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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For fiscal
year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the
transition period from ________ to ________.
0-17412
(Commission File Number)
Secured Income L.P.
(Exact name of registrant as specified in its governing instruments)
Delaware 06-1185846
(State or other jurisdiction of organization)
(I.R.S. Employer Identification No.)
Wilder Richman Resources Corporation
599 W. Putnam Avenue
Greenwich, Connecticut 06830
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 869-0900
Securities registered pursuant to Section 12(b) of the Act:
None
(Title of each Class)
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in a definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. X
The aggregate sales price of the units of limited partnership interest held by
non-affiliates of the Registrant is $19,687,380. There is currently no public
market for the units of limited partnership interest and, accordingly, such
figure does not represent the market value for the units.
Documents incorporated by reference:
The Prospectus of the Registrant, dated March 5, 1987 as supplemented and filed
pursuant to Rule 424(b) and (c) under the Securities Act of 1933, is
incorporated by reference into Parts I, II and III of this Annual Report on Form
10-K.
PART I
Item 1 Business
General Development of Business
Registrant (also referred to as the "Partnership") is a limited partnership
which was formed under the Delaware Revised Uniform Limited Partnership Act on
October 10, 1986. The general partners of the Partnership (the "General
Partners") are Wilder Richman Resources Corporation, a Delaware corporation,
Real Estate Equity Partners L.P., a Delaware limited partnership and WRC-87A
Corporation, a Delaware corporation.
The Partnership was organized to invest in luxury multi-family residential
housing complexes (the "Complexes") by acquiring approximately 99% of the
limited partnership interest (the "Operating Partnership Interest") in limited
partnerships that own and operate such Complexes (the "Operating Partnerships").
WRC-87A Corporation is a special limited partner of each Operating Partnership
and has certain rights in connection therewith. Pursuant to Rule 12b-23 of the
Securities and Exchange Commission's General Rules and Regulations promulgated
under the Securities Exchange Act of 1934, as amended, the description of
Registrant's business set forth under the heading "Investment Objectives and
Policies" at pages 20 through 30 of the prospectus, dated March 5, 1987, (the
"Prospectus") is incorporated herein by reference.
Pursuant to the Partnership's Prospectus, as supplemented on October 2, 1987,
December 15, 1987 and March 29, 1988, the Partnership offered up to $50 million
of units of limited partnership interest in the Partnership (the "Units") at an
offering price of $20 per Unit. The Units were registered under the Securities
Act of 1933 pursuant to a Registration Statement on Form S-11 (Registration No.
33-9602).
Registrant terminated the offering of Units (the "Offering") on February 29,
1988 upon raising sufficient capital from the sale of Units to fund the
acquisition of the two properties specified for investment by Registrant. The
Offering raised $19,687,380 from the sale of 984,369 Units. After payment of
$1,378,117 of selling commissions and $1,378,116 of organization and offering
expenses and acquisition fees, the net proceeds available for investment were
$16,931,147. Of such net proceeds, $16,734,273 was allocated to the acquisition
of investments in the Operating Partnerships (the "Operating Partnership
Interests") which included investments in guaranteed investment contracts. The
remaining net proceeds of $196,874 was designated as working capital to be used
for operating expenses of the Partnership.
Financial Information about Industry Segments
Registrant is engaged solely in the business of holding Operating Partnership
Interests. A presentation of information regarding industry segments is not
applicable and would not be material to an understanding of the Partnership's
business taken as a whole. See Item 8 herein for a summary of Registrant's
operations.
Competition
Information regarding competition, general risks, tax risks and partnership
risks is set forth under the heading "Risk Factors" at pages 37 through 48 of
the Prospectus, which is incorporated herein by reference.
Compliance with Environmental Protection Provisions
Registrant is not aware of any non-compliance by the Operating Partnerships with
respect to Federal, State and Local provisions regulating the discharge of
material into the environment or otherwise relating to the protection of the
environment, and is not aware of any condition that would have a material effect
on the capital expenditures or competitive position of Registrant.
Employees of Registrant
Registrant employs no personnel and incurs no payroll costs. An affiliate of
Wilder Richman Resources Corporation employs individuals who perform accounting,
secretarial, transfer and other services on behalf of Registrant as are
necessary in the ordinary course of business. Such individuals also perform
similar services for other affiliates of Wilder Richman Resources Corporation.
2
Tax Reform Act of 1986, Revenue Act of 1987, Technical and Miscellaneous Revenue
Act of 1988, Omnibus Budget Reconciliation Act of 1989, Omnibus Budget
Reconciliation Act of 1990, Tax Extension Act of 1991, Omnibus Budget
Reconciliation Act of 1993, Uruguay Round Agreements Act and Taxpayer Relief Act
of 1997 (collectively the "Tax Acts")
Registrant is organized as a limited partnership and is a "pass through" tax
entity which does not, itself, pay Federal income tax. However, the partners of
Registrant who are subject to Federal income tax may be affected by the Tax
Acts. Registrant will consider the effect of certain aspects of the Tax Acts on
the partners when making decisions regarding its investments. Registrant does
not anticipate that the Tax Acts will currently have a material adverse impact
on Registrant's business operations, capital resources and plans or liquidity.
Item 2 Properties
The following table sets forth information regarding the Complexes owned by the
Operating Partnerships as of December 31, 1997.
Number of
Property Location Dwelling Units
Fieldpointe Apartments Frederick, MD 252
The Westmont New York, NY 163
Fieldpointe Apartments, which is owned by Carrollton X Associates Limited
Partnership (the "Carrollton Partnership"), is comprised of 252 apartment units
totalling approximately 235,000 square feet with approximately 500 parking
spaces. On-site amenities include a clubhouse building with locker room and
on-site management office, a swimming pool and two tennis courts. The apartments
feature numerous amenities, including dishwashers, disposals and fireplaces.
The Partnership acquired its interest as a limited partner in the Carrollton
Partnership by making a capital contribution of $3,121,995. Of this amount,
$1,373,039 was invested in guaranteed investment contracts and $1,748,956 was
contributed upon the Partnership's acquisition of the Operating Partnership
Interest, including the amount due upon the achievement of sustaining rental
revenue.
The mortgage financing for the Carrollton Partnership was modified on August 30,
1993 from the sale of tax-exempt bonds pursuant to the terms of Section
103(b)(4)(a) of the Internal Revenue Code. The modified mortgage in the amount
of $10,494,100, bearing fixed 6.09% interest (with an exception for the first
ten months through August 1994) and with a term of 35 years, is insured by the
United States Department of Housing and Urban Development ("HUD") under Section
221(d)(4) of the National Housing Act, as amended. Under the terms of the
financing, 80% of the units are permitted market rate rents and 20% of the units
are to be rented to people earning no more than the low or moderate income
levels within the meaning of Section 103(b)(4)(a) of the Internal Revenue Code.
The Fieldpointe Apartments occupancy rate was approximately 98% as of December
31, 1997.
The Westmont, which is owned by Columbia Associates (the "Columbia
Partnership"), contains 163 apartment units, 9,415 square feet of commercial
space, 46 garage parking spaces, and a penthouse with an exercise center and
health club which offers exercise equipment, steam room, sauna, jacuzzi and a
large terrace. The apartments feature numerous luxury amenities, including
security systems, microwave ovens, dishwashers and hardwood floors.
The Partnership acquired its interest as a limited partner in the Columbia
Partnership by making a capital contribution of $12,571,634. Of this amount,
$6,651,323 was invested in guaranteed investment contracts (which had a value of
$5,610,679, including net accrued interest of $18,918, at the time of the
acquisition as a result of principal amortization from the dates of purchase of
such guaranteed investment contracts to the closing of the Columbia Partnership
acquisition), $5,921,104 was contributed upon the Partnership's acquisition of
the Operating Partnership Interest in the Columbia Partnership and $1,039,851
was contributed to the Columbia Partnership upon the achievement of sustaining
rental revenue.
The mortgage financing of the Columbia Partnership was modified on May 27, 1993
pursuant to a bond refunding by the New York City Housing Development
Corporation ("HDC") in the amount of $27,600,000. Under the terms of the
modified financing, the Columbia Partnership agreed that 20% of the residential
units in The Westmont will be maintained for occupancy by low or moderate income
tenants until July 2004. The Westmont's occupancy rate as of December 31, 1997
was approximately 99% as to residential dwelling units and 100% as to commercial
space.
