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 September 30, 2004
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________to _________
Commission file number 0-14569
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
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No___
Indicate by check mark 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)
September 30, December 31,
2004 2003
(Unaudited) (Note)
Assets
Cash and cash equivalents $ 3,044 $ 5,194
Receivables and deposits 1,007 1,944
Restricted escrows 535 7,070
Other assets 3,360 3,046
Investment property:
Land 5,833 5,833
Buildings and related personal property 126,310 122,808
132,143 128,641
Less accumulated depreciation (85,607) (80,070)
46,536 48,571
$ 54,482 $ 65,825
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 2,236 $ 830
Tenant security deposit liabilities 710 834
Other liabilities 427 656
Mortgage note payable 113,500 110,386
116,873 112,706
Minority interest (Note D) -- --
Partners' Deficit
General partners (3,160) (2,771)
Investor limited partners (649 units issued and
outstanding) (59,231) (44,110)
(62,391) (46,881)
$ 54,482 $ 65,825
Note: The consolidated balance sheet at December 31, 2003 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 Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
Revenues:
Rental income $ 7,883 $ 7,759 $23,230 $22,938
Other income 454 406 1,195 1,094
Casualty gain (Note C) -- -- 31 83
Total revenues 8,337 8,165 24,456 24,115
Expenses:
Operating 4,324 3,677 11,048 10,410
General and administrative 112 148 414 467
Depreciation 1,862 1,823 5,553 5,548
Interest 700 635 1,952 2,068
Property taxes 602 440 1,591 1,388
Bad debt expense 137 66 247 205
Loss on early extinguishment of debt 918 -- 918 --
Total expenses 8,655 6,789 21,723 20,086
(Loss) income before minority interest (318) 1,376 2,733 4,029
Distributions to minority interest
partner in excess of investment
(Note D) (2,344) -- (2,344) (985)
Net (loss) income $(2,662) $ 1,376 $ 389 $ 3,044
Net (loss) income allocated to general
partners (5%) $ (133) $ 69 $ 19 $ 152
Net (loss) income allocated to limited
partners (95%) (2,529) 1,307 370 2,892
$(2,662) $ 1,376 $ 389 $ 3,044
Net (loss) income per limited
partnership unit $(3,897) $ 2,014 $ 570 $ 4,456
Distributions per limited partnership
unit $23,869 $ -- $23,869 $10,097
See Accompanying Notes to Consolidated Financial Statements
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
CONSOLIDATED STATEMENT 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, 2003 649 $(2,771) $(44,110) $(46,881)
Distributions to partners -- (408) (15,491) (15,899)
Net income for the nine months
ended September 30, 2004 -- 19 370 389
Partners' deficit at
September 30, 2004 649 $(3,160) $(59,231) $(62,391)
See Accompanying Notes to Consolidated Financial Statements
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
2004 2003
Cash flows from operating activities:
Net income $ 389 $ 3,044
Adjustments to reconcile net income to net cash provided
by operating activities:
Distributions to minority interest partner in excess of
investment 2,344 985
Depreciation 5,553 5,548
Casualty gain (31) (83)
Amortization of loan costs 263 329
Bad debt expense, net 247 205
Loss on early extinguishment of debt 918 --
Change in accounts:
Receivables and deposits 690 266
Other assets (959) (600)
Accounts payable 630 554
Tenant security deposit liabilities (124) 70
Other liabilities (229) (336)
Net cash provided by operating activities 9,691 9,982
Cash flows from investing activities:
Insurance proceeds received 38 104
Property improvements and replacements (2,749) (2,305)
Net withdrawals from (deposits to) restricted escrows 6,535 (29)
Net cash provided by (used in) investing activities 3,824 (2,230)
Cash flows from financing activities:
Payments on mortgage note payable (1,379) (2,030)
Payments on advances from affiliate -- (156)
Repayment of mortgage note payable (109,007) --
Proceeds from mortgage note payable 113,500 --
Prepayment penalty (14) --
Distributions to partners (15,899) (6,750)
Distributions to minority interest partner (2,344) (985)
Loan costs paid (522) (53)
Net cash used in financing activities (15,665) (9,974)
Net decrease in cash and cash equivalents (2,150) (2,222)
Cash and cash equivalents at beginning of period 5,194 5,559
Cash and cash equivalents at end of period $ 3,044 $ 3,337
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,688 $ 1,925
Supplemental disclosure of non-cash information:
Property improvements and replacements included in
accounts payable $ 776 $ 370
At December 31, 2002 approximately $494,000 of property improvements and
replacements were included in accounts payable which are included in property
improvements and replacements during the nine months ended September 30, 2003.
