the Managing General Partner and payments of
loan costs partially offset by proceeds received from the refinancing of the
mortgage encumbering the Property and advances received from an affiliate of the
Managing General Partner. During 2001, the Partnership was charged, by an
affiliate of the Managing General Partner, approximately $2,245,000 for fees
related to construction management services for work performed during 1999, 2000
and 2001. These fees had been capitalized and included in investment property.
During the second quarter of 2002, it was determined by the Managing General
Partner that these fees should not have been charged and the Partnership was
refunded the full amount. Accordingly, such previously capitalized fees are no
longer included in investment property at December 31, 2002. The Registrant
invests its working capital reserves in interest bearing accounts.
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
mortgage loan 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.
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 Partnership and to comply with Federal, state
and local legal and regulatory requirements. The Managing General Partner
monitors developments in the area of legal and regulatory compliance and is
studying new federal laws, including the Sarbanes-Oxley Act of 2002. The
Sarbanes-Oxley Act of 2002 mandates or suggests additional compliance measures
with regard to governance, disclosure, audit and other areas. In light of these
changes, the Partnership expects that it will incur higher expenses related to
compliance, including increased legal and audit fees. The Partnership is
currently evaluating the capital improvement needs of the Property for the
upcoming year and currently expects to budget approximately $870,000 and does
not include any amounts that will be incurred during 2003 to complete repairs
and improvements at the Property required to be made in connection with the
November 2002 refinancing of the Property. At closing of this loan, the
Partnership was required to fund a replacement reserve account with
approximately $7,783,000. Additional improvements may be considered and will
depend on the physical condition of the Property as well as anticipated cash
flow generated by the Property. To the extent that such budgeted capital
improvements are completed the Partnership's distributable cash flow, if any,
may be adversely affected at least in the short term.
On November 14, 2002, the Partnership refinanced its existing mortgage
encumbering Springhill Lake Apartments. This loan was initially refinanced under
an interim credit facility ("Interim Credit Facility") which had a term of three
months. The Interim Credit Facility included properties in other partnerships
that are affiliated with the Partnership. However, the Interim Credit Facility
created separate loans for each property that are not cross-collateralized or
cross-defaulted with the other property loans. During the term of the Interim
Credit Facility, the Property was required to make interest-only payments. The
first month's interest, which was paid at the date of the refinancing, was
calculated at LIBOR plus 70 basis points. Interest for the following month was
calculated at LIBOR plus 150 basis points.
During December 2002 the loan was sold to Fannie Mae under a permanent credit
facility ("Permanent Credit Facility"). The Credit Facility has a maturity of
five years, with one five-year extension option. This Permanent Credit Facility
also creates separate loans for each property that are not cross-collateralized
or cross-defaulted with the other property loans. Each note under this Permanent
Credit Facility will begin as a variable rate loan with the option of converting
to a fixed rate loan after three years. The interest rate on the variable rate
loans is the Fannie Mae discounted mortgage-backed security index plus 85 basis
points. The rate was 2.16% at December 31, 2002 and will reset monthly. Each
loan will automatically renew at the end of each month. In addition, monthly
principal payments are required based on a 30-year amortization schedule, using
the interest rate in effect during the first month that any property is on the
Permanent Credit Facility. The loans are prepayable without penalty.
The refinancing of the existing Springhill Lake Apartments loan replaced the
first mortgage of approximately $50,300,000 with a new mortgage in the amount of
$113,100,000. Total capitalized loan costs were approximately $2,058,000 during
the year ended December 31, 2002. Additional loan costs of approximately $16,000
were capitalized subsequent to December 31, 2002. The Partnership recognized a
loss on the early extinguishment of debt of approximately $58,000 during the
year ended December 31, 2002 due to the write off of unamortized loan costs. In
addition, approximately $7,783,000 was deposited in an escrow account to be used
to complete required repairs at the property.
Effective April 1, 2002, the Partnership adopted SFAS No. 145, "Recission of
FASB Statements No. 4, 44 and 64." SFAS No. 4 "Reporting Gains and Losses from
Extinguishment of Debt," required that all gains and losses from extinguishment
of debt be aggregated and, if material, classified as an extraordinary item.
SFAS No. 145 rescinds SFAS No. 4, and accordingly, gains and losses from
extinguishment of debt should only be classified as extraordinary if they are
unusual in nature and occur infrequently. Neither of these criteria applies to
the Partnership. As a result the loss on early extinguishment of debt discussed
above is included in interest expense for the year ended December 31, 2002.
The Registrant's assets are thought to be sufficient for any short-term needs
(excluding capital improvements) of the Registrant. The mortgage indebtedness of
approximately $113,100,000 requires monthly payments of principal and interest
until its maturity date in September 2007. The Managing General Partner may
attempt to refinance such indebtedness and/or sell the Property prior to such
maturity date. If the Property cannot be sold or refinanced for a sufficient
amount the Partnership will risk losing the Property through foreclosure.
During the years ended December 31, 2001 and 2000, there were no cash
distributions. The Partnership distributed the following amounts during the year
ended December 31, 2002 and subsequent to December 31, 2002 (in thousands,
except per unit data):
Per Limited
Partnership
Aggregate Unit
01/01/02 - 12/31/02 (1) $51,806 $79,365
01/01/03 - 02/28/03 (2) 4,650 7,023
(1) Consists of approximately $5,966,000 of cash from operations and
$45,840,000 of cash from the proceeds of the November 2002 refinancing of
the mortgage encumbering Springhill Lake Apartments.
(2) Consists of approximately $1,832,000 of cash from operations and
$2,818,000 of cash from the proceeds of the November 2002 refinancing of
the mortgage encumbering Springhill Lake Apartments.
Future cash distributions will depend on the levels of net cash generated from
operations, the availability of cash reserves, and the timing of the debt
maturity, refinancing, and/or Property sale. The Registrant's cash available for
distribution is reviewed on a monthly basis. There can be no assurance that the
Registrant will generate sufficient funds from operations after required capital
improvement expenditures to permit any further distributions to its partners
during 2003 or subsequent periods.
AIMCO and its affiliates owned 521.90 limited partnership units (the "Units") in
the Partnership representing 80.42% of the outstanding Units at December 31,
2002. A number of these Units were acquired pursuant to tender offers made by
AIMCO or its affiliates or Three Winthrop's affiliates. It is possible that
AIMCO or its affiliates will acquire additional units of limited partnership
interest in the Partnership in exchange for cash or a combination of cash and
units in the operating partnership of AIMCO either through private purchases or
tender offers. Under the Partnership Agreement, unitholders holding a majority
of the Units are entitled to take action with respect to a variety of matters.
As a result of its ownership of 80.42% of the outstanding Units, AIMCO is in a
position to control all voting decisions with respect to the Registrant.
Although the Managing General Partner owes fiduciary duties to the limited
partners of the Partnership, the Managing General Partner also owes fiduciary
duties to AIMCO as its sole stockholder. As a result, the duties of the Managing
General Partner, as managing general partner, to the Partnership and its limited
partners may come into conflict with the duties of the Managing General Partner
to AIMCO, as its sole stockholder.