3
As of December 31, 1997, the residential occupancy and market rental rates of
the Complexes, exclusive of low and moderate income units, were approximately as
follows:
Fieldpointe The
Apartments Westmont
Occupancy Rate 98% 99%
Monthly Rental Rates:
Studio $1,576-$1,775
One-Bedroom $560-$600 $1,606-$2,530
Two-Bedroom $605-$690 $2,494-$3,350
Three-Bedroom $770-$800 $3,256-$4,100
The low and moderate income rental rates as of December 31, 1997 for Fieldpointe
Apartments fall within the ranges noted above. Such rates for The Westmont range
from $705 to $898.
Further information regarding the Complexes and Registrant's interest therein is
set forth under the heading Specified Investments at pages 30 through 36 of the
Prospectus, and in the supplements to the Prospectus dated October 2, 1987 and
March 29, 1988.
Item 3 Legal Proceedings
None
Item 4 Submission of Matters to a Vote of Security Holders
None
4
PART II
Item 5 Market for Registrant's Common Equity and Related Unit Matters
Market
There is no developed public market for the purchase and sale of Units
and Registrant does not anticipate that such a market will develop.
Holders
As of December 31, 1997, there were approximately 1,369 record holders
of Units (the "Limited Partners") holding an aggregate of 984,369 Units in the
Partnership.
Distributions
The Agreement of Limited Partnership of Registrant (the "Partnership Agreement")
provides that all Cash Available for Distribution (as defined therein) be
distributed quarterly to the partners in specified proportions. As part of the
restructuring of the Columbia Partnership's financing, the Columbia Partnership
is prohibited from distributing cash flow from operations (exclusive of proceeds
from the guaranteed investment contracts). See Item 7 herein, Management's
Discussion and Analysis of Financial Condition and Results of Operations, for
further discussion. There were no distributions to the Limited Partners declared
during the years ended December 31, 1997 and 1996.
Item 6 Selected Financial Data
The following table summarizes certain selected consolidated financial
information concerning Registrant and should be read in conjunction with the
consolidated financial statements and the related notes thereto:
Year Ended December 31,
1997 1996 1995 1994 1993
--------- ---------- --------- -------- ----------
Total revenue $6,787,161 $6,434,698 $6,092,551 $5,880,772 $5,729,520
Net loss (596,273) (69,521) (397,620) (465,413) (1,219,746)
Net loss allocated
per unit of limited
partnership interest - - - (.39) (1.23)
At year end:
Total assets 38,149,194 39,322,376 40,458,675 41,709,487 43,416,439
Mortgages
payable 34,449,756 35,320,565 36,589,220 37,441,770 37,869,214
Long-term debt - - - - -
5
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity and Capital Resources
The Partnership's primary sources of funds are rents generated by the Operating
Partnerships and interest derived from investments and deposits which are
restricted in accordance with the terms of the mortgages of the Operating
Partnerships. As of January 15, 1995, the guaranteed investment contracts which
were acquired to provide distributions to the Limited Partners were fully
amortized. One guaranteed investment contract, owned by the Columbia Partnership
became fully amortized on January 15, 1998, the proceeds of which were utilized
for investor service charges of the Columbia Partnership through December 1997.
The Partnership's investments are highly illiquid.
The Partnership is not expected to have access to additional sources of
financing. Accordingly, if unforeseen contingencies arise that cause an
Operating Partnership to require capital in addition to that contributed by the
Partnership and any equity of the Operating General Partners, potential sources
from which such capital needs will be able to be satisfied (other than reserves)
would be additional equity contributions of the Operating General Partners or
other equity reserves, if any, which could adversely affect the distribution
from the Operating Partnerships to the Partnership of operating cash flow and
sale or refinancing proceeds. Prior to the modification of the mortgages of the
respective Operating Partnerships during 1993, the rents generated by the
Operating Partnerships were generally not sufficient to fully cover the
operating expenses and debt service requirements of the Operating Partnerships.
Although the Operating Partnerships were successful in refinancing their
respective mortgages with significantly lower mandatory payment terms, certain
restrictions were placed on the respective Operating Partnerships in connection
with distributions, among other things. Prior to the refinancings, the
respective Operating General Partners provided funds necessary to cover
operating deficits in the form of advances and fee deferrals; however, there can
be no assurance that the respective Operating General Partners would provide
funds to the extent they may be needed.
Investment in guaranteed investment contract decreased by approximately $73,000
as a result of the amortization of principal from the quarterly payments from
such contract. The payments of principal and interest from such contracts were
previously utilized by the Partnership to make distributions to the partners
(through December 1994) and currently cover a portion of the investor services
expenses incurred by the Partnership. Virtually all distributions to partners to
date have been generated from the investment in guaranteed investment contracts.
The General Partners do not anticipate significant cash flow distributions from
the properties given the restrictions on cash flow distributions of the Columbia
Partnership resulting from the restructuring of its refinancing in 1993.
During 1997, as a result of the cash flows generated by the operations of the
Complexes and the proceeds of the Columbia Partnership's guaranteed investment
contract, cash and cash equivalents increased by approximately $421,000.
Mortgages payable decreased due to principal amortization of approximately
$871,000, which amount includes $400,000 of accelerated payments on the Columbia
Partnership's mortgages (see discussion below). Due to general partners and
affiliates increased primarily as a result of accrued interest on advances
provided by the Columbia Operating General Partners and accrued investor
services fees, partially offset by the payment of management and reporting fees
of the Carrollton Partnership which were previously deferred. As of December 31,
1997, the Partnership owes approximately $686,000 to an affiliate of certain
General Partners for accrued investor services fees.
Property and equipment decreased by approximately $1,520,000 primarily due to
depreciation, while intangible assets decreased by approximately $267,000
primarily due to amortization. Property and equipment and intangible assets are
expected to decrease annually as the cost of these assets is allocated to future
periods over their remaining lives.
As of December 31, 1997, the balance in the Columbia Partnership's Pledged Cap
Account (see discussion below) is approximately $2,193,000. Although the
original outside date for the Pledged Cap Account to be utilized for its
intended purpose was October 31, 1996, the Columbia Operating General Partners
have been conducting ongoing discussions with the lender in order to address
other potential uses of such account, including utilizing such funds for costs
in connection with a potential refinancing of the mortgages with another lender.
Although the Columbia Operating General Partners have been conducting
discussions with other potential credit enhancers and continue to explore
alternatives in order to obtain a lower effective borrowing rate, there can be
no assurance that the lender would approve any alternative utilization of such
account, or that the Columbia Operating General Partners will procure suitable
alternative financing.
6
Results of Operations
Year Ended December 31, 1997
During 1997, the Columbia Partnership and the Carrollton Partnership generated
income from operating activitiesof approximately $3,121,000 and approximately
$949,000, respectively. Mortgage principal payments during 1997 for the Columbia
Partnership and the Carrollton Partnership were approximately $758,000 and
approximately $113,000, respectively. In the case of the Columbia Partnership,
the maximum amount permitted to be deposited to the Operating Deficit Reserve
($500,000) was achieved during 1994; accordingly, no additional deposits to the
Operating Deficit Reserve are required other than to maintain the account at a
balance of $500,000. No amounts were utilized from the Operating Deficit Reserve
during 1997. Deposits to the Pledged Cap Account and the Bond Retirement Escrow
during 1997 were approximately $439,000 and approximately $252,000,
respectively. Pursuant to the terms of the Columbia Partnership's mortgages, the
lender is entitled to a credit enhancement fee of 2.5% per annum based on the
outstanding loan balance commencing February 1, 1997. During 1997, the Columbia
Partnership incurred $582,229 in connection with such fee. After considering the
respective mandatory mortgage principal payments, required deposits to mortgage
escrows, accelerated principal payments on the Columbia Mortgages and payments
for the credit enhancement fee, among other things, the Complexes generated
combined cash flow of approximately $344,000 during 1997. Any savings realized
on the difference between the initial note rate on the Columbia Partnership's
mortgages of 4.66% and the actual low floater rate (approximately 3.56% weighted
average rate during 1997) are deposited into the Pledged Cap Account. To the
extent the future cash flow generated by the Columbia Partnership is not
utilized to fund the Operating Deficit Reserve or Pledged Cap Account, such cash
flow, under the Citibank loan terms, will be deposited to the Bond Retirement
Escrow to make additional mortgage principal payments. Such additional payments
amounted to $400,000 during the year ended December 31, 1997. However, there can
be no assurance that the level of cash flow generated by the Complexes in 1997
will continue in future years.