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 AIMCO/Springhill Lake Investors GP, LLC
("AIMCO LLC" or the "Managing General Partner"), all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and nine months ended September
30, 2004 are not necessarily indicative of the results that may be expected for
the year ending December 31, 2004. 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, 2003.
The Managing General Partner is a wholly owned subsidiary of Apartment
Investment and Management Company ("AIMCO"), a publicly traded real estate
investment trust.
On December 11, 2003, AIMCO Properties, L.P., a Delaware limited partnership,
entered into a Redemption and Contribution Agreement (the "Redemption and
Contribution Agreement") with First Winthrop Corporation, a Delaware corporation
("FWC") and the sole shareholder of Three Winthrop Properties, Inc.
("Winthrop"), the former managing general partner of the Partnership, with
respect to the acquisition of its general partner interest in the Partnership
(the "MGP Interest") by an affiliate of AIMCO Properties, L.P., the operating
partnership of AIMCO.
As of the time of the execution of the Redemption and Contribution Agreement and
until such time as the transfer of the MGP Interest from Winthrop to AIMCO LLC
was effective, NHP Management Company ("NHP"), an affiliate of AIMCO Properties,
L.P., was vested with the authority to, subject to certain limitations, cause
Winthrop to take such actions as it deems necessary and advisable in connection
with the activities of the Partnership. The transfer of the MGP Interest from
Winthrop to AIMCO LLC became effective on March 31, 2004. As used herein, the
term "Managing General Partner" shall mean Winthrop, with respect to matters
occurring prior to March 31, 2004 and AIMCO LLC for matters occurring from and
after March 31, 2004.
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.
Reclassifications:
Certain reclassifications have been made to the 2003 balances to conform to the
2004 presentation.
Note B - Transactions with Affiliated Parties
The Partnership has no employees and depends 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 as compensation for providing property management services. The
Partnership paid to such affiliates approximately $718,000 and $709,000 for the
nine months ended September 30, 2004 and 2003, respectively, which is included
in operating expenses.
An affiliate of the Managing General Partner received reimbursement of
accountable administrative expenses amounting to approximately $286,000 and
$329,000 for the nine months ended September 30, 2004 and 2003, respectively,
which is included in general and administrative expenses.
In accordance with the Partnership Agreement, the Managing General Partner
earned approximately $75,000 in asset management fees and approximately $8,000
in administrative fees for both the nine month periods ended September 30, 2004
and 2003. 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 nine months ended September 30, 2003. There were no advances owed at
September 30, 2004.
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 nine months ended September 30, 2004 and
2003, the Partnership was charged by AIMCO and its affiliates approximately
$299,000 and $273,000, respectively, for insurance coverage and fees associated
with policy claims administration.
Note C - Casualty Gain
During September 2003, Hurricane Isabel caused damages to some of the apartment
buildings at the property. During the nine months ended September 30, 2004, all
work was completed to repair the damage and the property recorded a casualty
gain of approximately $31,000. The gain was the result of the receipt of
insurance proceeds of approximately $38,000 offset by approximately $7,000 of
undepreciated damaged assets being written off.
During March 2002, a fire occurred at Springhill Lake Apartments which resulted
in damage to eleven units at the property. During the nine months ended
September 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 damaged assets being written off.