Critical Accounting Policies and Estimates
A summary of the Partnership's significant accounting policies is included in
"Note A - Organization and Significant Accounting Policies" which is included in
the consolidated financial statements in "Item 8. Financial Statements". The
Managing General Partner believes that the consistent application of these
policies enables the Partnership to provide readers of the financial statements
with useful and reliable information about the Partnership's operating results
and financial condition. The preparation of consolidated financial statements in
conformity with accounting principles generally accepted in the United States
requires the Partnership to make estimates and assumptions. These estimates and
assumptions affect the reported amounts of assets and liabilities at the date of
the financial statements as well as reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these estimates.
Judgments and assessments of uncertainties are required in applying the
Partnership's accounting policies in many areas. The Partnership believes that
of its significant accounting policies, the following may involve a higher
degree of judgment and complexity.
Impairment of Long-Lived Assets
The Property is recorded at cost, less accumulated depreciation, unless
considered impaired. If events or circumstances indicate that the carrying
amount of the property may be impaired, the Partnership will make an assessment
of its recoverability by estimating the undiscounted future cash flows,
excluding interest charges, of the Property. If the carrying amount exceeds the
aggregate future cash flows, the Partnership would recognize an impairment loss
to the extent the carrying amount exceeds the fair value of the Property.
Real property investments are subject to varying degrees of risk. Several
factors may adversely affect the economic performance and value of the Property.
These factors include changes in the national, regional and local economic
climate; local conditions, such as an oversupply of multifamily properties;
competition from other available multifamily property owners and changes in
market rental rates. Any adverse changes in these factors could cause an
impairment in the Partnership's assets.
Revenue Recognition
The Partnership generally leases apartment units for twelve-month terms or less.
Commercial building lease terms are generally for terms of 3 to 10 years or
month to month. Rental income attributable to leases is recognized monthly as it
is earned and the Partnership fully reserves all balances outstanding over
thirty days. The Partnership will offer rental concessions during particularly
slow months or in response to heavy competition from other similar complexes in
the area. Concessions are charged to income as incurred.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership is exposed to market risks from adverse changes in interest
rates. In this regard, changes in U.S. interest rates affect the interest earned
on the Partnership's cash and cash equivalents as well as interest paid on its
indebtedness. As a policy, the Partnership does not engage in speculative or
leveraged transactions, nor does it hold or issue financial instruments for
trading purposes. The Partnership is exposed to changes in interest rates
primarily as a result of its borrowing activities used to maintain liquidity and
fund business operations. Both the debt encumbering the Property and the
advances made from its affiliate to the Partnership bear interest at a variable
rate. As of December 31, 2002 the Partnership owes approximately $156,000 in
such advances which is repaid as the Property's cash flow allows and was repaid
during January 2003. Based on interest rates at December 31, 2002, a 100 basis
point increase or decrease in market interest rates would not have a material
impact on the Partnership.
The following table summarizes the Partnership's debt obligations at December
31, 2002. The fair value of the Partnership's debt approximates its carrying
value as of December 31, 2002.
Principal amount by expected maturity:
Long Term Debt
Variable Rate Debt Average Interest Rate
(in thousands)
2003 $ 2,709 (1)
2004 2,769 (1)
2005 2,829 (1)
2006 2,891 (1)
2007 101,902 (1)
Total $ 113,100
(1) Adjustable rate based on Fannie Mae discounted mortgage-backed security
index ("DMBS") plus 85 basis points. The rate was 2.16% at December 31,
2002 and will reset monthly. The Partnership has the option of converting
to a fixed rate loan in 2005. The loan matures in 2007 with one five-year
extension option.
Item 8. Financial Statements and Supplementary Data
Report of Ernst & Young LLP, Independent Auditors
Report of Arthur Andersen LLP, Independent Auditors
Consolidated Balance Sheets - December 31, 2002 and 2001
Consolidated Statements of Operations - Years ended December 31, 2002,
2001 and 2000
Consolidated Statements of Changes in Partners' (Deficit) Capital - Years
ended December 31, 2002, 2001 and 2000
Consolidated Statements of Cash Flows - Years ended December 31, 2002,
2001 and 2000
Notes to Consolidated Financial Statements
Report of Ernst & Young LLP, Independent Auditors
The Partners of
Springhill Lake Investors Limited Partnership
We have audited the accompanying consolidated balance sheets of Springhill Lake
Investors Limited Partnership as of December 31, 2002 and 2001 and the related
consolidated statements of operations, changes in partners' (deficit) capital,
and cash flows for each of the two years in the period ended December 31, 2002.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 the Partnership's 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Springhill Lake
Investors Limited Partnership at December 31, 2002 and 2001, and the
consolidated results of its operations and its cash flows for each of the two
years in the period ended December 31, 2002, in conformity with accounting
principles generally accepted in the United States.
As discussed in Note A to the consolidated financial statements, in 2002 the
Partnership adopted Statement of Financial Accounting Standards No. 145,
"Rescission of FASB Statements No. 4, 44 and 64."
/s/ERNST & YOUNG LLP
Greenville, South Carolina
February 14, 2003
The following is a copy of the audit report issued by Arthur Andersen LLP in
connection with Springhill Lake Investors Limited Partnership and Subsidiaries
filing of its annual report on Form 10-K for the year ended December 31, 2000.
This audit report has not been reissued by Arthur Andersen LLP in connection
with this filing of the Partnership's annual report on Form 10-K. The
consolidated balance sheet as of December 31, 2000, and the consolidated
statements of operations, changes in partners' (deficit) capital and cash flows
for the year ended December 31, 1999 have not been included in the accompanying
financial statements.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Springhill Lake Investors Limited Partnership:
We have audited the accompanying consolidated balance sheet of Springhill Lake
Investors Limited Partnership and Subsidiaries as of December 31, 2000, and the
consolidated statements of operations, changes in partners' (deficit) capital,
and cash flows for the years ended December 31, 2000 and 1999. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards general accepted
in the United States. 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 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, 2000 and the
consolidated results of their operations and their cash flows for the years
ended December 31, 2000 and 1999, in conformity with accounting principles
generally accepted in the United States.
/s/Arthur Andersen LLP
Denver, Colorado,
February 8, 2001.
