UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2003
[ ] 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, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No___
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes ___ No X_
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
(in thousands, except unit data)
June 30, December 31,
2003 2002
(unaudited) (Note)
Assets
Cash and cash equivalents $ 710 $ 5,559
Receivables and deposits 2,953 1,854
Restricted escrows 7,043 7,026
Other assets 2,459 3,424
Investment property:
Land 5,833 5,833
Buildings and related personal property 121,901 120,469
127,734 126,302
Less accumulated depreciation (76,418) (72,740)
51,316 53,562
$ 64,481 $ 71,425
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 893 $ 1,044
Tenant security deposit liabilities 829 774
Other liabilities 677 937
Advances from affiliate -- 156
Mortgage note payable 111,750 113,100
114,149 116,011
Minority interest (Note E)
Partners' Deficit
General partners (2,911) (2,797)
Investor limited partners (649 units issued and
outstanding) (46,757) (41,789)
(49,668) (44,586)
$ 64,481 $ 71,425
Note: The balance sheet at December 31, 2002 has been derived from the audited
financial statements at that date but does not include all the information
and footnotes required by generally accepted accounting principles in the
United States for complete financial statements.
See Accompanying Notes to Consolidated Financial Statements
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per unit data)
Three Months Ended Six Months Ended
June 30, June 30,
2003 2002 2003 2002
Revenues:
Rental income $ 7,612 $ 7,562 $15,040 $15,014
Other income 367 294 688 615
Casualty gain (Note D) -- 466 83 466
Total revenues 7,979 8,322 15,811 16,095
Expenses:
Operating 3,069 3,567 6,733 6,640
General and administrative 140 178 319 362
Depreciation 1,878 1,573 3,725 3,331
Interest 693 1,200 1,433 2,486
Property taxes 474 469 948 930
Total expenses 6,254 6,987 13,158 13,749
Income before minority interest 1,725 1,335 2,653 2,346
Distributions to minority interest
partner in excess of investment
(Note E) (303) -- (985) --
Minority interest in net income
of operating partnerships (Note E) -- (243) -- (489)
Net income $ 1,422 $ 1,092 $ 1,668 $ 1,857
Net income allocated to general
partners (5%) $ 71 $ 55 $ 83 $ 93
Net income allocated to limited
partners (95%) 1,351 1,037 1,585 1,764
$ 1,422 $ 1,092 $ 1,668 $ 1,857
Net income per limited partnership
unit $ 2,082 $ 1,598 $ 2,442 $ 2,718
Distributions per limited partnership
unit $ 3,074 $ 3,099 $10,097 $ 3,099
See Accompanying Notes to Consolidated Financial Statements
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
(in thousands, except unit data)
Limited Investor
Partnership General Limited
Units Partners Partners Total
Original capital contributions 649 $ -- $ 40,563 $ 40,563
Partners' deficit at
December 31, 2002 649 $(2,797) $(41,789) $(44,586)
Distributions to partners -- (197) (6,553) (6,750)
Net income for the six months
ended June 30, 2003 -- 83 1,585 1,668
Partners' deficit at
June 30, 2003 649 $(2,911) $(46,757) $(49,668)
See Accompanying Notes to Consolidated Financial Statements
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
June 30,
2003 2002
Cash flows from operating activities:
Net income $ 1,668 $ 1,857
Adjustments to reconcile net income to net cash provided
by operating activities:
Distributions to minority interest partner in excess of
investment 985 --
Minority interest in net income of operating
partnerships -- 489
Depreciation 3,725 3,331
Casualty gain (83) (466)
Amortization of loan costs 221 68
Bad debt expense, net 139 100
Change in accounts:
Receivables and deposits (1,238) (821)
Other assets 778 708
Accounts payable 183 (384)
Tenant security deposit liabilities 55 38
Other liabilities (260) 51
Due to affiliates -- (99)
Net cash provided by operating activities 6,173 4,872
Cash flows from investing activities:
Insurance proceeds received 104 445
Property improvements and replacements (1,834) (2,871)
Net deposits to restricted escrows (17) (290)
Refund of construction service fees from affiliate -- 2,245
Net cash used in investing activities (1,747) (471)
Cash flows from financing activities:
Payments on mortgage note payable (1,350) (986)
Payments on advances from affiliate (156) (1,853)
Distributions to partners (6,750) (2,117)
Distributions to minority interest partner (985) (298)
Loan costs paid (34) --
Net cash used in financing activities (9,275) (5,254)
Net decrease in cash and cash equivalents (4,849) (853)
Cash and cash equivalents at beginning of period 5,559 2,277
Cash and cash equivalents at end of period $ 710 $ 1,424
Supplemental disclosure of cash flow information:
Cash paid for interest, including approximately zero and
$30, respectively, paid to an affiliate $ 1,383 $ 2,427
Supplemental disclosure of non-cash information:
Property improvements and replacements included in
accounts payable $ 160 $ --
At December 31, 2002 and 2001 approximately $494,000 and $673,000, respectively,
of property improvements and replacements were included in accounts payable
which are included in property improvements and replacements during the six
months ended June 30, 2003 and 2002, respectively.