Note D - Minority Interest
The limited partnership interest of Theodore N. Lerner in the operating
partnerships is reflected as a minority interest in the accompanying
consolidated financial statements. Minority interest in net earnings of the
operating partnerships recorded by the Partnership totaled approximately zero
for the nine months ended September 30, 2004 and 2003. During the nine months
ended September 30, 2004 and 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 balance to zero. For the nine months ended September 30, 2004 and
2003, distributions to the minority interest partner of approximately $2,344,000
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 interest partner in excess of
investment on the accompanying consolidated statements of operations. Cumulative
distributions to the minority partner in excess of investment totaled
approximately $4,427,000 at September 30, 2004. No income is allocated to the
minority partner until all previous losses recognized by the majority partner
are recovered. For the nine months ended September 30, 2004 and 2003,
approximately $631,000 and $798,000, respectively, in earnings were allocated to
the majority partner to recover previous losses recognized. Earnings will
continue to be allocated to the majority partner to recover previous losses
recognized until such time as the net amount of approximately $2,730,000 at
September 30, 2004 is recovered.
Note E - Mortgage Refinancing
On July 22, 2004, the Partnership refinanced the mortgage encumbering Springhill
Lake Apartments. The new mortgage of $113,500,000 replaced existing mortgage
indebtedness of approximately $109,007,000. The new mortgage bears interest at a
variable rate and has a balloon payment of $113,500,000 due on August 1, 2011.
The interest rate on the variable rate loan is the Freddie Mac discounted
mortgage-backed security index plus 63 basis points. The rate was 2.164% at
September 30, 2004. After repayment of the existing mortgage, payment of closing
costs, and funding of a $675,000 repair escrow account and operating reserves,
the Partnership received net proceeds of approximately $3,294,000. The
Partnership also received a refund of approximately $7,085,000 relating to the
repair escrow required by the previous lender. Total capitalized loan costs
associated with this refinancing were approximately $522,000 during the nine
months ended September 30, 2004. The Partnership recognized a loss on the early
extinguishment of debt of approximately $918,000 due to the write off of
approximately $904,000 of unamortized loan costs and a prepayment penalty of
approximately $14,000 during the nine months ending September 30, 2004.
Note F - Contingencies
On August 8, 2003 AIMCO Properties L.P., an affiliate of the Managing General
Partner, was served with a complaint in the United States District Court,
District of Columbia alleging that AIMCO Properties L.P. willfully violated the
Fair Labor Standards Act ("FLSA") by failing to pay maintenance workers overtime
for all hours worked in excess of forty per week. On March 5, 2004 the
plaintiffs filed an amended complaint also naming NHP Management Company, which
is also an affiliate of the Managing General Partner. The complaint is styled as
a Collective Action under the FLSA and seeks to certify state subclasses in
California, Maryland, and the District of Columbia. Specifically, the plaintiffs
contend that AIMCO Properties L.P. failed to compensate maintenance workers for
time that they were required to be "on-call". Additionally, the complaint
alleges AIMCO Properties L.P. failed to comply with the FLSA in compensating
maintenance workers for time that they worked in responding to a call while
"on-call". The defendants have filed an answer to the amended complaint denying
the substantive allegations. Some discovery has taken place and settlement
negotiations continue. Although the outcome of any litigation is uncertain,
AIMCO Properties, L.P. does not believe that the ultimate outcome will have a
material adverse effect on its financial condition or results of operations.
Similarly, the Managing General Partner does not believe that the ultimate
outcome will have a material adverse effect on the Partnership's consolidated
financial condition or results of operations.
The Partnership is unaware of any other pending or outstanding litigation
matters involving it or its investment property that are not of a routine nature
arising in the ordinary course of business.
As previously disclosed, the Central Regional Office of the United States
Securities and Exchange Commission (the "SEC") is conducting a formal
investigation relating to certain matters. Although the staff of the SEC is not
limited in the areas that it may investigate, AIMCO believes the areas of
investigation include AIMCO's miscalculated monthly net rental income figures in
third quarter 2003, forecasted guidance, accounts payable, rent concessions,
vendor rebates, capitalization of payroll and certain other costs, and tax
credit transactions. AIMCO is cooperating fully. AIMCO is not able to predict
when the matter will be resolved. AIMCO does not believe that the ultimate
outcome will have a material adverse effect on its consolidated financial
condition or results of operations. Similarly, the Managing General Partner does
not believe that the ultimate outcome will have a material adverse effect on the
Partnership's consolidated financial condition or results of operations.