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
(in thousands, except unit data)
December 31, December 31,
2002 2001
Assets
Cash and cash equivalents $ 5,559 $ 2,277
Receivables and deposits 1,854 2,118
Restricted escrows 7,026 2,332
Other assets 3,424 1,256
Investment Property (Notes B and E):
Land 5,833 5,833
Buildings and related personal property 120,469 119,300
126,302 125,133
Less accumulated depreciation (72,740) (65,806)
53,562 59,327
$ 71,425 $ 67,310
Liabilities and Partners' (Deficit) Capital
Liabilities
Accounts payable $ 1,044 $ 2,222
Due to affiliate (Note D) -- 99
Tenant security deposit liabilities 774 775
Other liabilities 937 1,096
Advances from affiliate 156 1,853
Mortgage note payable (Note E) 113,100 51,788
116,011 57,833
Minority Interest (Note H) -- 5,470
Partners' (Deficit) Capital
General partners (2,797) (2,660)
Investor limited partners
(649 units issued and outstanding) (41,789) 6,667
(44,586) 4,007
$ 71,425 $ 67,310
See Accompanying Notes to Consolidated Financial Statements
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per unit data)
Years Ended December 31,
2002 2001 2000
Revenues:
Rental income $30,462 $29,682 $25,809
Other income 1,362 1,322 1,411
Casualty gain (Note F) 466 -- --
Total revenues 32,290 31,004 27,220
Expenses:
Operating 12,347 12,713 10,786
General and administrative 639 815 743
Depreciation 7,106 6,727 5,548
Interest 4,772 5,242 5,258
Property taxes 1,850 1,849 1,779
Bad debt expense 199 330 583
Total expenses 26,913 27,676 24,697
Income before minority interest 5,377 3,328 2,523
Distributions to minority interest partner
in excess of investment (Note H) (1,098) -- --
Minority interest in net earnings of
Operating Partnerships (Note H) (1,066) (941) (798)
Net income $ 3,213 $ 2,387 $ 1,725
Net income allocated to general partners (5%) $ 161 $ 119 $ 86
Net income allocated to investor limited
partners (95%) 3,052 2,268 1,639
Net income $ 3,213 $ 2,387 $ 1,725
Net income per limited partnership unit $ 4,703 $ 3,495 $ 2,525
Distributions per limited partnership unit $79,365 $ -- $ --
See Accompanying Notes to Consolidated Financial Statements
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' (DEFICIT) CAPITAL
For The Years Ended December 31, 2002, 2001 and 2000
(in thousands, except unit data)
Total
Limited Investor Partners'
Partnership General Limited (Deficit)
Units Partners Partners Capital
Original capital contributions 649 $ -- $40,563 $40,563
Partners' (deficit) capital at
December 31, 1999 649 $(2,865) $ 2,760 $ (105)
Net income for the year ended
December 31, 2000 -- 86 1,639 1,725
Partners' (deficit) capital at
December 31, 2000 649 (2,779) 4,399 1,620
Net income for the year ended
December 31, 2001 -- 119 2,268 2,387
Partners' (deficit) capital at
December 31, 2001 649 (2,660) 6,667 4,007
Distributions to partners (298) (51,508) (51,806)
Net income for the year ended
December 31, 2002 -- 161 3,052 3,213
Partners' deficit at
December 31, 2002 649 $(2,797) $(41,789) $(44,586)
See Accompanying Notes to Consolidated Financial Statements
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended December 31,
2002 2001 2000
Cash flows from operating activities:
Net income $ 3,213 $ 2,387 $ 1,725
Adjustments to reconcile net income to net cash
provided by operating activities:
Distributions to minority interest partner
in excess of investment 1,098 -- --
Minority interest in net earnings of operating
Partnerships 1,066 941 798
Depreciation 7,106 6,727 5,548
Casualty gain (466) -- --
Amortization of loan costs 150 136 98
Loss on early extinguishment of debt 58 -- --
Bad debt expense 199 330 583
Change in accounts:
Receivables and deposits 65 (845) (849)
Other assets (318) 24 (35)
Accounts payable (1,042) 988 (799)
Tenant security deposit liabilities (1) 208 61
Other liabilities (2) 521 (113)
Due to affiliate (99) (88) 187
Net cash provided by operating activities 11,027 11,329 7,204
Cash flows from investing activities:
Insurance proceeds received 445 -- --
Property improvements and replacements (3,858) (8,908) (7,654)
Net (deposits to) withdrawals from restricted escrows (4,694) (310) 34
Refund of construction service fees from affiliate 2,245 -- --
Net cash used in investing activities (5,862) (9,218) (7,620)
Cash flows from financing activities:
Proceeds from advances from affiliate 156 1,115 2,329
Payments on advances from affiliate (1,853) (1,495) (96)
Payments on mortgage note payable (1,488) (1,901) (1,713)
Distributions to partners (51,806) -- --
Distributions to minority partner (7,634) -- --
Repayment of mortgage notes payable (50,300) -- --
Proceeds from refinancing 113,100 -- --
Loan costs paid (2,058) -- --
Net cash (used in) provided by financing activities (1,883) (2,281) 520
Net increase (decrease) in cash and cash equivalents 3,282 (170) 104
Cash and cash equivalents at beginning of year 2,277 2,447 2,343
Cash and cash equivalents at end of year $ 5,559 $ 2,277 $ 2,447
Supplemental disclosure of cash flow information:
Cash paid for interest, including approximately $41,
$225, and $64, respectively, paid to an affiliate $ 4,586 $ 5,118 $ 5,167
Supplemental disclosure of non-cash information:
Property improvements and replacements in accounts
payable and other liabilities $ 494 $ 673 $ 908
See Accompanying Notes to Consolidated Financial Statements
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002
Note A - Organization and Summary of Significant Accounting Policies
Organization: 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
complex in Greenbelt, Maryland. The complex consists of 2,899 apartment and
townhouse units and an eight-store shopping center. The Managing General Partner
of the Registrant is Three Winthrop Properties, Inc. ("Three Winthrop" or
"Managing General Partner") a wholly-owned subsidiary of First Winthrop
Corporation ("FWC"), the controlling entities of which are Winthrop Financial
Associates, a Limited Partnership ("WFA"), and Apartment Investment and
Management Company ("AIMCO"). The non-managing General Partner is
Linnaeus-Lexington Associates Limited Partnership ("Linnaeus-Lexington"). Both
the Managing General Partner and the non-managing General Partner are hereby
collectively known as the "General Partners". Pursuant to the by-laws of the
Managing General Partner, the Residential Committee of the Managing General
Partner as well as the officers appointed by the Residential Committee have the
exclusive authority to manage the day-to-day affairs of the Managing General
Partner in its capacity as the general partner of the Registrant. The
Residential Committee consists of a director appointed by AIMCO. Accordingly,
AIMCO has effective control of the Managing General Partner in its capacity as
general partner of the Registrant. The Partnership Agreement provides that the
Partnership is to terminate on December 31, 2035 unless terminated prior to such
date.
Principles of Consolidation: 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 interpartnership accounts and transactions have been eliminated in
consolidation.
Use of Estimates: The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results could differ
from those estimates.
Allocation of Profits, Gains and Losses: The Partnership Agreement provides for
net income and net losses for both financial and tax reporting purposes to be
allocated 95% to the Limited Partners and 5% to the General Partner.
Gains from property sales are allocated in accordance with the Partnership
Agreement.
Accordingly, net income as shown in the statements of operations and changes in
partners' capital for 2002, 2001 and 2000 was allocated 95% to the Limited
Partners and 5% to the General Partner. Net income per limited partnership unit
for each year was computed as 95% of net income divided by 649 units outstanding
(the "Units").
Depreciation: Depreciation is provided by the straight-line method over the
estimated lives of the apartment properties and related personal property. For
Federal income tax purposes, the accelerated cost recovery method is used for
real property over 18 years for additions after March 15, 1984 and before May 9,
1985, and 19 years for additions after May 8, 1985, and before January 1, 1987.
As a result of the Tax Reform Act of 1986, for additions after December 31,
1986, the modified accelerated cost recovery method is used for depreciation of
(1) real property over 27 1/2 years and (2) personal property additions over 5
years.