See Accompanying Notes to Consolidated Financial Statements
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited consolidated financial statements of Springhill Lake
Investors Limited Partnership (the "Partnership" or "Registrant") have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of Three Winthrop Properties, Inc. (the
"Managing General Partner" or "Three Winthrop"), all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and six months ended June 30,
2003 are not necessarily indicative of the results that may be expected for the
year ending December 31, 2003. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Partnership's Annual Report on Form 10-K for the year ended December 31, 2002.
Apartment Investment and Management Company ("AIMCO"), a publicly traded real
estate investment trust, effectively controls the Managing General Partner in
its capacity as the general partner of the Registrant.
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.
Note B - Transactions with Affiliated Parties
The Partnership has no employees and is dependent on the Managing General
Partner and its affiliates for the management and administration of all
Partnership activities. The Limited Partnership Agreement provides for (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
residential rent collections and 5% of commercial income from the Partnership's
property for providing property management services. The Partnership paid to
such affiliates approximately $469,000 and $449,000 for the six months ended
June 30, 2003 and 2002, respectively, which is included in operating expenses.
An affiliate of the Managing General Partner received reimbursement of
accountable administrative expenses amounting to approximately $219,000 and
$267,000 for the six months ended June 30, 2003 and 2002, respectively, which is
included in general and administrative expenses. 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 were no longer included in investment property at
June 30, 2002.
In accordance with the Partnership Agreement, the Managing General Partner
earned approximately $50,000 in asset management fees and approximately $5,000
in administrative fees for both the six month periods ended June 30, 2003 and
2002. These fees are included in general and administrative expenses.
At December 31, 2002, the Partnership owed advances of approximately $156,000 to
an affiliate of the Managing General Partner. The advance was repaid in January
2003 with interest charged at prime plus 2% which amounted to less than $1,000
for the six months ended June 30, 2003. There were no advances owed at June 30,
2002.
The Partnership insures 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 six months ended June 30, 2003 and 2002,
the Partnership was charged by AIMCO and its affiliates approximately $273,000
and $331,000, respectively, for insurance coverage and fees associated with
policy claims administration.
Note C - Mortgage Note Payable
On November 14, 2002, the Partnership refinanced its existing mortgage
encumbering Springhill Lake Apartments. The refinancing replaced the existing
mortgage of approximately $50,300,000 with a new mortgage in the amount of
$113,100,000. The Partnership capitalized loan costs of approximately $2,058,000
during 2002 and capitalized an additional $34,000 during the six months ended
June 30, 2003. In addition, approximately $7,026,000 was deposited in an escrow
account in connection with the refinancing to be used to complete required
repairs at the property.
Initially the November 14, 2002 refinancing of Springhill Lake Apartments was
under an interim credit facility ("Interim Credit Facility") which also provided
for the refinancing of several other properties. The Interim Credit Facility
created separate loans for each property refinanced thereunder, which loans were
not cross-collateralized or cross-defaulted with each other. During the term of
the Interim Credit Facility, Springhill Lake Apartments was required to make
interest-only payments.