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's sole asset is a 2,899 unit apartment complex, which consists
of apartment and townhouse units and a four-store shopping center, known as
Springhill Lake Apartments located in Greenbelt, Maryland. Average occupancy for
each of the nine months ended September 30, 2004 and 2003 was 96%.
The Partnership's financial results depend upon a number of factors including
the ability to attract and maintain tenants at the investment property, interest
rates on mortgage loans, costs incurred to operate the investment property,
general economic conditions and weather. 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, the Managing General Partner may use rental
concessions and rental rate reductions to offset softening market conditions,
accordingly, there is no guarantee that the Managing General Partner will be
able to sustain such a plan. Further, a number of factors that are outside the
control of the Partnership, such as the local economic climate and weather, can
adversely or positively affect the Partnership's financial results.
Results of Operations
The Partnership's net income for the nine months ended September 30, 2004 was
approximately $389,000 compared to approximately $3,044,000 for the
corresponding period in 2003. Income before minority interest for the nine
months ended September 30, 2004 was approximately $2,733,000 compared to
approximately $4,029,000 for the corresponding period in 2003. The Partnership's
net loss for the three months ended September 30, 2004 was approximately
$2,662,000 compared to net income of approximately $1,376,000 for the
corresponding period in 2003. Loss before minority interest for the three months
ended September 30, 2004 was approximately $318,000 compared to income before
minority interest of approximately $1,376,000 for the corresponding period in
2003. The decrease in income before minority interest for the three and nine
months ended September 30, 3004 is primarily due to an increase in total
expenses partially offset by an increase in total revenues. The increase in
total revenues for both periods is due to an increase in rental and other income
partially offset by a decrease in casualty gain for the nine months ended
September 30, 2004. Rental income increased due to an increase in the average
rental rate at the Partnership's investment property. Other income increased due
to an increase in reimbursements for legal costs charged to tenants and lease
cancellation fees at Springhill Lake Apartments.
During September 2003, Hurricane Isabel caused damages to some of the apartment
buildings at the property. During the nine months ended September 30, 2004, all
work was completed to repair the damage and the property recorded a casualty
gain of approximately $31,000. The gain was the result of the receipt of
insurance proceeds of approximately $38,000 offset by approximately $7,000 of
undepreciated damaged assets being written off.
During March 2002, a fire occurred at Springhill Lake Apartments which resulted
in damage to eleven units at the property. During the nine months ended
September 30, 2004, 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 damaged assets being written off.
Total expenses for the nine months ended September 30, 2004 increased due to
increases in operating, property tax and bad debt expenses and the loss on early
extinguishment of debt offset slightly by decreases in general and
administrative and interest expenses. Depreciation expense remained relatively
constant between the comparable periods. Operating expenses increased due to
increases in advertising and property expenses offset by decreases in
administrative and maintenance expenses. Advertising expense increased due to
special promotions to attract new tenants and maintain occupancy levels.
Property expenses increased due to increases in utility costs, salaries and
related employee expenses. Administrative expenses decreased due to decreases in
contract cleaning services and legal expenses. Maintenance expenses decreased
due to decreases in contract services as more work is now being performed by
apartment employees and roof repairs. Property tax expense increased due to an
increase in the tax rate by the local taxing authority. Bad debt expense
increased due to a number of evictions of residents. Loss on early
extinguishment of debt increased due to the Partnership refinancing the mortgage
during the period ending September 30, 2004. General and administrative expenses
decreased due to a decrease in accountable reimbursements charged to the
Partnership by an affiliate of the Managing General Partner in accordance with
the Partnership Agreement. Interest expense decreased due to the payment of
scheduled principal payments on the mortgage encumbering the Partnership's
investment property, which reduced the average outstanding balance through July
2004 when the mortgage was refinanced as discussed below.