Cash and Cash Equivalents: Cash and cash equivalents include cash on hand and in
banks. At certain times, the amount of cash deposited at a bank may exceed the
limit on insured deposits. Cash balances included approximately $5,516,000 and
$2,250,000 at December 31, 2002 and 2001, respectively, that are maintained by
an affiliated management company on behalf of affiliated entities in cash
concentration accounts.
Investment Property: Investment property consists of one apartment complex with
an eight-store shopping center and is stated at cost. Acquisition fees are
capitalized as a cost of real estate. Expenditures in excess of $250 that
maintain an existing asset which has a useful life of more than one year are
capitalized as capital replacement expenditures and depreciated over the
estimated useful life of the asset. Expenditures for ordinary repairs,
maintenance and apartment turnover costs are expensed as incurred. In accordance
with Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets," the Partnership records
impairment losses on long-lived assets used in operations when events and
circumstances indicate that the assets might be impaired and the undiscounted
cash flows estimated to be generated by those assets are less than the carrying
amounts of those assets. Costs of investment property that have been permanently
impaired have been written down to appraisal value. No adjustments for the
impairment of value were necessary for the years ended December 31, 2002, 2001
or 2000.
During 2001, AIMCO, an affiliate of the Managing General Partner, commissioned a
project to study process improvement ideas to reduce operating costs. The result
of the study led to a re-engineering of business processes and eventual
redeployment of personnel and related capital spending. The implementation of
these plans during 2002, accounted for as a change in accounting estimate,
resulted in a refinement of the Partnership's process for capitalizing certain
direct and indirect project costs (principally payroll related costs) and
increased capitalization of such costs by approximately $451,000 in 2002
compared to 2001.
Advertising: The Partnership expenses the costs of advertising as incurred.
Advertising costs of approximately $73,000, $103,000, and $209,000 for the years
ended December 31, 2002, 2001 and 2000, respectively, were charged to operating
expense as incurred.
Loan Costs: At December 31, 2001, loan costs and accumulated amortization of
approximately $1,359,000 and $1,178,000, respectively, are included in other
assets in the accompanying consolidated balance sheets. In connection with the
refinancing of the mortgage encumbering the Partnership's investment property in
November 2002, unamortized loan costs of approximately $58,000 were written off
and loan costs of approximately $2,058,000 related to the new mortgage were
capitalized. Accumulated amortization was approximately $25,000 at December 31,
2002. These loan costs are included in other assets in the accompanying
consolidated balance sheets and are being amortized over five years on a
straight-line method. Amortization expense is included in interest expense in
the accompanying consolidated statements of operations. Amortization of loan
costs is expected to be approximately $415,000 in 2003, $438,000 in 2004 through
2006, and $304,000 in 2007.
Fair Value of Financial Instruments: SFAS No. 107, "Disclosures about Fair Value
of Financial Instruments", as amended by SFAS No. 119, "Disclosures about
Derivative Financial Instruments and Fair Value of Financial Instruments",
requires disclosure of fair value information about financial instruments,
whether or not recognized in the balance sheet, for which it is practicable to
estimate fair value. Fair value is defined in the SFAS as the amount at which
the instruments could be exchanged in a current transaction between willing
parties, other than in a forced or liquidation sale. The Partnership believes
that the carrying amounts of its financial instruments (except for long term
debt) approximate their fair values due to the short term maturity of these
instruments. The fair value of the Partnership's long term debt approximates its
carrying value at December 31, 2002.
Leases: The Partnership generally leases apartment units for twelve-month terms
or less. Commercial building lease terms are generally for terms of 3 to 10
years or month to month. The Partnership recognizes income as earned on its
leases and fully reserves all balances outstanding over thirty days. In
addition, the Managing General Partner's policy is to offer rental concessions
during particularly slow months or in response to heavy competition from other
similar complexes in the area. Concessions are charged against rental income as
incurred.
Segment Reporting: SFAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information" established standards for the way public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports. It also establishes standards
for related disclosures about products and services, geographic areas, and major
customers. As defined in SFAS No. 131, the Partnership has only one reportable
segment.
Tenant Security Deposits: The Partnership requires security deposits from
lessees for the duration of the lease. Deposits are refunded when the tenant
vacates, provided the tenant has not damaged its space and is current on its
rental payments.
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.
Recent Accounting Pronouncements: In August 2001, the Financial Accounting
Standards Board issued SFAS No. 144, "Accounting for the Impairment or Disposal
of Long-Lived Assets". SFAS No. 144 provides accounting guidance for financial
accounting and reporting for the impairment or disposal of long-lived assets.
SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of". SFAS No. 144 is
effective for fiscal years beginning after December 15, 2001. The Partnership
adopted SFAS No. 144 effective January 1, 2002. The adoption of which did not
have a material effect on the financial position or results of operations of the
Partnership.
In April 2002, the Financial Accounting Standards Board issued SFAS No. 145,
"Rescission of FASB Statements No. 4, 44 and 64". SFAS No. 4 "Reporting Gains
and Losses from Extinguishment of Debt," required that all gains and losses from
extinguishment of debt be aggregated and, if material, classified as an
extraordinary item. SFAS No. 145 rescinds SFAS No. 4, and accordingly, gains and
losses from extinguishment of debt should only be classified as extraordinary if
they are unusual in nature and occur infrequently. Neither of these criteria
applies to the Partnership. SFAS No. 145 is effective for fiscal years beginning
after May 15, 2002 with early adoption an option. The Partnership adopted SFAS
No. 145 effective April 1, 2002. As a result, the loss on early extinguishment
of debt of approximately $58,000 (see discussion at Note E) is included in
interest expense in the accompanying consolidated statement of operations for
the year ended December 31, 2002 rather than as an extraordinary item.
Note B - Investment Property and Accumulated Depreciation
Initial Cost
Investment Property To Partnership
Buildings Cost
and Related Capitalized
Personal Subsequent to
Description Encumbrances Land Property Acquisition
(in thousands) (in thousands)
Springhill Lake $113,100 $ 5,833 $ 67,484 $ 52,985
Gross Amount At Which Carried
At December 31, 2002
(in thousands)
Buildings
And Related
Personal Accumulated Date Depreciable
Description Land Property Total Depreciation Acquired Life-Years
Springhill Lake $ 5,833 $120,469 $126,302 $ 72,740 10/84 10-30
The depreciable lives included above are for the building and components. The
depreciable lives for related personal property are 5 - 10 years.
Reconciliation of "Investment Property and Accumulated Depreciation":
Years Ended December 31,
2002 2001 2000
(in thousands)
Investment Property
Balance at beginning of year $125,133 $116,549 $107,987
Property improvements 3,679 8,673 8,562
Disposition of property (265) (89) --
Refund of construction service
fees previously capitalized (1) (2,245) -- --
Balance at end of year $126,302 $125,133 $116,549
Accumulated Depreciation
Balance at beginning of year $ 65,806 $ 59,137 $ 53,589
Depreciation of real estate 7,106 6,727 5,548
Disposition of property (172) (58) --
Balance at end of year $ 72,740 $ 65,806 $ 59,137
(1) See Note D - Related Party Transactions for further information.