Although the Complexes generated cash flow during 1997, results of operations
declined as compared to 1996 primarily as a result of (i) the commencement of
the credit enhancement fee in connection with the Columbia Partnership's
mortgages, (ii) costs incurred by the Columbia Partnership in connection with
attempts to refinance its mortgages and (iii) an increase in the weighted
average interest rate on the Columbia Partnership's mortgages from 3.29% to
3.56%. Operating and maintenance expenses increased for the year ended December
31, 1997 primarily due to scheduled maintenance. Interest revenue for the year
ended December 31, 1997 is comparable to the year ended December 31, 1996 and
was generated primarily from Partnership deposits and escrows established in
connection with the Columbia Partnership's mortgages.
As of December 31, 1997, the occupancy of Fieldpointe Apartments was
approximately 98% and the occupancy of The Westmont was approximately 99% as to
residential units and 100% as to commercial space. The future operating results
of the Complexes will be extremely dependent on market conditions and therefore
may be subject to significant volatility. The Complexes are generally in good
physical condition and are being managed by experienced management companies.
Year Ended December 31, 1996
During 1996, the Columbia Partnership and the Carrollton Partnership generated
income from operating activities of approximately $2,764,000 and approximately
$961,000, respectively. No amounts were utilized from the Operating Deficit
Reserve during 1996. Deposits to the Pledged Cap Account and the Bond Retirement
Escrow during 1996 were approximately $439,000 and approximately $712,000,
respectively. Mortgage principal payments during 1996 for the Columbia
Partnership and the Carrollton Partnership were approximately $1,162,000 and
approximately $106,000, respectively, which amount for the Columbia Partnership
includes $800,000 of additional payments from the Bond Retirement Escrow. After
considering the respective mandatory mortgage principal payments, required
deposits to mortgage escrows and accelerated principal payments on the Columbia
Mortgages, among other things, the Complexes generated combined cash flow of
approximately $258,000 during 1996.
The Partnership's results from operations improved during the year ended
December 31, 1996 as compared to the year ended December 31, 1995 due to a
decrease in the weighted average interest rate on the Columbia Partnership's
mortgages and an increase in rental revenue. Operating and maintenance expenses
increased for the year ended December 31, 1996 primarily due to increased
maintenance salaries. Interest revenue for the year ended December 31, 1996 is
comparable to the year ended December 31, 1995 and was generated primarily from
Partnership deposits and escrows established in connection with the Columbia
Partnership's mortgages.
7
As of December 31, 1996, the occupancy of Fieldpointe Apartments was
approximately 99% and the occupancy of The Westmont was approximately 99% as to
residential units and 100% as to commercial space. The commercial space was
fully occupied throughout 1996, resulting in an increase in commercial rent
revenue of approximately $133,000 as compared to 1995.
Year Ended December 31, 1995
During 1995, the Columbia Partnership and the Carrollton Partnership generated
income from operating activities of approximately $2,696,000 and approximately
$928,000, respectively. No amounts were utilized from the Operating Deficit
Reserve during 1995. Deposits to the Pledged Cap Account and the Bond Retirement
Escrow during 1995 were approximately $322,000 and approximately $670,000,
respectively. Mortgage principal payments during 1995 for the Columbia
Partnership and the Carrollton Partnership were approximately $752,000 and
approximately $101,000, respectively, which amount for the Columbia Partnership
includes $400,000 of additional payments from the Bond Retirement Escrow. After
considering the respective mandatory mortgage principal payments, required
deposits to mortgage escrows and accelerated principal payments on the Columbia
Mortgages, among other things, the Complexes generated combined cash flow of
approximately $166,000 during 1995.
As of December 31, 1995, the occupancy of Fieldpointe Apartments was
approximately 99% and the occupancy of The Westmont was approximately 98% as to
residential units and 100% as to commercial space. Although the commercial space
was fully occupied as of December 31, 1995, approximately 22% of the space was
vacant during 1995 until November 1, 1995; the terms of the new lease (which has
a five year term plus renewal options) included a rent concession through
February 28, 1996. The commercial vacancy loss (including concessions on the new
lease) for 1995 was approximately $126,000.
Inflation
Inflation is not expected to have a material adverse impact on Registrant's
revenues during its period of ownership of the Operating Partnerships. However,
because of the nature of the low floater interest rate involved in the Columbia
Partnership's mortgages, the Columbia Partnership's ability to generate cash
flow (and therefore fund reserves and retire debt) would be adversely affected
by inflation. Although the outside date for purchasing an interest rate cap was
October 1996, the cap has not been purchased (see discussion above under the
caption "Liquidity and Capital Resources").
Recent Accounting Statements Not Yet Adopted
In June 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive
Income" effective for fiscal years beginning after December 15, 1997. SFAS No.
130 establishes standards for reporting and display of comprehensive income and
its components (revenue, expenses, gains and losses) in the financial statements
and requires that all such items required to be recognized as components of
comprehensive income be reported and displayed with the same prominence as items
in other financial statements. Reclassification of financial statements for
earlier periods provided for comparative purposes is required. SFAS No. 130 is
not expected to have a material impact on the Partnership's consolidated
financial statements.
Item 8 Financial Statements and Supplementary Data
Set forth in the financial statements listed on page F-2 is the financial
information required in response to Item 8. Such financial statements and
schedules appear on pages F-1 to F-16 and are incorporated herein by reference.
Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
None.
8
PART III
Item 10 Directors and Executive Officers of the Registrant
The Partnership has no directors or executive officers.
The General Partners are Wilder Richman Resources Corporation, a Delaware
corporation (the "WRC General Partner"), Real Estate Equity Partners L.P., a
Delaware limited partnership and an affiliate of Lehman Brothers Inc. (the
"Lehman General Partner") and WRC-87A Corporation, a Delaware corporation (the
"L/WRC General Partner"). The L/WRC General Partner is currently one-half owned
by Real Estate Equity Partners Inc., the corporate general partner of the Lehman
General Partner, and one-half owned by the shareholders of the WRC General
Partner.
The WRC General Partner
The directors and officers of the WRC General Partner are as follows:
Name Age Office
Richard Paul Richman 50 President and Director
Robert H. Wilder, Jr. 52 Executive Vice President, Secretary,
Treasurer and Director.
Each of such directors and officers have served in such capacity since the
company's formation.
Richard Paul Richman is President and Director of the WRC General Partner. Mr.
Richman graduated from the Columbia University Law School with a Juris Doctor
degree, the Columbia University Graduate School of Business Administration with
a Master of Business Administration degree and Syracuse University with a
Bachelor of Arts degree in Political Science. Mr. Richman has over ten years of
extensive experience in both the development and management of residential
properties. From 1973 until 1979, Mr. Richman practiced corporate law in New
York City with the law firm of Greenbaum, Wolff & Ernst and then as a partner of
Shipley, Richman & Nierenberg. For over six years, Mr. Richman acted as a lawyer
in connection with the development, syndication and tax issues relating to real
estate. Since 1988, Mr. Richman has been the President and sole stockholder of
The Richman Group, Inc. In recent years, Mr. Richman has devoted full time to
the syndication and development of real estate. Mr. Richman was a vice president
and shareholder of Related Housing Companies Incorporated, New York, New York
from 1978 until mid-1979 with responsibility for that company's project
acquisition and syndication activities. Mr. Richman has been a member of the
National Advisory Board of the Housing and Development Reporter, a bi-weekly
publication of the Bureau of National Affairs, Inc., a frequent speaker on real
estate syndication, has been a member of the New York State Historic Credit Task
Force, the National Leased Housing Association, the Coalition to Preserve the
Low-Income Tax Credit and the Minority Developer Assistance Corporation (which
was established by the New York State Battery Park Commission).