Total expenses for the three months ended September 30, 2004 increased due to an
increase in operating, depreciation, interest, property tax and bad debt
expenses and the loss on early extinguishment of debt offset by a decrease in
general and administrative expenses. Depreciation expense increased due to
property improvements and replacements being placed into service, which are now
being depreciated. Interest expense increased due to a change in the variable
monthly interest rate on the property's mortgage and to an increase in the
mortgage during the third quarter of 2004. The increase in operating, property
tax, and bad debt expenses and the loss on early extinguishment of debt and the
decrease in general and administrative expenses are the same as discussed above.
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.
The limited partnership interest of Theodore N. Lerner in the operating
partnerships is reflected as a minority interest in the accompanying
consolidated financial statements. Minority interest in net earnings of the
operating partnerships recorded by the Partnership totaled approximately zero
for the nine months ended September 30, 2004 and 2003. During the nine months
ended September 30, 2004 and 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 balance to zero. For the nine months ended September 30, 2004 and
2003, distributions to the minority interest partner of approximately $2,344,000
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 interest partner in excess of
investment on the accompanying consolidated statements of operations. Cumulative
distributions to the minority partner in excess of investment totaled
approximately $4,427,000 at September 30, 2004. No income is allocated to the
minority partner until all previous losses recognized by the majority partner
are recovered. For the nine months ended September 30, 2004 and 2003,
approximately $631,000 and $798,000, respectively, in earnings were allocated to
the majority partner to recover previous losses recognized. Earnings will
continue to be allocated to the majority partner to recover previous losses
recognized until such time as the net amount of approximately $2,730,000 at
September 30, 2004 is recovered.
Liquidity and Capital Resources
At September 30, 2004, the Partnership had cash and cash equivalents of
approximately $3,044,000 as compared to approximately $3,337,000 at September
30, 2003. Cash and cash equivalents decreased approximately $2,150,000 from
December 31, 2003 due to approximately $15,665,000 of cash used in financing
activities partially offset by approximately $9,691,000 and $3,824,000 of cash
provided by operating and investing activities, respectively. Cash used in
financing activities consisted of repayment of the mortgage encumbering the
Partnership's investment property, distributions to partners, loan costs paid
for the property refinancing, payment of a prepayment penalty and principal
payments made on the mortgage encumbering the property partially offset by
proceeds from the new mortgage encumbering the property. Cash provided by
investing activities consisted of net withdrawals from restricted escrows and
the receipt of insurance proceeds partially offset by property improvements and
replacements. The Partnership invests its working capital 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. For
example, 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. Capital improvements planned for the
Partnership's property are detailed below.
During the nine months ended September 30, 2004, the Partnership completed
approximately $3,525,000 of capital improvements at Springhill Lake Apartments
consisting primarily of structural improvements, appliances, water and sewer
upgrades, roof and floor covering replacements and air conditioning upgrades.
Approximately $28,000 of these additions were related to a September 2003
casualty mentioned above. These improvements were funded from operations,
insurance proceeds and replacement reserves. The Partnership evaluates the
capital improvement needs of the property during the year and currently expects
to complete an additional $468,000 in capital improvements during the remainder
of 2004. 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.
The Partnership's assets are thought to be sufficient for any near term needs
(exclusive of capital improvements) of the Partnership. On July 22, 2004, the
Partnership refinanced the mortgage encumbering Springhill Lake Apartments. The
new mortgage of $113,500,000 replaced existing mortgage indebtedness of
approximately $109,007,000. The new mortgage bears interest at a variable rate
and has a balloon payment of $113,500,000 due on August 1, 2011. The interest
rate on the variable rate loan is the Freddie Mac discounted mortgage-backed
security index plus 63 basis points. The rate was 2.164% at September 30, 2004.