The aggregate cost of the real estate for Federal income tax purposes at
December 31, 2002 and 2001, is $124,896,000 and $124,419,000. The accumulated
depreciation taken for Federal income tax purposes at December 31, 2002 and
2001, is $92,901,000 and $86,573,000.
Note C - Taxable Income
Taxable income or loss of the Partnership is reported in the income tax returns
of its partners. Accordingly, no provision for income taxes is made in the
financial statements of the Partnership. The following is a reconciliation of
reported income and Federal taxable income (in thousands, except per unit data):
2002 2001 2000
Net income as reported $ 3,213 $ 2,387 $ 1,725
Excess of accelerated depreciation for
income tax purposes 778 249 194
Deferred revenue - laundry income (79) (72) (147)
Other 542 1,262 (152)
Federal taxable income $ 4,454 $ 3,826 $ 1,620
Federal taxable income per limited
partnership unit $ 6,519 $ 5,601 $ 2,371
The following is a reconciliation between the Partnership's reported amounts and
Federal tax basis of net assets and liabilities (in thousands):
2002 2001
Net (liabilities) assets as reported: $(44,586) $ 4,007
Land and buildings (1,293) (589)
Accumulated depreciation (20,161) (20,958)
Deferred sales commission 144 223
Other 3,780 2,554
Net liabilities - income tax method $(62,116) $(14,763)
Note D - Related Party Transactions
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 (i)
certain payments to affiliates for services (ii) reimbursements of certain
expenses incurred by affiliates on behalf of the Partnership (iii) an annual
asset management fee of $100,000 and (iv) an annual administration fee of
$10,000.
Affiliates of the Managing General Partner are entitled to receive 3% of tenant
rent collections and 5% of store commercial income from the Partnership's
property for providing property management services. The Registrant paid to such
affiliates approximately $936,000, $1,048,000 and $790,000 for the years ended
December 31, 2002, 2001 and 2000, respectively, which is included in operating
expense.
An affiliate of the Managing General Partner received reimbursement of
accountable administrative expenses amounting to approximately $445,000,
$2,484,000 and $839,000 for the years ended December 31, 2002, 2001 and 2000,
respectively, which is included in general and administrative expense. For the
years ended December 31, 2002 and 2001 the first three quarters were based on
estimated amounts and in the fourth quarter the reimbursements were adjusted
based on actual costs. There was no adjustment required for the year ended
December 31, 2000. During 2001, the Partnership was charged, by affiliates of
the Managing General Partner, approximately $2,245,000 for fees related to
construction management services for work performed during 1999, 2000 and 2001.
These fees had been capitalized and included in investment property. During the
second quarter of 2002, it was determined by the Managing General Partner that
these fees should not have been charged and the Partnership was refunded the
full amount. Accordingly, such previously capitalized fees are no longer
included in investment property at December 31, 2002.
In accordance with the Partnership Agreement, affiliates of the Managing General
Partner earned approximately $100,000 in asset management fees and approximately
$10,000 in administrative fees for the years ended December 31, 2002, 2001 and
2000, which is included in general and administrative expense.
During the years ended December 31, 2002, 2001 and 2000, an affiliate of the
Managing General Partner advanced the Partnership approximately $156,000,
$1,115,000 and $2,329,000, respectively. Approximately $1,853,000, $1,495,000
and $96,000 was repaid during 2002, 2001 and 2000, respectively. At December 31,
2002 and 2001 approximately $156,000 and $1,853,000 was owed and is included in
advances from affiliate in the accompanying consolidated balance sheet. In
accordance with the Partnership Agreement, interest is charged at the prime rate
plus 2%. The Partnership recognized approximately $30,000, $186,000 and $94,000
of interest expense related to these advances during the years ended December
31, 2002, 2001 and 2000, respectively. Of these amounts, approximately zero and
$11,000 was accrued at December 31, 2002 and 2001, respectively, and is included
in due to affiliate in the accompanying consolidated balance sheets.
Beginning in 2001, the Partnership began insuring its property up to certain
limits through coverage provided by AIMCO which is generally self-insured for a
portion of losses and liabilities related to workers compensation, property
casualty and vehicle liability. The Partnership insures its property above the
AIMCO limits through insurance policies obtained by AIMCO from insurers
unaffiliated with the Managing General Partner. During the years ended December
31, 2002 and 2001, the Partnership was charged by AIMCO and its affiliates
approximately $331,000 and $393,000, respectively, for insurance coverage and
fees associated with policy claims administration.
AIMCO and its affiliates owned 521.90 limited partnership units (the "Units") in
the Partnership representing 80.42% of the outstanding Units at December 31,
2002. A number of these Units were acquired pursuant to tender offers made by
AIMCO or its affiliates or Three Winthrop's affiliates. It is possible that
AIMCO or its affiliates will acquire additional units of limited partnership
interest in the Partnership in exchange for cash or a combination of cash and
units in the operating partnership of AIMCO either through private purchases or
tender offers. Under the Partnership Agreement, unitholders holding a majority
of the Units are entitled to take action with respect to a variety of matters.
As a result of its ownership of 80.42% of the outstanding Units, AIMCO is in a
position to control all voting decisions with respect to the Registrant.
Although the Managing General Partner owes fiduciary duties to the limited
partners of the Partnership, the Managing General Partner also owes fiduciary
duties to AIMCO as its sole stockholder. As a result, the duties of the Managing
General Partner, as managing general partner, to the Partnership and its limited
partners may come into conflict with the duties of the Managing General Partner
to AIMCO, as its sole stockholder.
Note E - Mortgage Note Payable
The terms of the mortgage note payable are as follows:
Principal Principal
Balance Balance Monthly Principal
Due At Due At Payment Balance
Property December December Including Interest Maturity Due At
31, 2002 31, 2001 Interest Rate Date Maturity
(in thousands) (in thousands) (in thousands)
Springhill Lake
1st mortgage $113,100 $51,788 $ 427 (1) 09/07 $ 99,940
(1) Adjustable rate based on Fannie Mae discounted mortgage-backed security
index plus 85 basis points. The rate at December 31, 2002 was 2.16%.
On November 14, 2002, the Partnership refinanced its existing mortgage
encumbering Springhill Lake Apartments. This loan was initially refinanced under
an interim credit facility ("Interim Credit Facility") which had a term of three
months. The Interim Credit Facility included properties in other partnerships
that are affiliated with the Partnership. However, the Interim Credit Facility
created separate loans for each property that are not cross-collateralized or
cross-defaulted with the other property loans. During the term of the Interim
Credit Facility, the property was required to make interest-only payments. The
first month's interest, which was paid at the date of the refinancing, was
calculated at LIBOR plus 70 basis points. Interest for the following month was
calculated at LIBOR plus 150 basis points.
During December 2002 the loan was sold to Fannie Mae under a permanent credit
facility ("Permanent Credit Facility"). The Credit Facility has a maturity of
five years, with one five-year extension option. This Permanent Credit Facility
also creates separate loans for each property that are not cross-collateralized
or cross-defaulted with the other property loans. Each note under this Permanent
Credit Facility will begin as a variable rate loan with the option of converting
to a fixed rate loan after three years. The interest rate on the variable rate
loans is the Fannie Mae discounted mortgage-backed security index plus 85 basis
points. The rate was 2.16% at December 31, 2002 and will reset monthly. Each
loan will automatically renew at the end of each month. In addition, monthly
principal payments are required based on a 30-year amortization schedule, using
the interest rate in effect during the first month that any property is on the
Permanent Credit Facility. The loans are prepayable without penalty.