Robert H. Wilder, Jr. is Executive Vice President, Secretary, Treasurer and
Director of the WRC General Partner. Mr. Wilder graduated from the University of
Michigan with a Bachelor of Arts degree in Economics and from the Columbia
University Graduate School of Business with a Master of Business Administration
degree. After graduation in 1968, Mr. Wilder joined James D. Landauer
Associates, Inc., a national real estate consulting firm, where his
responsibilities included feasibility studies, market analyses, land use
studies, portfolio valuations and appraisals of industrial, office, commercial
and multi-family properties. From 1973 until mid-1979, Mr. Wilder was executive
vice president and shareholder of Related Housing Companies Incorporated, New
York, New York, and was responsible for mortgage financing and construction loan
placement and the supervision of the development of the company's projects.
Since 1988, Mr. Wilder has been the President and sole shareholder of Wilder
Property Companies Inc. Mr. Wilder is also a licensed real estate broker in New
York and Connecticut.
9
The Lehman General Partner
The directors and officers of Real Estate Equity Partners Inc. are set forth
below.
Certain officers and directors of Real Estate Equity Partners Inc. are now
serving (or in the past have served) as officers or directors of entities which
act as general partners of a number of real estate limited partnerships which
have sought protection under the provisions of the Federal Bankruptcy Code. The
partnerships which have filed bankruptcy petitions own real estate which has
been adversely affected by the economic conditions in the markets in which the
real estate is located and, consequently, the partnerships sought the protection
of the bankruptcy laws to protect the partnerships' assets from loss through
foreclosure.
Name Age Office
Doreen D. Odell 38 President & Chief Financial Officer
Joan B. Berkowitz 38 Vice President
Doreen D. Odell is Senior Vice President of Lehman Brothers Inc. and has
worked with the Diversified Asset Group since June 1988. Ms. Odell graduated Phi
Beta Kappa and received a B.A. in Economics summa cum laude from Wellesley
College in 1981. She received a M.S. in Real Estate Development from the
Massachusetts Institute of Technology in 1986. Prior to joining Lehman Brothers
Inc., Ms. Odell was involved in real estate development in both the public and
private sectors. As a development manager with N.Y.C. Public Development
Corporation, she structured joint ventures with private developers. She also
worked with a private development company, The Harborside Corporation,
evaluating real estate investments and development projects. From 1981 through
1984, Ms. Odell was a construction loan officer with Manufacturer's Hanover
Trust Company.
Joan B. Berkowitz is a Vice President of Lehman Brothers Inc. and is
responsible for investment management of retail, commercial and residential real
estate within the Diversified Asset Group. Ms. Berkowitz joined Lehman Brothers
Inc. in May 1986 as an accountant in the Realty Investment Group. From October
1984 to May 1986, she was an Assistant Controller to the Patrician Group. From
November 1983 to October 1984, she was employed by Diversified Holdings
Corporation. From September 1981 to November 1983, she was employed by Deloitte
Haskins & Sells. Ms. Berkowitz, a Certified Public Accountant, received a B.S.
degree from Syracuse Univerity in 1981.
The L/WRC General Partner
The directors and officers of the L/WRC General Partner are as follows:
Name Office
Doreen D. Odell President and Director
Richard Paul Richman Executive Vice President, Secretary,
Treasurer and Director
Ms. Odell's biography is included above under the Lehman General Partner.
Mr.Richman's biography is included above under the WRC General Partner.
10
Item 11 Executive Compensation
The Partnership is not required to pay the officers, directors or partners of
the General Partners any direct compensation and no such compensation was paid
during the fiscal year ended December 31, 1997.
Item 12 Security Ownership of Certain Beneficial Owners and Management
a) No person or group is known by the Partnership to be the owner of record
of more than 5% of the outstanding units as of December 31, 1997.
b) Security ownership by the General Partners is as follows:
Percentage of
Amount and Outstanding
Nature of General
Beneficial Partners'
Title of Class Name of Beneficial Owner Ownership Interest *
General Real Estate Equity $3.33 33.3%
Partners' Partners L.P.
Interest in
Secured Income L.P.Wilder Richman $3.33 33.3%
Resources Corporation
WRC-87A Corporation $3.34 33.4%
* General Partners as a class have a 1% interest in all
profits,losses and distributions of the Partnership.
c) Registrant knows of no arrangements which may, at a subsequent date,
result in a change of control of Registrant. Article VI of the Partnership
Agreement describes the circumstances under which changes in General Partners
can occur.
d) There is no family relationship between any of the foregoing directors
and executive officers.
e) Involvement in certain legal proceedings with respect to the foregoing
directors and executive officers: None.
Item 13 Certain Relationships and Related Transactions with Management
The General Partners and their affiliates are entitled to receive certain
compensation, fees and reimbursements of expenses. The Partnership incurred
investor services fees in the amount of $80,072, of which $65,873 is payable to
an affiliate of the General Partners for the year ended December 31, 1997.
Information regarding such compensation is set forth under the heading
"Compensation And Fees To General Partners And Affiliates" at pages 13 through
19 of the Prospectus, which is incorporated herein by reference.
The financial interests in Registrant of the General Partners and Special
Limited Partner are set forth under the heading "Profits, Losses and
Distributions" at pages 64 through 67 of the Prospectus, which is incorporated
herein by reference.
The taxable loss generated by Registrant during the year ended December 31, 1997
allocated to each of the General Partners was approximately $1,000.
Transactions with Affiliates of Management
Wilder Richman Management Corp. ("WRMC"), an affiliate of certain General
Partners, is the managing agent of Fieldpointe Apartments. In connection with
these services, WRMC earned management and reporting fees of $86,040 in 1997.
Indebtedness of Management
No officer or director of the General Partners or any affiliate of the foregoing
was indebted to Registrant at any time during the fiscal year ended December 31,
1997.
11
PART IV
Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1 Financial Statements - The list of Financial Statements appears on
page F-2.
2 Schedules - All schedules are omitted because the required
information is inapplicable or it is presented in the consolidated
financial statements or the notes thereto.
3 Exhibits:
3(A) Form of Amended and Restated Agreement of Limited Partnership of
Secured Income L.P., incorporated by reference to Exhibit A to the
Prospectus contained in the Partnership's Registration Statement on
Form S-11 (No.
33-9602) (the "Form S-11").
3(B) Certificate of Limited Partnership of Secured Income L.P.,
incorporated by reference to Exhibit 3(B) of Form S-11.
10(A) Escrow Agreement between Registrant and FirsTier Bank N.A.,
incorporated by reference to Exhibit 10(A) of Form S-11.
10(B) Carrollton Partnership Interest Acquisition Agreement, incorporated
by reference to Exhibit 10(B) of Form S-11.
10(C) Carrollton Partnership Agreement, as amended, and guarantees to
certain obligations by Carrollton Developer General Partner,
incorporated by reference to Exhibit 10(C) of Form S-11.
10(D) Carrollton Property Management Agreement, as amended, incorporated by
reference to Exhibit 10(D) of Form S-11.
10(E) Fieldpointe Complex Financing Documents, incorporated by reference to
Exhibit 10(B) of Form S-11.
10(F) Form of Guaranteed Investment Contract Escrow Agreement, incorporated
by reference to Exhibit 10(F) of Form S-11.
10(G) Columbia Partnership Interest Acquisition Agreement, incorporated by
reference to Exhibit 10(G) of Form S-11.
10(H) Columbia Partnership Agreement and guarantee of certain obligations
of Columbia Developer General Partner, incorporated by reference to
Exhibit 10(H) of Form S-11.
10(I) Columbia Property Management Agreement, incorporated by reference to
Exhibit 10(I) of Form S-11.
10(J) Columbia Construction and Development Agreement, incorporated by
reference to Exhibit 10(J) of Form S-11.
10(K) Westmont Complex Financing Documents, incorporated by reference to
Exhibit 10(K) of Form S-11.
10(L) Westmont Complex Financing Restructuring Agreement, incorporated by
reference to Form 10-K for fiscal year ended December 31, 1992.
10(M) Columbia Partnership Cost-Sharing and Indemnity Agreement in
connection with the mortgage modification dated May 27, 1993,
incorporated by reference to Form 10-K for fiscal year ended December
31, 1993.
12
10(N) Amendment of Partnership Agreement of Columbia Partnership dated May
27, 1993, incorporated by reference to Form 10-K for fiscal year
ended December 31, 1993.