During December 2002, the loan on Springhill Lake Apartments was transferred to
a different lender. The credit facility ("Permanent Credit Facility") with the
new lender has a maturity of five years with an option for the Partnership to
elect one five-year extension. This Permanent Credit Facility also created
separate loans for each property refinanced thereunder, which loans are not
cross-collateralized or cross-defaulted with each other. Each note under this
Permanent Credit Facility is initially a variable rate loan, and after three
years the Partnership has the option of converting the note to a fixed rate
loan. The interest rate on the variable rate loans is 85 basis points over the
Fannie Mae discounted mortgage-backed security index (1.80% per annum at June
30, 2003), and the rate resets monthly. Each loan automatically renews 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 the property is on the Permanent Credit Facility. The loans may
be prepaid without penalty.
The mortgage note payable is non-recourse and is secured by a 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.
Note D - Casualty Gain
During March 2002 a fire occurred at Springhill Lake Apartments which resulted
in damage to eleven units at the property. During the six months ended June 30,
2003, all work was completed to repair the damage and the property recorded a
casualty gain of approximately $83,000. The gain was the result of the receipt
of insurance proceeds of approximately $104,000 offset by approximately $21,000
of undepreciated fixed assets being written off.
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 second quarter of 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.
Note E - 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 six months ended June 30, 2003 and
2002 was approximately zero and $489,000, respectively. During the six months
ended June 30, 2003, the operating partnerships distributed approximately
$7,730,000 of operating and refinancing proceeds to its partners, of which
approximately $985,000 was distributed to the minority interest partner.
Previous distributions to the minority interest partner during 2002 had reduced
the minority interest partner's investment balance to zero. 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 distribution over the investment balance. The charge
is classified as distributions to the minority interest partner in excess of
investment on the accompanying consolidated statements of operations.
Distributions to the minority partner in excess of investment totaled
approximately $985,000 for the six months ended June 30, 2003. Such cumulative
distributions to the minority partner in excess of investment totaled
approximately $2,082,000 at June 30, 2003. No income is allocated to the
minority partner until all previous losses recognized by the majority partner
are recovered. For the six months ended June 30, 2003, approximately $527,000 in
earnings were allocated to the majority partner to recover previous losses
recognized.
Note F - 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 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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. 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; litigation, including costs associated with prosecuting and
defending claims and any adverse outcomes, 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.
The Partnership owns no property other than its interest in the operating
partnerships. The operating partnerships' investment property is a complex which
consists of apartment and townhouse units and an eight store shopping center.
The following table sets forth the average occupancy of the property for the six
months ended June 30, 2003 and 2002:
Average
Occupancy
2003 2002
Springhill Lake Apartments
Greenbelt, Maryland 95% 97%
Results of Operations
The Partnership's net income for the six months ended June 30, 2003 was
approximately $1,668,000 compared to approximately $1,857,000 for the
corresponding period in 2002. The Partnership's net income for the three months
ended June 30, 2003 was approximately $1,422,000 compared to net income of
approximately $1,092,000 for the three months ended June 30, 2002. Income before
minority interest for the six months ended June 30, 2003 was approximately
$2,653,000 compared to approximately $2,346,000 for the corresponding period in
2002. Income before minority interest for the three months ended June 30, 2003
was approximately $1,725,000 compared to approximately $1,335,000 for the
corresponding period in 2002. The increase in income before minority interest
for both the three and six months ended June 30, 2003 is primarily due to a
decrease in total expenses partially offset by a decrease in total revenues. The
decrease in total revenues is primarily due to a larger casualty gain recognized
in 2002 compared to 2003 related to separate fires at the property in April 2001
and March 2002 slightly offset by an increase in other income. Other income
increased due to an increase in utility reimbursements and laundry income at the
property. Rental income remained relatively constant for the comparable periods.
During March 2002 a fire occurred at Springhill Lake Apartments which resulted
in damage to eleven units at the property. During the six months ended June 30,
2003, all work was completed to repair the damage and the property recorded a
casualty gain of approximately $83,000. The gain was the result of the receipt
of insurance proceeds of approximately $104,000 offset by approximately $21,000
of undepreciated fixed assets being written off.