The refinancing of the existing Springhill Lake Apartments loan replaced the
first mortgage of approximately $50,300,000 with a new mortgage in the amount of
$113,100,000. Total capitalized loan costs were approximately $2,058,000 during
the year ended December 31, 2002. Additional loan costs of approximately $16,000
were capitalized subsequent to December 31, 2002. The Partnership recognized a
loss on the early extinguishment of debt of approximately $58,000 during the
year ended December 31, 2002 due to the write off of unamortized loan costs. In
addition, approximately $7,783,000 was deposited in an escrow account to be used
to complete required repairs at the property.
The mortgage note payable is non-recourse and is secured by pledge of the
Partnership's interest in the Operating Partnerships, and joint and several
guarantees by the Operating Partnerships which, in turn, are secured by an
indemnity first mortgage on the Operating Partnerships and a pledge of the stock
of Springfield Facilities, Inc., an affiliate. Further, the property may not be
sold subject to existing indebtedness.
Scheduled principal payments of the mortgage note payable subsequent to December
31, 2002, are as follows (in thousands):
2003 $ 2,709
2004 2,769
2005 2,829
2006 2,891
2007 101,902
Total $113,100
Note F - Casualty Gains
During April 2001 a fire occurred at Springhill Lake Apartments which resulted
in damage to two buildings at the property. The property initially received
$145,000 of insurance proceeds during August 2001 and received the remaining
balance of $445,000 in June 2002. All work has been completed with the total
costs to restore the buildings totaling approximately $595,000. A casualty gain
was recognized during the year ended December 31, 2002 of approximately $466,000
as a result of the receipt of $590,000 in total insurance proceeds less the
write-off of approximately $124,000 in undepreciated assets.
During March 2002 a fire occurred at Springhill Lake Apartments which resulted
in damage to eleven units at the property. Subsequent to December 31, 2002, all
work was completed with the costs to restore the property totaling $114,000. No
loss is expected to be incurred by the Partnership as a result of the fire.
Note G - Operating Leases
One of the Operating Partnerships leases retail space to tenants in the shopping
center under operating leases which expire in various years through August 31,
2011. The leases call for base monthly rentals plus additional charges for pass
throughs and percentage rent. Minimum future rental payments to be received
subsequent to December 31, 2002 are as follows (in thousands):
2003 $ 147
2004 132
2005 115
2006 115
2007 97
Thereafter 272
$ 878
Note H - Minority Interest
The limited partnership interest in the Operating Partnerships is reflected as a
minority interest in the accompanying consolidated financial statements. Income
allocated to the minority partner for the years ended December 31, 2002, 2001
and 2000 was approximately $1,066,000, $941,000 and $798,000 respectively. There
were no distributions from the Operating Partnerships during 2001 and 2000.
During the year ended December 31, 2002 the Operating Partnerships distributed
approximately $59,925,000 of operating and refinancing proceeds to its partners,
of which approximately $7,634,000 was distributed to the minority interest
partner. The distributions to the minority interest partner reduced the minority
interest partner's investment balance to zero during 2002. When the Operating
Partnerships make distributions in excess of the minority partner's investment
balance, the Partnership as the majority partner, records a charge equal to the
minority partner's excess distributions over the investment balance, even though
there is no economic impact, cost or risk to the Partnership. The charge is
classified as distributions to minority interest partner in excess of investment
on the accompanying consolidated statements of operations. The minority interest
partner's share of income from the Operating Partnerships will all be recognized
by the Partnership in operating income until such time as the Partnership has
recovered the 2002 charge of approximately $1,098,000. The minority interest
partner's share of losses will be allocated to the minority interest partner to
the extent they do not create a minority deficit, in which case the Partnership
recognizes 100% of the losses in operating income.
Note I - Selected Quarterly Financial Data (Unaudited)
The following is a summary of the unaudited quarterly results of operations for
the Partnership (in thousands, except per unit data):
1st 2nd 3rd 4th
2002 Quarter Quarter Quarter Quarter Total
Total revenues $ 7,821 $ 8,374 $ 8,132 $ 7,963 $32,290
Total expenses 7,056 7,282 6,885 7,854 29,077
Net income $ 765 $ 1,092 $ 1,247 $ 109 $ 3,213
Net income per limited
Partnership unit $ 1,120 $ 1,598 $ 1,826 $ 159 $ 4,703
1st 2nd 3rd 4th
2001 Quarter Quarter Quarter Quarter Total
Total revenues $ 7,630 $ 7,727 $ 7,779 $ 7,868 $31,004
Total expenses 6,803 6,930 7,256 7,628 28,617
Net income $ 827 $ 797 $ 523 $ 240 $ 2,387
Net income per limited
Partnership unit $ 1,211 $ 1,167 $ 765 $ 352 $ 3,495
An adjustment was made in the fourth quarter of 2001 of approximately $230,000
to properly state minority interest which if recorded during the year ended
December 31, 2001, would have increased net income for each quarter by
approximately $50,000.
Note J - Legal Proceedings
The Partnership is unaware of any pending or outstanding litigation that is not
of a routine nature arising in the ordinary course of business.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Effective July 6, 2001, the Registrant dismissed its prior Independent Auditors,
Arthur Andersen LLP and retained as its new Independent Auditors, Ernst & Young
LLP. Arthur Andersen's Independent Auditors' Report on the Registrant's
financial statements for the calendar year ended December 31, 2000 did not
contain an adverse opinion or a disclaimer of opinion, and was not qualified or
modified as to uncertainty, audit scope or accounting principles. The decision
to change Independent Auditors was approved by the Managing General Partner's
directors. During the calendar year ended 2000 and through July 6, 2001, there
were no disagreements between the Registrant and Arthur Andersen on any matter
of accounting principles or practices, financial statement disclosure, or
auditing scope of procedure which disagreements if not resolved to the
satisfaction of Arthur Andersen, would have caused it to make references to the
subject matter of the disagreements in connection with its reports.
Effective July 6, 2001, the Registrant engaged Ernst & Young LLP as its
Independent Auditors. During the last two calendar years and through July 6,
2001, the Registrant did not consult Ernst & Young LLP regarding any of the
matters or events set forth in Item 304(a)(2)(i) and (ii) of Regulation S-K.
PART III
Item 10. 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 and manages and controls substantially all of the
Registrant's affairs and has general responsibility and ultimate authority in
all matters affecting its business. Pursuant to the by-laws of the Managing
General Partner, the Residential Committee of the Managing General Partner as
well as the officers appointed by the Residential Committee have the exclusive
authority to manage the day-to-day affairs of the Managing General Partner in
its capacity as the general partner of the Registrant. There are no family
relationships between or among any officers or directors.