10(O) Amendment of Guaranty Agreement of Columbia Partnership dated May 27,
1993, incorporated by reference to Form 10-K for fiscal year ended
December 31, 1993.
10(P) Columbia Partnership Financing Agreement dated May 27, 1993,
incorporated by reference to Form 10-K for fiscal year ended December
31, 1993.
10(Q) Carrollton Partnership Assignment and Modification of Deed of Trust
dated August 30, 1993, incorporated by reference to Form 10-K for
fiscal year ended December 31, 1993.
(25) Power of Attorney, incorporated by reference to Exhibit 25 of Form
S-11.
(28) Market Analysis dated February 1, 1985 of REDE Associates,
incorporated by reference to Exhibit 28 of Form S-11.
Other Exhibits
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the fiscal year
ended December 31, 1997.
13
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on its
behalf by the undersigned, hereunto duly authorized on the 31st day of March,
1998.
SECURED INCOME L.P.
By: Wilder Richman Resources Corporation, General Partner
By: /s/Richard Paul Richman
Richard Paul Richman - President
By: Real Estate Equity Partners L.P., General Partner
Real Estate Equity Partners Inc.
By: /s/Doreen D. Odell
Doreen D. Odell - President
By: WRC-87A Corporation, General Partner
By: /s/Doreen D. Odell
Doreen D. Odell - President
14
CONSOLIDATED FINANCIAL STATEMENTS AND
INDEPENDENT AUDITORS' REPORT
SECURED INCOME L.P. AND SUBSIDIARIES
DECEMBER 31, 1997, 1996 AND 1995
SECURED INCOME L.P. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Table of Contents Page
Independent Auditors' Report F-3
Consolidated Financial Statements
Consolidated Balance Sheets F-4
Consolidated Statements Of Operations F-5
Consolidated Statements Of Partners' Deficit F-6
Consolidated Statements Of Cash Flows F-7
Notes To Consolidated Financial Statements F-8
F-2
INDEPENDENT AUDITORS' REPORT
To the Partners
Secured Income L.P. and Subsidiaries
We have audited the consolidated balance sheets of Secured Income
L.P. and Subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of operations, partners' deficit and cash flows
for each of the three years ended December 31, 1997. These financial
statements are the responsibility of the partnership's management.
Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Secured Income L.P. and Subsidiaries as of December 31, 1997 and 1996, and
the results of their operations, changes in their partners' deficit and
their cash flows for each of the three years ended December 31, 1997, in
conformity with generally accepted accounting principles.
By: /s/Reznick Fedder & Silverman
Bethesda, Maryland
March 18, 1998
F - 3
SECURED INCOME L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
Notes 1997 1996
--------- ----------- ------------
ASSETS
Property and equipment, net
of accumulated depreciation 3,6 $ 29,708,923 $ 31,228,583
Cash and cash equivalents 11 1,317,457 896,433
Tenant security deposits 466,609 451,401
Restricted assets and funded
reserves 5,6,9,11 4,280,585 4,322,124
Investment in guaranteed investment
contract 2,11 19,499 92,585
Interest and accounts receivable 11 91,297 67,094
Prepaid expenses 437,833 135,734
Intangible assets, net of
accumulated amortization 4 1,826,991
2,093,714
Other assets - 34,708
-------------- --------------
$ 38,149,194 $ 39,322,376
LIABILITIES AND PARTNERS'
EQUITY (DEFICIT)
Liabilities
Mortgages payable 6 $ 34,449,756 $ 35,320,565
Accounts payable and
accrued expenses 395,028 236,891
Tenant security deposits payable 460,182 451,401
Due to general partners
and affiliates 7 4,109,214 3,970,278
Deferred revenue 152,414 164,368
--------------- -------------
39,566,594 40,143,503
Commitments and contingencies 6,9
Partners' equity (deficit) 8
Limited partners (984,369 units
issued and outstanding) - -
General partners (1,417,400) (821,127)
------------- -------------
(1,417,400) (821,127)
$ 38,149,194 $39,322,376
============= =============
See notes to consolidated financial statements.
F - 4
SECURED INCOME L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
Notes 1997 1996 1995
------------ ------------- ----------- ---------
REVENUE
Rental $ 6,584,435 $ 6,227,870 $ 5,907,143
Interest 174,393 169,896 156,261
Other 28,333 36,932 29,147
TOTAL REVENUE 6,787,161 6,434,698 6,092,551
----------- ------------ -------------
EXPENSES
Administration and
management 7 702,416 774,264 746,458
Operating and maintenance 1,232,640 1,060,253 852,146
Taxes and insurance 971,805 891,180 916,304
Financial 6,7 2,692,516 1,764,812 1,955,821
Depreciation and
amortization 3,4 1,784,057 2,013,710 2,019,442
------------ ------------ --------------
TOTAL EXPENSES 7,383,434 6,504,219 6,490,171
------------ ------------ --------------
NET LOSS $ (596,273)$ (69,521) $ (397,620)
============ ============= =============
NET LOSS ATTRIBUTABLE TO
General partner 8 $ (596,273)$ (69,521) $ (397,620)
Limited partners 8 - - -
------------- -------- ------------
$ (596,273)$ (69,521) $ (397,620)
============ ============= =============
NET LOSS ALLOCATED PER UNIT
OF LIMITED PARTNERSHIP
INTEREST 8 $ - $ - $ -
=========== ============== ==============
Weighted number of
units outstanding $ 984,369 $ 984,369 $ 984,369
See notes to consolidated financial statements.
F - 5
SECURED INCOME L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PARTNERS' DEFICIT
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Limited General
Total partners partners
Partners' deficit, December 31, 1994 $(351,598 $ - $ (351,598)
Net loss (397,620) - (397,620)
Distributions (2,388) - (2,388)
Partners' deficit, December 31, 1995 (751,606) - (751,606)
Net loss (69,521) - (69,521)
------------ --------- ----------
Partners' deficit, December 31, 1996 (821,127) - (821,127)
Net loss (596,273) - (596,273)
-------------- ------------ -----------
Partners' deficit, December 31, 1997 $ (1,417,400 $ - $ (1,417,400)
============ ========= ============
See notes to consolidated financial statements.
F- 6
SECURED INCOME L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
1997 1996 1995
---------- ----------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss
$ (596,273)$ (69,521) $ (397,620)
Adjustments to reconcile net loss
to net cash provided by operating
activities
Depreciation and amortization 1,784,057 2,013,710 2,019,442
Decrease (increase) in
restricted assets
and funded reserves 41,539 (834,186) (491,585)
Increase in tenant security
deposits (15,208) (26,931) (12,408)
Increase in interest and accounts
receivable (24,203) (9,235) (5,817)
Decrease (increase) in prepaid
expenses (302,099) 289,779 (28,147)
Decrease (increase) in
intangible assets 20,000 (20,000) (45,785)
Decrease (increase) in other
assets 34,708 (34,708) -
Increase (decrease) in accounts
payable
and accrued expenses 158,137 (11,418) 24,743
Increase in tenant security
deposits payable 8,781 29,455 9,884
Increase in due to general
partners and affiliates 138,936 195,794 193,782
Decrease in deferred revenue (11,954) (11,954) (11,954)
-------------- ----------- ---------
Net cash provided by operating activities 1,236,421 1,510,785 1,254,535
------------ --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Principal proceeds from guaranteed
investment contracts 73,086 65,809 270,741
Capital expenditures (17,674) (187,733) (339,980)
-------------- ---------- ----------
Net cash provided by (used in)
investing activities 55,412 (121,924) (69,239)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of principal on permanent
financing (870,809) (1,268,655) (852,550)
Distributions to partners - - (217,097)
--------- --------------- --------
Net cash used in financing activities (870,809) (1,268,655) (1,069,647)
------------- ---------- ----------
NET INCREASE IN CASH AND CASH
EQUIVALENTS 421,024 120,206 115,649
Cash and cash equivalents at beginning
of year 896,433 776,227 660,578
---------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,317,457 $ 896,433 $ 776,227
=========== ============ ============
SUPPLEMENTAL INFORMATION
Financial expenses paid $ 2,259,546 $ 1,471,566 $ 1,626,811
=========== =========== ===========
See notes to consolidated financial statements.