After repayment of the existing mortgage, payment of closing costs, and funding
of a $675,000 repair escrow account and operating reserves, the Partnership
received net proceeds of approximately $3,294,000. The Partnership also received
a refund of approximately $7,085,000 relating to the repair escrow required by
the previous lender. Total capitalized loan costs associated with this
refinancing were approximately $522,000 during the nine months ended September
30, 2004. The Partnership recognized a loss on the early extinguishment of debt
of approximately $918,000 due to the write off of approximately $904,000 of
unamortized loan costs and a prepayment penalty of approximately $14,000 during
the nine months ending September 30, 2004.
The Partnership distributed the following amounts during the nine months ended
September 30, 2004 and 2003 (in thousands, except per unit data):
Per Limited Per Limited
Nine Months Ended Partnership Nine months Ended Partnership
September 30, 2004 Unit September 30, 2003 Unit
Refinancing $ 7,744 $11,932 $ 2,818 $ 4,342
Operations 8,155 11,937 3,932 5,755
$15,899 $23,869 $ 6,750 $10,097
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 additional distributions to its
partners during 2004 or subsequent periods.
Other
AIMCO and its affiliates owned 522.65 limited partnership units (the "Units") in
the Partnership representing 80.53% of the outstanding Units at September 30,
2004. A number of these Units were acquired pursuant to tender offers made by
AIMCO or its 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 AIMCO Properties, L.P., 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 80.53% 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, but are not limited
to, 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 impairment of the Partnership's
asset.
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. The Partnership recognizes income attributable to leases monthly
as it is earned. The Partnership evaluates all accounts receivable from
residents and establishes an allowance, after the application of security
deposits, for accounts greater than 30 days past due on current tenants and all
receivables due from former tenants. 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 September 30, 2004, a 100 basis point
increase or decrease in market interest rates would affect net income by
approximately $1.1 million.
The Partnership's debt obligations at September 30, 2004 consist of a mortgage
of $113,500,000 which is due on August 1, 2011. The mortgage bears interest at a
variable rate and requires monthly payments of interest only. The interest rate
on the variable rate loan is the Freddie Mac discounted mortgage-backed security
index ("DMBS") plus 63 basis points. The rate was 2.164% at September 30, 2004
and resets monthly. Management believes that the fair value of the Partnership's
debt approximates its carrying value as of September 30, 2004.
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 1. LEGAL PROCEEDINGS
On August 8, 2003 AIMCO Properties L.P., an affiliate of the Managing General
Partner, was served with a complaint in the United States District Court,
District of Columbia alleging that AIMCO Properties L.P. willfully violated the
Fair Labor Standards Act ("FLSA") by failing to pay maintenance workers overtime
for all hours worked in excess of forty per week. On March 5, 2004 the
plaintiffs filed an amended complaint also naming NHP Management Company, which
is also an affiliate of the Managing General Partner. The complaint is styled as
a Collective Action under the FLSA and seeks to certify state subclasses in
California, Maryland, and the District of Columbia. Specifically, the plaintiffs
contend that AIMCO Properties L.P. failed to compensate maintenance workers for
time that they were required to be "on-call". Additionally, the complaint
alleges AIMCO Properties L.P. failed to comply with the FLSA in compensating
maintenance workers for time that they worked in responding to a call while
"on-call". The defendants have filed an answer to the amended complaint denying
the substantive allegations. Some discovery has taken place and settlement
negotiations continue. Although the outcome of any litigation is uncertain,
AIMCO Properties, L.P. does not believe that the ultimate outcome will have a
material adverse effect on its financial condition or results of operations.
Similarly, the Managing General Partner does not believe that the ultimate
outcome will have a material adverse effect on the Partnership's consolidated
financial condition or results of operations.
ITEM 6. EXHIBITS
See Exhibit Index attached.
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: AIMCO/Springhill Lake Investors GP,LLC
Managing General Partner
By: /s/Martha L. Long
Martha L. Long
Senior Vice President
By: /s/Stephen B. Waters
Stephen B. Waters
Vice President
Date: November 12, 2004
Index to Exhibits
Exhibit No. Document
3.4 Amended and Restated Limited Partnership Agreement and
Certificate of Amendment of Springhill Lake Investors
Limited Partnership(1)
3.4 (a) Amendment to Amended and Restated Limited Partnership
Agreement of Springhill Lake Investors Limited Partnership
dated August 23, 1995 (3)
10 (a) Amended and Restated Limited Partnership Agreement and
Certificate of Amendment of First Springhill Lake Limited
Partnership (Partnership Agreements of Second - Ninth
Springhill Lake Limited Partnerships are substantially
identical)(1)
(j) Consolidated, Amended and Restated Multifamily Note dated
November 1, 2002 between Springhill Lake Investors Limited
Partnership and GMAC Commercial Mortgage Corporation (2)
(k) Guaranty dated November 1, 2002 by AIMCO Properties, L.P., for
the benefit of GMAC Commercial Mortgage Corporation (2)
(l) Consolidated, Amended and Restated Payment Guaranty dated
November 1, 2002 by the Operating Partnerships (2)
(m) Completion/Repair and Security Agreement dated November 1,
2002 between the Operating Partnerships and GMAC Commercial
Mortgage Corporation (2)
(n) Replacement Reserve and Security Agreement dated November 1,
2002 between the Operating Partnerships and GMAC Commercial
Mortgage Corporation (2)
(o) Promissory Note dated November 1, 2002 between Springhill Lake
Investors Limited Partnership and the Operating Partnerships
(2)
(p) Maryland Amended and Restated Multifamily Note dated July 22,
2004 between Springhill Lake Investors Limited Partnership and
GMAC Commercial Mortgage Corporation (4)
(q) Amended and Restated Limited Guaranty dated July 22, 2004 by
AIMCO Properties, L.P., for the benefit of GMAC Commercial
Mortgage Corporation (4)
(r) Amended and Restated Payment Guaranty dated July 22, 2004 by
the Operating Partnerships (4)
(s) Repair Escrow Agreement dated July 22, 2004 between the
Springhill Lake Investors Limited Partnership and the
Operating Partnerships and GMAC Commercial Mortgage
Corporation (4)
(t) Replacement Reserve Agreement dated July 22, 2004 between the
Springhill Lake Investors Limited Partnership and the
Operating Partnerships and GMAC Commercial Mortgage
Corporation (4)
(u) Maryland Amended and Restated Promissory Note dated July 22,
2004 between Springhill Lake Investors Limited Partnership and
the Operating Partnerships (4)
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.
(1) Incorporated herein by reference to the Registrant's
Registration Statement on Form 10 dated April 30, 1986, as
thereafter amended.
(2) Incorporated herein by reference to the Registrant's
Current Report on Form 8-K dated November 14, 2002, as
filed November 29, 2002.
(3) Incorporated herein by reference to the Registrant's
Current Report on Form 8-K dated August 23, 1995, as filed
September 5, 1995.
(4) Incorporated herein by reference to the Registrant's Current
Report on Form 8-K dated July 22, 2004, as filed August 04,
2004.
Exhibit 31.1
CERTIFICATION
I, Martha L. Long, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Springhill Lake
Investors Limited 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: November 12, 2004
/s/Martha L. Long
Martha L. Long
Senior Vice President of AIMCO/Springhill
Lake Investors GP, LLC, equivalent of the
chief executive officer of the Partnership
Exhibit 31.2
CERTIFICATION
I, Stephen B. Waters, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Springhill Lake
Investors Limited 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: November 12, 2004
/s/Stephen B. Waters
Stephen B. Waters
Vice President of AIMCO/Springhill Lake
Investors GP, LLC, 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 Limited Partnership (the "Partnership"), for the quarterly period
ended September 30, 2004 as filed with the Securities and Exchange Commission on
the date hereof (the "Report"), Martha L. Long, as the equivalent of the Chief
Executive Officer of the Partnership, and Stephen B. Waters, 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/Martha L. Long
Name: Martha L. Long
Date: November 12, 2004
/s/Stephen B. Waters
Name: Stephen B. Waters
Date: November 12, 2004
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.