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 second quarter of 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.
Total expenses for the six months ended June 30, 2003 decreased due to a
decrease in interest and general and administrative expenses partially offset by
increases in operating and depreciation expenses. Property tax expense remained
relatively constant for the comparable period. Interest expense decreased due to
the refinancing of the mortgage encumbering Springhill Lake Apartments in
November 2002. Though the mortgage principal balance increased significantly,
the variable interest rate on the new loan was significantly lower during 2003
than the fixed interest rate applicable to the old loan during 2002. General and
administrative expenses decreased due to lower costs incurred in relation to
communications with investors. Operating expense increased due to increases in
interior painting, natural gas costs, roof repairs and snow removal expenses
partially offset by a decrease in salary and related employee expenses at the
property. Depreciation expense increased due to property improvements and
replacements placed into service during the past twelve months which are now
being depreciated.
Total expenses for the three months ended June 30, 2003 decreased due to a
decrease in interest and general and administrative expenses as discussed above
and a decrease in operating expense partially offset by an increase in
depreciation expense as discussed above. Property tax expense remained
relatively constant for the comparable period. The decrease in operating
expenses for the three months ended June 30, 2003 was due primarily to decreases
in maintenance expenses and salary and related employee expenses partially
offset by an increase in natural gas costs at the property compared to the
corresponding period in 2002.
Included in general and administrative expenses are reimbursements to the
Managing General Partner as allowed under the Partnership Agreement associated
with its management of the Partnership. Costs associated with the quarterly and
annual communications with investors and regulatory agencies and the annual
audit required by the Partnership Agreement are also included in general and
administrative expenses.
Minority interest in net earnings of the operating partnerships totaled
approximately $243,000 and $489,000 for the three and six months ended June 30,
2002, respectively. During the three and six months ended June 30, 2003, the
Partnership did not recognize any minority interest in net earnings of the
operating partnerships as previous distributions to the minority partner during
2002 reduced the minority interest partner's investment balance to zero. For the
three and six months ended June 30, 2003 distributions to the minority partner
of approximately $303,000 and $985,000, respectively, were made in excess of the
minority partner's investment in the operating partnerships. 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 distribution over the investment balance. The charge
is classified as distributions to the minority partner in excess of investment
on the accompanying consolidated statements of operations. Distributions to the
minority partner in excess of investment totaled approximately $985,000 for the
six months ended June 30, 2003. Such cumulative distributions to the minority
partner in excess of investment totaled approximately $2,082,000 at June 30,
2003. No income is allocated to the minority partner until all previous losses
recognized by the majority partner are recovered. For the six months ended June
30, 2003, approximately $527,000 in earnings were allocated to the majority
partner to recover previous losses recognized.
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 Partnership from increases in expenses. As part of
this plan, the Managing General Partner attempts to protect the Partnership from
the burden of inflation-related increases in expenses by increasing rents and
maintaining a high overall occupancy level. However, due to changing market
conditions, which can result in the use of rental concessions and rental
reductions to offset softening market conditions, there is no guarantee that the
Managing General Partner will be able to sustain such a plan.
Liquidity and Capital Resources
At June 30, 2003, the Partnership had cash and cash equivalents of approximately
$710,000 as compared to approximately $1,424,000 at June 30, 2002. Cash and cash
equivalents decreased approximately $4,849,000 from December 31, 2002 due to
approximately $9,275,000 and $1,747,000 of cash used in financing and investing
activities, respectively, partially offset by approximately $6,173,000 of cash
provided by operating activities. Cash used in financing activities consisted of
distributions to partners, principal payments made on the mortgage encumbering
the property, payments on advances from an affiliate of the Managing General
Partner and additional loan costs paid relating to the 2002 mortgage
refinancing. Cash used in investing activities consisted of property
improvements and replacements and, to a lesser extent, net deposits to escrow
accounts maintained by the mortgage lender partially offset by the receipt of
insurance proceeds. The Registrant invests its working capital reserves in
interest bearing accounts.
The Partnership 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 Managing General
Partner. The Managing General Partner believes that funds distributed by the
operating partnerships to the Partnership 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. Capital improvements
planned for the Partnership's property are detailed below.
During the six months ended June 30, 2003 the Partnership completed
approximately $1,500,000 of capital improvements at Springhill Lake Apartments
consisting primarily of structural improvements, appliance and plumbing fixture
upgrades, floor covering replacements, heating and air conditioning upgrades and
interior decorations. These improvements were funded from operations. The
Partnership evaluates the capital improvement needs of the property during the
year and currently expects to complete an additional $650,000 which does not
include any amounts that will be incurred to complete repairs and improvements
at the property required to be made in connection with the November 2002
refinancing of the mortgage encumbering the property. At the refinancing,
approximately $7,026,000 was deposited in an escrow account to fund such repairs
and improvements. The additional capital improvements will consist primarily of
roofing upgrades, appliance and flooring replacements and structural
improvements. 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.
The additional capital expenditures will be incurred only if cash is available
from operations or from Partnership reserves. 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. The refinancing replaced the existing
mortgage of approximately $50,300,000 with a new mortgage in the amount of
$113,100,000. The Partnership capitalized loan costs of approximately $2,058,000
during 2002 and capitalized an additional $34,000 during the six months ended
June 30, 2003. In addition, approximately $7,026,000 was deposited in an escrow
account in connection with the refinancing to be used to complete required
repairs at the property.
Initially the November 14, 2002 refinancing of Springhill Lake Apartments was
under an interim credit facility ("Interim Credit Facility") which also provided
for the refinancing of several other properties. The Interim Credit Facility
created separate loans for each property refinanced thereunder, which loans were
not cross-collateralized or cross-defaulted with each other. During the term of
the Interim Credit Facility, Springhill Lake Apartments was required to make
interest-only payments.
During December 2002, the loan on Springhill Lake Apartments was transferred to
a different lender. The credit facility ("Permanent Credit Facility") with the
new lender has a maturity of five years with an option for the Partnership to
elect one five-year extension. This Permanent Credit Facility also created
separate loans for each property refinanced thereunder, which loans are not
cross-collateralized or cross-defaulted with each other. Each note under this
Permanent Credit Facility is initially a variable rate loan, and after three
years the Partnership has the option of converting the note to a fixed rate
loan. The interest rate on the variable rate loans is 85 basis points over the
Fannie Mae discounted mortgage-backed security index (1.80% per annum at June
30, 2003), and the rate resets monthly. Each loan automatically renews 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 the property is on the Permanent Credit Facility. The loans may
be prepaid without penalty.
The mortgage note payable is non-recourse and is secured by a 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.
The Partnership's assets are thought to be sufficient for any near term needs
(exclusive of capital improvements) of the Partnership. The mortgage
indebtedness of approximately $111,750,000 requires monthly payments of
principal and interest until its maturity date in September 2007 at which time a
balloon payment of approximately $99,693,000 will be due. 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 refinanced or sold for a
sufficient amount, the Partnership will risk losing the property through
foreclosure.
The Partnership distributed the following amounts during the six months ended
June 30, 2003 and 2002 (in thousands, except per unit data):
Six Months Per Limited Six Months Per Limited
Ended Partnership Ended Partnership
June 30, 2003 Unit June 30, 2002 Unit
Refinancing $ 2,818 $ 4,342 $ -- $ --
Operations 3,932 5,755 2,117 3,099
$ 6,750 $10,097 $ 2,117 $ 3,099
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 Partnership's cash available
for distribution is reviewed on a monthly basis. There can be no assurance that
the Partnership will generate sufficient funds from operations after required
capital improvement expenditures to permit further distributions to its partners
during the remainder of 2003 or subsequent periods.
Other
AIMCO and its affiliates owned 521.90 limited partnership units (the "Units") in
the Partnership representing 80.42% of the outstanding Units at June 30, 2003. 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 in exchange for cash or a combination
of cash and units in the operating partnership of AIMCO either through private
purchases or tender offers. Pursuant to the Partnership Agreement, unitholders
holding a majority of the Units are entitled to take action with respect to a
variety of matters that include, but are not limited to, voting on certain
amendments to the Partnership Agreement and voting to remove the Managing
General Partner. As a result of its ownership of 80.42% of the outstanding
Units, AIMCO and its affiliates are in a position to control all voting
decisions with respect to the Partnership. 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
The consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States which require the Partnership
to make estimates and assumptions. 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 Partnership's investment 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
Partnership's investment 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 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. Any concessions given at the inception of the lease are amortized over the
life of the lease.
ITEM 3. 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. The debt encumbering the Property bears interest at a
variable rate. Based on interest rates at June 30, 2003, a 100 basis point
increase or decrease in market interest rates would affect net income by
approximately $1.1 million.
The following table summarizes the Partnership's debt obligations at June 30,
2003. Management believes that the fair value of the Partnership's debt
approximates its carrying value as of June 30, 2003.
Principal amount by expected maturity:
Long Term Debt
Variable Rate Debt Average Interest Rate
(in thousands)
2003 $ 1,359 (1)
2004 2,769 (1)
2005 2,829 (1)
2006 2,891 (1)
2007 101,902 (1)
Total $111,750
(1) Adjustable rate based on Fannie Mae discounted mortgage-backed security
index ("DMBS") plus 85 basis points. The rate was 1.80% at June 30, 2003
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 4. CONTROLS AND PROCEDURES
(a) Disclosure Controls and Procedures. The Partnership's management, with the
participation of 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, has
evaluated the effectiveness of the Partnership's disclosure controls and
procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end
of the period covered by this report. Based on such evaluation, 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 concluded that, as of the
end of such period, the Partnership's disclosure controls and procedures are
effective.
(b) Internal Control Over Financial Reporting. There have not been any changes
in the Partnership's internal control over financial reporting (as such term is
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the
fiscal quarter to which this report relates that have materially affected, or
are reasonably likely to materially affect, the Partnership's internal control
over financial reporting.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
3.4 Amended and Restated Limited Partnership Agreement
and Certificate of Amendment of Springhill Lake
Investors Limited Partnership (incorporated herein
by reference to the Registrant's Registration
Statement on Form 10, dated April 30, 1986).
3.4(a) Amendment to Amended and Restated Limited
Partnership Agreement and Certificate of Amendment
of Springhill Lake Investors Limited Partnership
(incorporated herein by reference to the
Registrant's Annual Report on Form 10-K for the
year ended December 31, 1993).
31.1 Certification of equivalent of Chief Executive
Officer pursuant to Securities Exchange Act Rules
13a-14(a)/15d-14(a), as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of equivalent of Chief Financial
Officer pursuant to Securities Exchange Act Rules
13a-14(a)/15d-14(a), as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes
-Oxley Act of 2002.
b) Reports on Form 8-K:
None filed for the quarter ended June 30, 2003.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
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: August 13, 2003
Exhibit 31.1
CERTIFICATION
I, Patrick J. Foye, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Springhill Lake
Investors Ltd. Partnership;
2. Based on my knowledge, this 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
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this 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 report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
and have:
(a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, 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 report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such
evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: August 13, 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
Exhibit 31.2
CERTIFICATION
I, Paul J. McAuliffe, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Springhill Lake
Investors Ltd. Partnership;
2. Based on my knowledge, this 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
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this 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 report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
and have:
(a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, 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 report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such
evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: August 13, 2003
/s/Paul J. McAuliffe
Paul J. McAuliffe
Vice President - Residential of Three Winthrop
Properties, Inc., equivalent of the chief
financial officer of the Partnership
Exhibit 32.1
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 Quarterly Report on Form 10-Q of Springhill Lake
Investors Ltd. Partnership (the "Partnership"), for the quarterly period ended
June 30, 2003 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: August 13, 2003
/s/Paul J. McAuliffe
Name: Paul J. McAuliffe
Date: August 13, 2003
This certification is furnished with this Report pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Partnership for
purposes of Section 18 of the Securities Exchange Act of 1934, as amended.