F - 7
SECURED INCOME L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
Note 1 - Organization and Summary of Significant Accounting Policies
Secured Income L.P. (the "Partnership"), was formed on October 10, 1986 under
the Revised Uniform Limited Partnership Act of the State of Delaware for the
purpose of acquiring real estate limited partnership interests. The Partnership
filed a Form S-11 registration statement with the Securities and Exchange
Commission effective March 5, 1987 covering an offering of up to 2,500,000
limited partnership units at $20 per unit. The admission of limited partners
occurred on October 9, 1987 (at which time operations commenced), December 18,
1987 and April 12, 1988.
Carrollton X Associates Limited Partnership ("Carrollton") was organized under
the laws of the District of Columbia on December 18, 1985 for the purpose of
constructing and operating a residential rental apartment complex and related
facilities under Section 221(d)4 of the National Housing Act. The Partnership
acquired a 98.9% limited partner interest in Carrollton in October 1987. The
complex consists of 252 units located in Frederick, Maryland and operates under
the name of Fieldpointe Apartments.
Columbia Associates ("Columbia") was formed as a limited partnership on February
6, 1985 to acquire an interest in real property located in New York, New York
and to construct and operate thereon a 163 unit apartment complex which also
includes a parking garage and commercial space. The Partnership acquired a 98.9%
limited partner interest in Columbia in December 1988. The complex operates
under the name of The Westmont.
Columbia and Carrollton have underlying mortgages which qualify for tax-exempt
financing as a result of restricting at least 20% of their apartment units for
low to moderate income tenants as defined in applicable guidelines.
Principles of Consolidation
The consolidated financial statements include the assets, liabilities and
results of operations which relate to the business of the Partnership,
Carrollton and Columbia. All significant inter-partnership balances and
transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
Property, Equipment and Depreciation
Land, buildings and improvements are carried at the lower of cost or net
realizable value. Net realizable value represents the net cash flow necessary to
recover costs exclusive of debt service. Depreciation is provided for in amounts
sufficient to relate the cost of depreciable assets to operations over their
estimated service lives by use of the straight-line method over a 25-year life.
Personal property is carried at cost and is depreciated over its estimated
service life of 5-7 years using the straight-line method. Improvements are
capitalized, while expenditures for maintenance and repairs are charged to
expense as incurred. Upon disposal of depreciable property, the appropriate
property accounts are reduced by the related costs and accumulated depreciation
and the resulting gains or losses are reflected in the consolidated statements
of operations.
Other Assets and Amortization
Mortgage costs are amortized over the terms of the respective loans using the
effective interest method. Acquisition fees are amortized over the useful lives
of the respective property and equipment using the straight-line method. Leasing
costs are amortized over the period of the applicable leases which range from 5
to 12 years using the straight-line method.
F - 8
SECURED INCOME L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
Note 1 - Organization and Summary of Significant Accounting Policies (continued)
Deferred Revenue
Deferred revenue consists of a fee received by Columbia for the extension of a
parking garage lease which expires September 30, 2011. Such fee is being
allocated to revenue over the lease term.
Leases
Tenant leases are treated as operating leases. Rental revenue is reported when
earned and expenses are charged to operations as incurred.
Interest Revenue
Interest earned on guaranteed investment contracts is recognized utilizing the
effective interest method.
Income Taxes
No provision or benefit for income taxes has been included in these financial
statements since taxable income or loss passes through to, and is reportable by,
the partners individually.
Cash and Cash Equivalents
The Partnership considers all highly liquid investments with an original
maturity of three months or less at the date of acquisition to be cash
equivalents.
Net Loss per Unit of Limited Partnership Interest
Net loss per unit of limited partnership interest is calculated based upon the
weighted average number of units outstanding, 984,369 for each of the years
1997, 1996 and 1995. Losses are allocated to limited partners until such time as
the limited partners' equity reaches zero.
Adoption of Accounting Standard
Effective for the year ended December 31, 1997, the Partnership adopted
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earning Per
Share" and SFAS No. 129, "Disclosure of Information about Capital Structure."
SFAS No. 128 establishes standards for computing and presenting earnings per
share. SFAS No. 129 requires the disclosure in summary form within the financial
statements of the pertinent rights and privileges of the various securities
outstanding. The adoption of SFAS Nos. 128 and 129 has not materially impacted
the Partnership's reported earnings, financial condition, cash flows or
presentation of the financial statements.
Note 2 - Guaranteed Investment Contracts
In order to provide investor limited partners with a 7% guaranteed cash
distribution through December 31, 1993 and to pay investor services fees for a
prescribed period, the Partnership purchased guaranteed investment contracts
upon each admission of limited partners. Proceeds from the guaranteed investment
contracts have been comprised of principal and interest such that the balances
of the guaranteed investment contracts are fully amortized upon the expiration
of their respective terms.
In connection with the Partnership's investment in Carrollton, the Partnership
purchased guaranteed investment contracts to provide Carrollton's pro rata
portion of the 7% cash distributions through December 31, 1993. Such guaranteed
investment contracts expired on January 15, 1994 and were then fully amortized.
In connection with the Partnership's investment in Columbia, the Partnership
purchased guaranteed investment contracts sufficient to provide Columbia's pro
rata portion of the 7% cash distributions through December 31, 1993 with an
additional guaranteed investment contract being utilized to provide a cash
distribution for the year ended December 31, 1994 and to pay Columbia's investor
services fee (see Note 7) through December 31, 1997. The remaining guaranteed
investment contract provided for annual distributions of $80,072 for the payment
of Columbia's investor services fee and expired on January 15, 1998.
F - 9
SECURED INCOME L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
Note 3 - Property and Equipment
Property and equipment as of December 31, 1997 and 1996 are summarized as
follows:
1997 1996
------------------------------
Land $ 6,057,940 $ 6,057,940
Buildings and improvements 36,573,381 36,555,707
Furniture and equipment 1,574,791 1,574,791
-------------- --------------
44,206,112 44,188,438
Less accumulated depreciation 14,497,189 12,959,855
------------- -------------
$ 29,708,923 $ 31,228,583
============ ============
Depreciation for the years 1997, 1996 and 1995 was $1,537,334, $1,527,885
and $1,541,752, respectively.
Note 4 - Intangible Assets
Intangible assets as of December 31, 1997 and 1996 are summarized as follows:
1997 1996
-----------------------------
Acquisition fees $ 787,495 $ 787,495
Mortgage costs 4,761,572 4,781,572
Leasing costs 220,459 220,459
------------- -------------
5,769,526 5,789,526
Less accumulated amortization 3,942,535 3,695,812
------------ ------------
$ 1,826,991 $ 2,093,714
=========== ===========
Amortization for the years 1997, 1996 and 1995 was $246,723, $485,825
and $477,690, respectively.
Note 5 - Restricted Assets and Funded Reserves
Restricted assets and funded reserves (see Note 6) as of December 31, 1997
and 1996 are summarized as follows:
1997 1996
----------- --------------
Escrows held by mortgage lenders $ 553,767 $ 885,824
Pledged cap account 2,193,213 1,754,272
Call premium collateral 1,000,000 1,000,000
Operating deficit reserve 500,000 500,000
Bond retirement escrow 33,605 182,028
-------------- -------------
$ 4,280,585 $ 4,322,124
=========== ===========
F - 10
SECURED INCOME L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
Note 6 - Mortgages Payable
Carrollton
On December 18, 1985, Carrollton executed a note (the "Original Carrollton
Mortgage") with Concord Mortgage Company, an affiliate of certain general
partners of Carrollton. The Original Carrollton Mortgage in the amount of
$10,494,100 was financed through tax-exempt revenue bonds issued by the City of
Frederick, Maryland and was insured by the United States Department of Housing
and Urban Development ("HUD"). The Original Carrollton Mortgage was refinanced
during 1993 (see discussion below). Under the terms of the Original Carrollton
Mortgage, principal and interest payments were payable in successive monthly
installments of $85,009 through February 1, 2028, bearing interest at 9.5%.