Name Age Position
Patrick J. Foye 45 Vice President - Residential and Director
and sole member of the Residential
Committee
Paul J. McAuliffe 46 Vice President - Residential and Chief
Financial Officer
Thomas C. Novosel 44 Vice President - Residential Accounting
and Chief Accounting Officer
Michael L. Ashner 50 Chief Executive Officer and Director
Peter Braverman 51 Executive Vice President and Director
Patrick J. Foye has been Vice President - Residential and Director of the
Managing General Partner since October 1, 1998. Mr. Foye has served as Executive
Vice President of AIMCO since May 1998, where he is responsible for continuous
improvement, acquisitions of partnership securities, consolidation of minority
interests, and corporate and other acquisitions. Prior to joining AIMCO, Mr.
Foye was a Merger and Acquisitions Partner in the law firm of Skadden, Arps,
Slate, Meagher & Flom LLP from 1989 to 1998.
Paul J. McAuliffe has been Vice President - Residential and Chief Financial
Officer of the Managing General Partner since April 1, 2002. Mr. McAuliffe has
served as Executive Vice President of AIMCO since February 1999 and Chief
Financial Officer of AIMCO since October 1999. From May 1996 until he joined
AIMCO, Mr. McAuliffe was Senior Managing Director of Secured Capital Corp.
Thomas C. Novosel has been Vice President - Residential and Chief Accounting
Officer of the Managing General Partner since April 1, 2002. Mr. Novosel has
served as Senior Vice President and Chief Accounting Officer of AIMCO since
April 2000. From October 1993 until he joined AIMCO, Mr. Novosel was a partner
at Ernst & Young LLP, where he served as the director of real estate advisory
services for the southern Ohio Valley area offices but did not work on any
assignments related to AIMCO or the Partnership.
Michael L. Ashner has been the Chief Executive Officer of Winthrop Financial
Associates, A Limited Partnership ("WFA") and the Managing General Partner since
January 15, 1996. Since August 19, 2002, Mr. Ashner has also served as the Chief
Executive Officer of Shelbourne Properties I Inc., Shelbourne Properties II Inc.
and Shelbourne Properties III Inc. (collectively, the "Shelbourne REITs"), three
publicly traded real estate investment trusts. Mr. Ashner currently serves as a
director of each of the Shelbourne REITs, Great Bay Hotel and Casino Inc., and
NBTY, Inc.
Peter Braverman has been a Vice President of WFA and the Managing General
Partner since January 1996. Since August 19, 2002, Mr. Braverman has also served
as the Executive Vice President of each of the Shelbourne REITs. Mr. Braverman
serves as a director of the Shelbourne REITs.
One or more of the above persons are also directors and/or officers of a general
partner (or general partner of a general partner) of limited partnerships which
either have a class of securities registered pursuant to Section 12(g) of the
Securities Exchange Act of 1934, or are subject to the reporting requirements of
Section 15(d) of such Act. Further, one or more of the above persons are also
directors and/or officers of Apartment Investment and Management Company and the
general partner of AIMCO Properties, L.P., entities that have a class of
securities registered pursuant to Section 12(g) of the Securities Exchange Act
of 1934, or are subject to the reporting requirements of Section 15 (d) of such
Act.
The Residential Committee of the Managing General Partner fulfills the
obligations of the Audit Committee and oversees the Partnership's financial
reporting process on behalf of the Managing General Partner. Management has the
primary responsibility for the financial statements and the reporting process
including the systems of internal controls. In fulfilling its oversight
responsibilities, the executive officers and directors of the Managing General
Partner reviewed the audited financial statements with management including a
discussion of the quality, not just the acceptability, of the accounting
principles, the reasonableness of significant judgments, and the clarity of
disclosures in the financial statements.
The Residential Committee of the Managing General Partner reviewed with the
independent auditors, who are responsible for expressing an opinion on the
conformity of those audited financial statements with accounting principles
generally accepted in the United States, their judgments as to the quality, not
just the acceptability, of the Partnership's accounting principles and such
other matters as are required to be discussed with the Audit Committee or its
equivalent under auditing standards generally accepted in the United States. In
addition, the Partnership has discussed with the independent auditors the
auditors' independence from management and the Partnership including the matters
in the written disclosures required by the Independence Standards Board and
considered the compatibility of non-audit services with the auditors'
independence.
The Residential Committee of the Managing General Partner discussed with the
Partnership's independent auditors the overall scope and plans for their audit.
In reliance on the reviews and discussions referred to above, the executive
officers and directors of the Managing General Partner have approved the
inclusion of the audited financial statements in the Form 10-K for the year
ended December 31, 2002 for filing with the Securities and Exchange Commission.
The Residential Committee has reappointed Ernst and Young LLP as independent
auditors to audit the financial statements of the Partnership for 2003. Fees for
2002 were audit services of approximately $47,000 and non-audit services
(principally tax-related) of approximately $23,000.
Item 11. 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 13, Certain Relationships and Related Transactions").
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) Security Ownership of Certain Beneficial Owners
Except as noted below, no person or entity was known by the Registrant to be the
beneficial owner or more than 5% of the Limited Partnership Units of the
Registrant as of December 31, 2002.
Number
Entity of Units Percentage
Insignia Financial Group, Inc.
(an affiliate of AIMCO) 241.15 37.16%
AIMCO Properties, L.P.
(an affiliate of AIMCO) 280.75 43.26%
Insignia Financial Group, Inc. is ultimately owned by AIMCO. Its business
address is 55 Beattie Place, Greenville, South Carolina 29601.
AIMCO Properties, L.P. is indirectly ultimately controlled by AIMCO. Its
business address is Stanford Place 3, 4582 S. Ulster St. Parkway, Suite 1100,
Denver, Colorado 80237.
No director or officer of the Managing General Partner owns any Units. The
Managing General Partner owns 100 Units as required by the terms of the
Partnership Agreement governing the Partnership.
(b) Security Ownership of Management
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.
Item 13. Certain Relationships and Related Transactions
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 (i)
certain payments to affiliates for services (ii) reimbursements of certain
expenses incurred by affiliates on behalf of the Partnership (iii) an annual
asset management fee of $100,000 and (iv) an annual administration fee of
$10,000.
Affiliates of the Managing General Partner are entitled to receive 3% of tenant
rent collections and 5% of store commercial income from the Partnership's
property for providing property management services. The Registrant paid to such
affiliates approximately $936,000, $1,048,000 and $790,000 for the years ended
December 31, 2002, 2001 and 2000, respectively, which is included in operating
expense.
An affiliate of the Managing General Partner received reimbursement of
accountable administrative expenses amounting to approximately $445,000,
$2,484,000 and $839,000 for the years ended December 31, 2002, 2001 and 2000,
respectively, which is included in general and administrative expense. For the
years ended December 31, 2002 and 2001 the first three quarters were based on
estimated amounts and in the fourth quarter the reimbursements were adjusted
based on actual costs. There was no adjustment required for the year ended
December 31, 2000. During 2001, the Partnership was charged, by affiliates of
the Managing General Partner, approximately $2,245,000 for fees related to
construction management services for work performed during 1999, 2000 and 2001.
These fees had been capitalized and included in investment property. During the
second quarter of 2002, it was determined by the Managing General Partner that
these fees should not have been charged and the Partnership was refunded the
full amount. Accordingly, such previously capitalized fees are no longer
included in investment property at December 31, 2002.
