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 March 31, 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)
March 31, December 31,
2003 2002
(unaudited) (Note)
Assets
Cash and cash equivalents $ 1,292 $ 5,559
Receivables and deposits 2,274 1,854
Restricted escrows 7,027 7,026
Other assets 2,742 3,424
Investment property:
Land 5,833 5,833
Buildings and related personal property 121,216 120,469
127,049 126,302
Less accumulated depreciation (74,540) (72,740)
52,509 53,562
$ 65,844 $ 71,425
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 947 $ 1,044
Tenant security deposit liabilities 787 774
Other liabilities 673 937
Advances from affiliate -- 156
Mortgage note payable 112,427 113,100
114,834 116,011
Minority interest (Note E)
Partners' Deficit
General partners (2,877) (2,797)
Investor limited partners (649 units issued and
outstanding) (46,113) (41,789)
(48,990) (44,586)
$ 65,844 $ 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
March 31,
2003 2002
Revenues:
Rental income $7,428 $7,452
Other income 321 321
Casualty gain 83 --
Total revenues 7,832 7,773
Expenses:
Operating 3,664 3,073
General and administrative 179 184
Depreciation 1,847 1,758
Interest 740 1,286
Property taxes 474 461
Total expenses 6,904 6,762
Income before minority interest 928 1,011
Distributions to minority interest partner in
excess of investment (682) --
Minority interest in net earnings of operating
partnerships -- (246)
Net income $ 246 $ 765
Net income allocated to general partners (5%) $ 12 $ 38
Net income allocated to investor limited
partners (95%) 234 727
$ 246 $ 765
Net income per limited partnership unit $ 361 $1,120
Distributions per limited partnership unit $7,023 $ --
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 -- (92) (4,558) (4,650)
Net income for the three months
ended March 31, 2003 -- 12 234 246
Partners' deficit at
March 31, 2003 649 $(2,877) $(46,113) $(48,990)
See Accompanying Notes to Consolidated Financial Statements
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three Months Ended
March 31,
2003 2002
Cash flows from operating activities:
Net income $ 246 $ 765
Adjustments to reconcile net income to net cash
provided by operating activities:
Distributions to minority interest partner in
excess of investment 682 --
Minority interest in net earnings of operating
partnerships -- 246
Depreciation 1,847 1,758
Casualty gain (83) --
Amortization of loan costs 115 34
Bad debt expense 70 48
Change in accounts:
Receivables and deposits (490) (291)
Other assets 601 118
Accounts payable 397 (795)
Tenant security deposit liabilities 13 11
Other liabilities (264) (120)
Due to affiliate -- (93)
Net cash provided by operating activities 3,134 1,681
Cash flows from investing activities:
Insurance proceeds received 104 --
Property improvements and replacements (1,309) (1,044)
Net deposits to restricted escrows (1) (26)
Net cash used in investing activities (1,206) (1,070)
Cash flows from financing activities:
Payments on advances from affiliate (156) (1,361)
Payments on mortgage note payable (673) (476)
Distributions to partners (4,650) --
Distributions to minority partner (682) --
Loan costs paid (34) --
Net cash used in financing activities (6,195) (1,837)
Net decrease in cash and cash equivalents (4,267) (1,226)
Cash and cash equivalents at beginning of period 5,559 2,277
Cash and cash equivalents at end of period $ 1,292 $ 1,051
Supplemental disclosure of cash flow information:
Cash paid for interest, including approximately zero
and $31, respectively, paid to an affiliate $ 818 $ 1,254
Supplemental disclosure of non-cash information:
Property improvements and replacements included in
accounts payable $ -- $ 179
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 three
months ended March 31, 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 months ended March 31, 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.
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 $232,000 and $208,000 for the three months ended
March 31, 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 $134,000 and
$223,000 for the three months ended March 31, 2003 and 2002, respectively, which
is included in general and administrative expenses. During the three months
ended March 31, 2002, the Partnership was charged, by affiliates of the Managing
General Partner, approximately $88,000 for fees related to construction
management services for work performed during the period. 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 March 31, 2003.
In accordance with the Partnership Agreement, the Managing General Partner
earned approximately $25,000 in asset management fees and approximately $3,000
in administrative fees for both the three month periods ended March 31, 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 three months ended March 31, 2003. There were no advances owed at March
31, 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 2003 and 2002, the Partnership's cost for
insurance coverage and fees associated with policy claims administration
provided by AIMCO will be approximately $273,000 and $331,000, respectively.
Note C - Mortgage Note Payable
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 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 2.098% at March 31, 2003 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. The Partnership capitalized loan costs of approximately $2,058,000
during 2002 and capitalized an additional $34,000 during the three months ended
March 31, 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.
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 three months ended March
31, 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.
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 three months ended March 31, 2003 and
2002 was approximately zero and $246,000, respectively. During the three months
ended March 31, 2003, the operating partnerships distributed approximately
$5,350,000 of operating and refinancing proceeds to its partners, of which
approximately $682,000 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 $682,000 for the three months ended March 31, 2003. Such
cumulative distributions to the minority partner in excess of investment totaled
approximately $1,780,000 at March 31, 2003. No income can be allocated to the
minority partner until all previous losses recognized by the majority partner
are recovered. Total cumulative unrecovered losses recognized by the majority
partner are approximately $216,000 at March 31, 2003.
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. 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.
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
three months ended March 31, 2003 and 2002:
Average
Occupancy
2003 2002
Springhill Lake Apartments
Greenbelt, Maryland 94% 96%
Results of Operations
The Registrant's net income for the three months ended March 31, 2003 was
approximately $246,000 compared to approximately $765,000 for the corresponding
period in 2002. Income before minority interest for the three months ended March
31, 2003 was approximately $928,000 compared to approximately $1,011,000 for the
corresponding period in 2002. The decrease in income before minority interest is
primarily the result of an increase in total expenses partially offset by an
increase in total revenues. The increase in total revenues is primarily due to
the casualty gain recognized in 2003 resulting from a fire at the property in
March 2002.
During March 2002 a fire occurred at Springhill Lake Apartments which resulted
in damage to eleven units at the property. During the three months ended March
31, 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.
Total expenses increased due to increases in operating and depreciation expenses
partially offset by a decrease in interest expense. Property taxes and general
and administrative expenses remained relatively constant for the comparable
periods. The increase in operating expense is primarily attributable to
increases in natural gas costs, snow removal and clean up costs and interior
painting expenses at Springhill Lake Apartments partially offset by a decrease
in salaries and related payroll costs. Depreciation expense increased due to
property improvements and replacements placed into service during the past
twelve months which are now being depreciated. 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 the
three months ended March 31, 2003 than the fixed interest rate applicable to the
old loan.
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 zero and $246,000 for the three months ended March 31, 2003 and
2002, respectively. The decrease was due primarily to the decrease in income
before minority interest as described above. Previous distributions to the
minority 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 partner in excess of investment on the
accompanying consolidated statements of operations. Distributions to the
minority partner in excess of investment totaled approximately $682,000 for the
three months ended March 31, 2003. Such cumulative distributions to the minority
partner in excess of investment totaled approximately $1,780,000 at March 31,
2003. No income can be allocated to the minority partner until all previous
losses recognized by the majority partner are recovered. Total cumulative
unrecovered losses recognized by the majority partner are approximately $216,000
at March 31, 2003.
As part of the ongoing business plan of the Registrant, the Managing General
Partner monitors the rental market environment of its investment property to
assess the feasibility of increasing rents, maintaining or increasing occupancy
levels, and protecting the Registrant from increases in expenses. As part of
this plan, the Managing General Partner attempts to protect the Registrant from
the burden of inflation-related increases in expenses by increasing rents and
maintaining a high overall occupancy level. However, due to changing market
conditions, which can result in the use of rental concessions and rental
reductions to offset softening market conditions, there is no guarantee that the
Managing General Partner will be able to sustain such a plan.
Liquidity and Capital Resources
At March 31, 2003, the Registrant had cash and cash equivalents of approximately
$1,292,000 as compared to approximately $1,051,000 at March 31, 2002. Cash and
cash equivalents decreased approximately $4,267,000 from December 31, 2002 due
to approximately $6,195,000 and $1,206,000 of cash used in financing and
investing activities, respectively, partially offset by approximately $3,134,000
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 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 Managing General
Partner. 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. Capital improvements
planned for the Partnership's property are detailed below.
During the three months ended March 31, 2003 the Partnership completed
approximately $815,000 of capital improvements at Springhill Lake Apartments
consisting primarily of structural improvements, appliances, plumbing fixtures,
floor covering replacements, major landscaping 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 $365,000 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. 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. 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 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 2.098% at March 31, 2003 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. The Partnership capitalized loan costs of approximately $2,058,000
during 2002 and capitalized an additional $34,000 during the three months ended
March 31, 2003.
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 $112,427,000 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 refinanced or
sold for a sufficient amount, the Partnership will risk losing the property
through foreclosure.
The Partnership distributed the following amounts during the three months ended
March 31, 2003 and 2002 (in thousands, except per unit data):
Three Months Per Limited Three Months Per Limited
Ended Partnership Ended Partnership
March 31, 2003 Unit March 31, 2002 Unit
Refinancing $2,818 $4,342 $ -- $ --
Operations 1,832 2,681 -- --
$4,650 $7,023 $ -- $ --
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 any 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 March 31, 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 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 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. Concessions are charged to income as incurred.
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 March 31, 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 March 31,
2003. Management believes that the fair value of the Partnership's debt
approximates its carrying value as of March 31, 2003.
Principal amount by expected maturity:
Long Term Debt
Variable Rate Debt Average Interest Rate
(in thousands)
2003 $ 2,036 (1)
2004 2,769 (1)
2005 2,829 (1)
2006 2,891 (1)
2007 101,902 (1)
Total $112,427
(1) Adjustable rate based on Fannie Mae discounted mortgage-backed security
index ("DMBS") plus 85 basis points. The rate was 2.098% at March 31, 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
The principal executive officer and principal financial officer of the Managing
General Partner authorized to direct the day-to-day activities of the
Partnership, 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 quarterly 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.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibit 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).
Exhibit 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).
Exhibit 99, 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 March 31, 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: May 14, 2003
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 quarterly 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 quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly 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 quarterly 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
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly 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
quarterly 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: May 14, 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 quarterly report on Form 10-Q of Springhill Lake
Investors Ltd. Partnership;
2. Based on my knowledge, this quarterly 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 quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly 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 quarterly 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
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly 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
quarterly 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: May 14, 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 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 Quarterly Report on Form 10-Q of Springhill Lake
Investors Ltd. Partnership (the "Partnership"), for the quarterly period ended
March 31, 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: May 14, 2003
/s/ Paul J. McAuliffe
Name: Paul J. McAuliffe
Date: May 14, 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.