On August 30, 1993, the Original Carrollton Mortgage was modified and refinanced
through a 1993 series mortgage revenue bond issued by the City of Frederick,
Maryland. The note was modified by reducing the interest rate from 9.5% to 8%
for the period August 31, 1993 through June 30, 1994, then 6.09% per year
through maturity in February 2028. The terms include the monthly payment of
principal and interest of $74,734 from October 1, 1993 through July 1, 1994 and
$60,900 from August 1, 1994 through maturity. The note is collateralized by the
underlying value of the real estate plus other amounts on deposit with the
lender. The balance of the mortgage payable at December 31, 1997 and 1996 is
$10,079,919 and $10,193,088, respectively.
Pursuant to agreements, Carrollton is required to make monthly escrow deposits
for taxes, insurance and replacement of project assets, and is subject to
restrictions as to operating policies, rental charges, operating expenditures
and distributions to partners.
Columbia
The original financing of Columbia was provided by the New York City Housing
Development Corporation ("HDC") which issued $32,497,691 of bonds in February
1985. The funds provided by the bond issue were loaned to Columbia in the form
of two mortgage loans (the "Original Columbia Mortgages"). In connection with
the issuance of such bonds, Citibank, N.A. ("Citibank") issued a letter of
credit in the amount of $33,018,629 to guarantee payment of principal and
interest on the bonds. The Original Columbia Mortgages were modified during 1993
(see discussion below). Under the terms of the Original Columbia Mortgages,
interest was payable at the rate of 9.58% per annum. Principal and interest were
payable in monthly installments of $260,256 over a period of 23 years.
On May 27, 1993, the Original Columbia Mortgages were modified (the "Modified
Columbia Mortgages"). Under the terms of the Modified Columbia Mortgages, based
on the issuance of new tax-exempt bonds (which bear a floating interest rate,
adjusted weekly), the initial note rate was 4.66%, with required monthly
principal amortization of $29,367. Pursuant to agreements, any savings realized
on the difference between the 4.66% initial note rate and the actual low floater
rate (approximately 3.56% and 3.29% weighted average rate during 1997 and 1996,
respectively) will be deposited in an account to be used to purchase an interest
rate cap (the "Pledged Cap Account") by October 1996, which date has been
extended to April 30, 1998. The balance in the Pledged Cap Account is $2,193,213
and $1,754,272 as of December 31, 1997 and 1996, respectively (see Note 5). The
balance of the mortgages payable as of December 31, 1997 and 1996 is $24,369,837
and $25,127,477, respectively. The weighted average low floater rate for the
period January 1, 1998 through February 28, 1998 was approximately 3.15%.
The Modified Columbia Mortgages further provide that any cash flow generated by
Columbia above the note rate, servicing fees and principal amortization will be
applied first to fund and maintain an interest-bearing operating deficit reserve
account (the "Operating Deficit Reserve") until it accumulates to $500,000.
Thereafter, such cash flow will be deposited into the Operating Deficit Reserve
to the extent necessary to maintain a balance of $500,000 and then into a
segregated account to be used to retire the underlying bonds (the "Bond
Retirement Escrow") at the earliest possible dates in minimum denominations of
$100,000 in excess of the scheduled principal amortization of approximately
$352,000 per annum. Amounts deposited in the Operating Deficit Reserve will
generally be utilized to fund operating deficits, pay for maintenance, repairs
and replacements and to pay debt service and other amounts due under the loan
documents. As of December 31, 1997 and 1996, the balance in the Operating
Deficit Reserve is $500,000 (see Note 5). During the years ended December 31,
1997 and 1996, deposits of approximately $252,000 and $712,000, respectively,
were made to the Bond Retirement Escrow, with $400,000 and $800,000,
respectively, utilized to accelerate the retirement of the debt. As of December
31, 1997 and 1996, the balance in the Bond Retirement Escrow is $33,605 and
$182,028, respectively (see Note 5).
F - 11
SECURED INCOME L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
Note 6 - Mortgages Payable (continued)
Columbia (continued)
Because the bonds issued in connection with the Original Columbia Mortgages were
redeemed voluntarily, Columbia was required to pay a prepayment premium in the
amount of $1,590,658 (the "Call Premium"). Columbia paid for the costs of
issuance of the new bonds, including the Call Premium, from the premium realized
upon liquidation of a debt service reserve held by Citibank in connection with
the Original Columbia Mortgages and, to the extent necessary, amounts were
provided by the Columbia General Partners under their operating deficit
guarantee to Columbia. As a result of utilizing such debt service reserve,
Citibank required the partners of Columbia (including the Partnership) to
provide Citibank with letters of credit in the full amount of the Call Premium
(the "Call Premium Letters of Credit"). In order to establish the Call Premium
Letters of Credit, the Columbia General Partners provided $900,000 (of which
$600,000 is in the form of letters of credit and $300,000 was advanced to the
Partnership) and the Partnership provided a letter credit in the amount of
$1,000,000 (inclusive of the $300,000 advance) (collectively, the "Call Premium
Collateral"). The Call Premium Letters of Credit will be available to Citibank
upon sale or refinancing (or an event of default) in the event available
proceeds are not sufficient to pay in full all amounts due under the bonds or
accrued and unpaid Citibank letter of credit fees (see below). However, Citibank
will be entitled to draw first upon the Columbia General Partners' guaranty of
payment (in the amount of approximately $1,690,000) and thereafter upon the Call
Premium Collateral to pay any such unpaid letter of credit fee. As of December
31, 1997 and 1996, $1,000,000 was invested in interest bearing deposits which
serves as collateral for the Partnership's Call Premium Letter of Credit (see
Note 5). The letters of credit in the amount of $600,000 which were provided
directly by the Columbia General Partners as described above are not reflected
in the accompanying consolidated balance sheets.
As part of the mortgage modification, Citibank agreed to extend its letter of
credit from February 1997 to February 2003. Beginning February 1, 1997, Citibank
was entitled to a letter of credit fee for providing credit support for the new
bonds in the amount of 2.5% per annum of the outstanding principal balance of
the new bonds, payable on a current or deferred basis at Columbia's option.
Except as described above, the obligation to pay the letter of credit fee will
be with full recourse as to the assets of Columbia, but without recourse to any
of the partners, including the Partnership. If the letter of credit fee is not
fully paid from available proceeds from the sale or refinancing of Columbia, the
Columbia General Partners' guaranty of payment and the Call Premium Letters of
Credit, any such unpaid balance shall be deemed fully discharged and neither
Columbia nor its partners shall have any further obligation with respect
thereto. For the year ended December 31, 1997, Columbia incurred a fee in
connection with the Citibank letter of credit in the amount of $583,229, which
fee is being paid currently on a monthly basis.
Pursuant to agreements, Columbia is subject to restrictions as to operating
policies, rental charges, operating expenditures and distributions to partners.
Aggregate annual mandatory maturities on the Carrollton and Columbia Mortgages
as of December 31, 1997 are as follows:
1998 $ 472,657
1999 480,188
2000 488,192
2001 496,696
2002 505,733
Thereafter 32,006,290
$ 34,449,756
The carrying amount of the mortgages approximates fair value.
F - 12
SECURED INCOME L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
Note 7 - Related Party Transactions
Due to general partners and affiliates as of December 31, 1997 and 1996 consists
of cash advances and other payables as follows:
1997 1996
------------ ------------
Carrollton general partners and their affiliate $ 65,154 $ 65,154
Columbia general partners and their affiliates
(including accrued interest of
$1,126,066 and $948,432) 3,156,746 2,979,112
Wilder Richman Management Corp. 201,600 306,171
WRC-87A Corporation 685,714 619,841
------------- -------------
$ 4,109,214 $ 3,970,278
=========== ===========
The management agent for Fieldpointe Apartments is Wilder Richman Management
Corp. ("WRMC"), an affiliate of one of the Carrollton general partners. During
each of the three years ended December 31, 1997, WRMC was entitled to property
management fees equal to 4% of residential income collected. In addition, WRMC
was entitled to a reporting fee of $5 per unit per month for bookkeeping and
reporting services. The maximum annual management and reporting fees may not
exceed 5% of gross collections. Such fees of $86,040, $83,958 and $82,012 were
charged to operations during 1997, 1996 and 1995, respectively. Accrued
management and reporting fees as of December 31, 1997 and 1996 are $35,600 and
$140,171, respectively.
The management agent for The Westmont is an affiliate of one of the Columbia
general partners and receives property management fees calculated at the greater
of 2% of rental income or $70,000 per year. The charges to operations amounted
to $89,332, $84,240 and $79,365 during 1997, 1996 and 1995, respectively.
WRC-87A Corporation, a general partner of the Partnership, is entitled to an
annual investor services fee which is incurred by Columbia and Carrollton in the
amounts of $80,072 and $18,365, respectively, and which is based on .5% of the
gross proceeds from the offering of Partnership units allocable to each such
investment. The fee is payable quarterly from cash flow and shall be adjusted
annually by increases in the Consumer Price Index. To the extent that there is
insufficient cash flow available to pay the investor services fee, the fee is
payable only from distributions from the guaranteed investment contracts, which
in the case of Carrollton expired on January 15, 1994. The consolidated
statements of operations include charges to operations for the investor services
fee of $80,072 in 1997 and 1996 and $98,437 in 1995. These amounts are paid or
payable to WRC-87A Corporation to the extent that such services are not provided
by an independent third party. Amounts payable to WRC-87A Corporation as of
December 31, 1997 and 1996, representing the unpaid investor services fee for
the year, were $65,873 and $65,971, respectively.
The sole shareholder of an affiliate of one of the Carrollton general partners
provided debt financing for the capitalization of LaMere Associates, Inc.
("LaMere"). In connection with such debt financing, the shareholder received 20%
of the stock of LaMere. LaMere was paid premiums in connection with property,
workers compensation, liability and umbrella insurance coverage provided to
Carrollton. In connection with such insurance coverage, Carrollton incurred
$45,864, $47,303 and $49,104 in premiums for the years ended December 31, 1997,
1996 and 1995, respectively.
During 1997, Columbia paid an affiliate a fee of $183,750 for services rendered
in connection with an attempted refinancing proposal. During 1995, Columbia
entered into a contract with an affiliate of one of its general partners for
renovation services in the amount of $154,360, all of which was incurred and
paid as of December 31, 1995. Additional work was contracted in 1996 in the
amount of $20,779, all of which was incurred and paid as of December 31, 1996.
Pursuant to an operating deficit guarantee agreement dated December 21, 1988,
the Columbia general partners guaranteed to loan to Columbia any funds required
to satisfy its operating deficits, if any, up to $2,000,000. As of December 31,
1997 and 1996, loans of $2,000,680 have been made to Columbia. The loans, with
the exception of $300,000, bear interest at Chase Manhattan Bank's prime rate
plus 2% (10.5% at December 31, 1997) in accordance with the terms of the
Columbia partnership agreement. The amount of interest charged to operations
during 1997, 1996 and 1995 was $177,634, $174,731 and $184,299, respectively.
Accrued interest as of December 31, 1997 and 1996 is $1,126,066 and $948,432,
respectively. Such loans are repayable from Columbia cash flow, subject to the
terms of the Modified Columbia Mortgages.
F - 13
SECURED INCOME L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
Note 7 - Related Party Transactions (continued)
Columbia is obligated in the amount of $30,000 as of December 31, 1997 and 1996
to certain of its partners for development advances. The advances are
non-interest bearing, unsecured and due on demand.
Carrollton owes WRMC $166,000 as of December 31, 1997 and 1996 for prior years'
operating advances. Carrollton also owes its general partners and affiliates
$65,154 as of December 31, 1997 and 1996 for various advances. All such advances
are unsecured, non-interest bearing and payable from Carrollton cash flow.
Management believes it is not practicable to estimate the fair value of the
loans and advances from related parties because loans and advances with similar
characteristics are not currently available to the Partnership.
Note 8 - Partners' Deficit
Partnership Allocation
Profits and losses of the Partnership are allocated 1% and 99% to the general
partners and limited partners, respectively, until such time as the limited
partners' capital reaches zero, after which all losses are allocated to the
general partners.
Partnership Distributions
In accordance with the respective partnership agreements, to the extent that
Carrollton and Columbia generate net operating cash flow in any year at a level
sufficient, when distributed to the Partnership, to enable the Partnership to
satisfy the allocable portion of the limited partners' 8% preferred return for
such year without utilizing amounts generated from the guaranteed investment
contracts, the excess amounts generated from the guaranteed investment contracts
would be paid or distributed to the general partners of Carrollton and/or
Columbia, whichever generate(s) such level(s) of operating cash flow. No such
excess distributions were generated during the term of the guaranteed investment
contract periods (see Note 2). Due to restrictions concerning distributions from
operating cash flow of Columbia (see Note 6), there were no cash distributions
from Columbia in 1997 and 1996.
Note 9 - Commitments and Contingencies
Long-term Leases
The parking garage and commercial space at Columbia are leased to tenants under
the terms of noncancellable operating leases expiring on various dates through
September 30, 2011. Future minimum rental payments as of December 31, 1997 are
as follows:
1998 $ 775,986
1999 658,067
2000 552,501
2001 394,294
2002 408,007
Thereafter 2,899,171
$ 5,688,096
Income recognized under the garage and commercial space for the years 1997, 1996
and 1995 was $758,473, $716,277 and $583,533, respectively.
F - 14
SECURED INCOME L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
Note 9 - Commitments and Contingencies (continued)
Lender Restrictions and Requirements
Carrollton and Columbia are subject to various lender requirements and
restrictions, including (i) the rental of not less than 20% of the dwelling
units to individuals or families who qualify as low or moderate income tenants;
(ii) restrictions on the sale of the apartment complexes; and (iii) restrictions
on the amount of cash flow which may be distributed to the partners.
Concentration of Credit Risk
As of December 31, 1997, the Partnership has $1,810,841 in cash and cash
equivalents and restricted assets and funded reserves which are deposited in
interest-bearing accounts, of which $1,790,612 is deposited with an institution
which is not insured by the Federal Deposit Insurance Corporation.
Note 10 - Reconciliation of Taxable Income (Loss) and Bases of Assets
A reconciliation of the financial statement net loss to the income tax income
(loss) of the Partnership for each of the years ended December 31, 1997, 1996
and 1995 is as follows:
1997 1996 1995
--------- ------------ ---------
Financial statement net loss $ (596,273) $ (69,521) $ (397,620)
Costs depreciated over a life shorter
for income tax purposes than
financial reporting purposes (267,751) (241,484) (308,690)
Excess depreciation for financial
reporting purposes due to purchase
accounting treatments 438,491 405,607 432,087
Deferred revenue (11,954) (14,627) (8,066)
Amortization of start-up costs and
construction period interest and taxes 224 256 (27,250)
Guaranteed investment contracts amortized
over straight-line method for tax purposes - - (10,804)
Accrual of related party expense items
not deductible until paid for tax purposes
under Internal Revenue Code Section 267 137,970 240,702 268,274
------------ ------------ ----------
Subtotal (299,293) 320,933 (52,069)
Amounts allocated to other partners of
Carrollton and Columbia 4,321 (11,622) (19,148)
--------------- ------------ -----------
Income (loss) as shown on tax return $ (294,972) $ 309,311 $ (71,217)
============ ========== ===========
F - 15
SECURED INCOME L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1997, 1996 AND 1995
Note 10 - Reconciliation of Taxable Income (Loss) and Bases of Assets
(continued)
A reconciliation of the financial statement carrying amount of total assets to
the tax basis as of December 31, 1997 and 1996 is as follows:
1997 1996
---------------- ------------
Financial statement carrying amount of assets $ 38,149,194 $ 39,322,376
Difference which consists principally of the
utilization of purchase accounting
for financial statement purposes and
the method of amortization of the
guaranteed investment contracts (14,394,766) (14,743,782)
Tax bases of assets $ 23,754,428 $ 24,578,594
============= ============
Note 11 - Fair Value of Financial Instruments
The following disclosure of the estimated fair value of financial instruments is
made in accordance with the requirements of SFAS No. 107, "Disclosures about
Fair Value of Financial Instruments." The estimated fair value of amounts have
been determined using available market information, assumptions, estimates and
valuation methodologies.
Cash and Cash Equivalents and Restricted Assets and Funded Reserves
The carrying amount approximates fair value.
Guaranteed Investment Contract
The carrying amount approximates fair value.
Interest and Accounts Receivable
The carrying amount approximates fair value due to the shore-term nature of the
receivables.
The estimated fair values of the Partnership's financial instruments as of
December 31, 1997 and 1996 are disclosed elsewhere in the financial statements.
F - 16