In accordance with the Partnership Agreement, affiliates of the Managing General
Partner earned approximately $100,000 in asset management fees and approximately
$10,000 in administrative fees for the years ended December 31, 2002, 2001 and
2000, which is included in general and administrative expense.
During the years ended December 31, 2002, 2001 and 2000, an affiliate of the
Managing General Partner advanced the Partnership approximately $156,000,
$1,115,000 and $2,329,000, respectively. Approximately $1,853,000, $1,495,000
and $96,000 was repaid during 2002, 2001 and 2000, respectively. At December 31,
2002 and 2001 approximately $156,000 and $1,853,000 was owed and is included in
advances from affiliate in the accompanying consolidated balance sheet. In
accordance with the Partnership Agreement, interest is charged at the prime rate
plus 2%. The Partnership recognized approximately $30,000, $186,000 and $94,000
of interest expense related to these advances during the years ended December
31, 2002, 2001 and 2000, respectively. Of these amounts, approximately zero and
$11,000 was accrued at December 31, 2002 and 2001, respectively, and is included
in due to affiliate in the accompanying consolidated balance sheet.
Beginning in 2001, the Partnership began insuring its property up to certain
limits through coverage provided by AIMCO which is generally self-insured for a
portion of losses and liabilities related to workers compensation, property
casualty and vehicle liability. The Partnership insures its property above the
AIMCO limits through insurance policies obtained by AIMCO from insurers
unaffiliated with the Managing General Partner. During the years ended December
31, 2002 and 2001, the Partnership was charged by AIMCO and its affiliates
approximately $331,000 and $393,000, respectively, for insurance coverage and
fees associated with policy claims administration.
AIMCO and its affiliates owned 521.90 limited partnership units (the "Units") in
the Partnership representing 80.42% of the outstanding Units at December 31,
2002. A number of these Units were acquired pursuant to tender offers made by
AIMCO or its affiliates or Three Winthrop's affiliates. It is possible that
AIMCO or its affiliates will acquire additional units of limited partnership
interest in the Partnership in exchange for cash or a combination of cash and
units in the operating partnership of AIMCO either through private purchases or
tender offers. Under the Partnership Agreement, unitholders holding a majority
of the Units are entitled to take action with respect to a variety of matters.
As a result of its ownership of 80.42% of the outstanding Units, AIMCO is in a
position to control all voting decisions with respect to the Registrant.
Although the Managing General Partner owes fiduciary duties to the limited
partners of the Partnership, the Managing General Partner also owes fiduciary
duties to AIMCO as its sole stockholder. As a result, the duties of the Managing
General Partner, as managing general partner, to the Partnership and its limited
partners may come into conflict with the duties of the Managing General Partner
to AIMCO, as its sole stockholder.
Item 14. Controls and Procedures
The principal executive officer and principal financial officer of the Managing
General Partner, who are the equivalent of the Partnership's principal executive
officer and principal financial officer, respectively, have, within 90 days of
the filing date of this annual report, evaluated the effectiveness of the
Partnership's disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14(c) and 15d-14(c)) and have determined that such disclosure controls
and procedures are adequate. There have been no significant changes in the
Partnership's internal controls or in other factors that could significantly
affect the Partnership's internal controls since the date of evaluation. The
Partnership does not believe any significant deficiencies or material weaknesses
exist in the Partnership's internal controls. Accordingly, no corrective actions
have been taken.
Item 15. Exhibits and Reports on Form 8-K
(a) Exhibits:
See Exhibit Index
(b) Reports on Form 8-K filed in the fourth quarter of fiscal year 2002:
Current Report on Form 8-K dated November 14, 2002 and filed on
November 29, 2002, disclosing the refinancing of the mortgage
encumbering Springhill Lake Apartments located in Greenbelt,
Maryland, which replaced the existing mortgage indebtedness of
approximately $50,300,000 with a new mortgage of $113,100,000.
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-K 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
Vice President - Residential
By: /s/Thomas C. Novosel
Thomas C. Novosel
Vice President - Residential
and Chief Accounting Officer
Date: March 28, 2003
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.
/s/Patrick J. Foye Vice President-Residential Date: March 28, 2003
Patrick J. Foye and Director
/s/Thomas C. Novosel Vice President - Residential Date: March 28, 2003
Thomas C. Novosel and Chief Accounting Officer
CERTIFICATION
I, Patrick J. Foye, certify that:
1. I have reviewed this annual report on Form 10-K of Springhill Lake Investors
Limited Partnership;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) Presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: March 28, 2003
/s/Patrick J. Foye
Patrick J. Foye
Vice President - Residential of
Three Winthrop Properties, Inc., equivalent
of the chief executive officer of the
Partnership
CERTIFICATION
I, Paul J. McAuliffe, certify that:
1. I have reviewed this annual report on Form 10-K of Springhill Lake Investors
Limited Partnership;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) Presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: March 28, 2003
/s/Paul J. McAuliffe
Paul J. McAuliffe
Vice President - Residential and Chief Financial
Officer of Three Winthrop Properties, Inc.,
equivalent of the chief financial officer of the
Partnership
Index to Exhibits
Exhibit No. 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)
(j) Consolidated, Amended and Restated Multifamily Note dated
November 1, 2002 between Springhill Lake Investors Limited
Partnership and GMAC Commercial Mortgage Corporation (2)
(k) Guaranty dated November 1, 2002 by AIMCO Properties, L.P., for
the benefit of GMAC Commercial Mortgage Corporation (2)
(l) Consolidated, Amended and Restated Payment Guaranty dated
November 1, 2002 by the Operating Partnerships (2)
(m) Completion/Repair and Security Agreement dated November 1,
2002 between the Operating Partnerships and GMAC Commercial
Mortgage
Corporation (2)
(n) Replacement Reserve and Security Agreement dated November 1,
2002 between the Operating Partnerships and GMAC Commercial
Mortgage Corporation (2)
(o) Promissory Note dated November 1, 2002 between Springhill Lake
Investors Limited Partnership and the Operating Partnerships
(2)
16.1 Letter dated July 13, 2001, from the former accountant regarding its
concurrence with the statements made by the Registrant in this Current
Report.
99 Certification of Chief Executive Officer and Chief Financial Officer.
_______________________________________________________________________________
(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 Current Report on Form
8-K dated November 14, 2002, as filed November 29, 2002.
(3) Incorporated herein by reference to the Registrant's Current
Report on Form 8-K dated August 23, 1995, as filed September
5, 1995.
Exhibit 99
Certification of CEO and CFO
Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report on Form 10-K of Springhill Lake Investors
Limited Partnership (the "Partnership"), for the year ended December 31, 2002 as
filed with the Securities and Exchange Commission on the date hereof (the
"Report"), Patrick J. Foye, as the equivalent of the Chief Executive Officer of
the Partnership, and Paul J. McAuliffe, as the equivalent of the Chief Financial
Officer of the Partnership, each hereby certifies, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that, to the best of his knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Partnership.
/s/Patrick J. Foye
Name: Patrick J. Foye
Date: March 28, 2003
/s/Paul J. McAuliffe
Name: Paul J. McAuliffe
Date: March 28, 2003
This certification accompanies the Report pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the
Sarbanes-Oxley Act of 2002, be deemed filed by the Partnership for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended.