SECURITIES AND EXCHANGE COMMISSION
Washington, DC
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FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
OR
_____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-17412
Secured Income L.P.
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(Exact name of Registrant as specified in its charter)
Delaware 06-1185846
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State or other jurisdiction of (IRS Employer
incorporation or organization Identification No.)
599 West Putnam Avenue 06830
Greenwich, Connecticut --------------
- ------------------------------------------- Zip Code
Address of principal executive offices)
Registrant's telephone number, including area code: (203) 869-0900
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 filing requirements
for the past 90 days.
Yes X No
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SECURED INCOME L.P. AND SUBSIDIARIES
Part I - Financial Information
Table of Contents
Item 1 Financial Statements Page
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Consolidated Balance Sheets 3
Consolidated Statements of Earnings 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Item 3 Quantitative and Qualitative Disclosure about
Market Risk 8
2
SECURED INCOME L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30,
2002 December 31,
(Unaudited) 2001
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ASSETS
Property and equipment (net of accumulated depreciation
of $21,353,573 and $20,598,397) $ 23,380,264 $ 24,135,440
Cash and cash equivalents 4,463,718 4,831,075
Restricted assets and funded reserves 1,184,239 518,969
Tenant security deposits 548,372 556,712
Accounts receivable 40,822 37,493
Prepaid expenses 37,180 629,621
Intangible assets, net of accumulated amortization 2,174,657 2,231,247
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$ 31,829,252 $ 32,940,557
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LIABILITIES AND PARTNERS' DEFICIT
Liabilities
Mortgages payable $ 41,617,756 $ 41,833,655
Accounts payable and accrued expenses 273,319 203,385
Tenant security deposits payable 545,825 555,626
Due to general partners and affiliates 353,210 359,226
Deferred revenue 104,598 104,598
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42,894,708 43,056,490
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Partners' deficit
Limited partners (9,823,520) (9,400,723)
General partners (1,241,936) (715,210)
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(11,065,456) (10,115,933)
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$ 31,829,252 $ 32,940,557
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See notes to consolidated financial statements.
3
SECURED INCOME L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(Unaudited)
Three Months Six Months Three Months Six Months
Ended Ended Ended Ended
June 30, 2002 June 30, 2002 June 30, 2001 June 30, 2001
------------- ------------- ------------- -------------
REVENUE
Rental $ 2,066,229 $ 4,143,811 $ 2,068,166 $ 4,078,100
Interest 15,871 45,606 36,485 73,176
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TOTAL REVENUE 2,082,100 4,189,417 2,104,651 4,151,276
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EXPENSES
Administrative and management 209,016 407,047 180,738 345,656
Operating and maintenance 375,344 676,876 332,629 700,110
Taxes and insurance 341,204 691,615 320,247 645,685
Financial 441,633 901,643 598,559 1,175,470
Depreciation and amortization 405,883 811,766 412,524 825,046
----------- ----------- ----------- -----------
TOTAL EXPENSES 1,773,080 3,488,947 1,844,697 3,691,967
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NET EARNINGS $ 309,020 $ 700,470 $ 259,954 $ 459,309
=========== =========== =========== ===========
NET EARNINGS (LOSS) ATTRIBUTABLE TO
Limited partners $ 364,698 $ 364,698 $ -- $ --
General partners (55,678) 335,772 259,954 459,309
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$ 309,020 $ 700,470 $ 259,954 $ 459,309
=========== =========== ============ ============
NET EARNINGSALLOCATED
PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ .37 $ .37 $ -- $ --
=========== =========== ============ ============
See notes to consolidated financial statements.
4
SECURED INCOME L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(Unaudited)
2002 2001
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CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 700,470 $ 459,309
Adjustments to reconcile net earnings to net cash provided
by operating activities
Depreciation and amortization 811,766 825,046
Increase in restricted assets and funded reserves (665,270) (630,129)
Decrease (increase) in tenant security deposits 8,340 (7,706)
Decrease (increase) in accounts receivable (3,329) 49,039
Decrease in prepaid expenses 592,441 577,921
Increase (decrease) in accounts payable and accrued expenses 69,934 (247,331)
Increase (decrease) in tenant security deposits payable (9,801) 37,792
Decrease in due to general partners and affiliates (6,016) (136,989)
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Net cash provided by operating activities 1,498,535 926,952
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CASH FLOWS FROM FINANCING ACTIVITIES
Distributions to partners (1,649,993) (298,031)
Principal payments on mortgages (215,899) (225,991)
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Net cash used in financing activities (1,865,892) (524,022)
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Net increase (decrease) in cash and cash equivalents (367,357) 402,930
Cash and cash equivalents at beginning of period 4,831,075 4,320,459
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,463,718 $ 4,723,389
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SUPPLEMENTAL INFORMATION
Financial expenses paid $ 843,237 $ 1,176,512
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See notes to consolidated financial statements.
5
SECURED INCOME L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002
(Unaudited)
1. The accompanying unaudited consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information. They do not
include all information and footnotes required by accounting principles
generally accepted in the United States of America for complete financial
statements. The results of operations are impacted significantly by the
results of operations of the Carrollton and Columbia Partnerships, which is
provided on an unaudited basis during interim periods. Accordingly, the
accompanying consolidated financial statements are dependent on such
unaudited information. In the opinion of the General Partners, the
consolidated financial statements include all adjustments necessary to
reflect fairly the results of the interim periods presented. All adjustments
are of a normal recurring nature. No significant events have occurred
subsequent to December 31, 2001 and no material contingencies exist which
would require additional disclosure in the report under Regulation S-X, Rule
10-01 paragraph A-5.
The results of operations for the six months ended June 30, 2002 are not
necessarily indicative of the results to be expected for the entire year.
2. Additional information, including the audited December 31, 2001 Consolidated
Financial Statements and the Summary of Significant Accounting Policies, is
included in the Partnership's Annual Report on Form 10-K for the fiscal year
ended December 31, 2001 on file with the Securities and Exchange Commission.
6
SECURED INCOME L.P. AND SUBSIDIARIES
Item 2 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, a portion of
which are restricted in accordance with the terms of the mortgages of the
Operating Partnerships. The Partnership's investments are highly illiquid.
The Partnership is not expected to have access to additional sources of
financing. Accordingly, if unforeseen circumstances arise that cause an
Operating Partnership to require additional capital, 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 impact the operating cash
flow of the Operating Partnerships.
Although the Partnership generated cash from operations during the six months
ended June 30, 2002, cash and cash equivalents decreased by approximately
$367,000 primarily as a result of the Columbia Partnership's distribution to its
general partners of 2001 cash flows in excess of the 8% preferred return under
the terms of the Columbia Partnership's partnership agreement. Mortgages payable
decreased due to principal amortization of approximately $216,000. Property and
equipment decreased by approximately $755,000 due to depreciation, while
intangible assets decreased by approximately $57,000 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
estimated service lives. Prepaid expenses decreased and accounts payable and
accrued expenses increased in the ordinary course of operations.
The Partnership anticipates making a distribution on or about August 15, 2002 of
approximately $.40 per Unit to Unit holders of record as of June 30, 2002. A
distribution of approximately $.40 per Unit to Unit holders of record as of
March 31, 2002 was made in May 2002. The Partnership made quarterly
distributions in May, August and November 2001 and in March 2002 totaling
$1,577,991, resulting from cash flow generated by the Operating Partnerships.
Such distribution represents an annualized return to the limited partners of
approximately 8% for the year ended December 31, 2001. The Partnership intends
to make quarterly distributions on an ongoing basis, subject to the operating
results of the Operating Partnerships; the Operating Partnerships' results from
operations is highly contingent upon the interest rates of the Columbia
Partnership's low-floater mortgage and the strength of their respective rental
markets. There can be no assurance that the Operating Partnerships will continue
to generate cash flow sufficient to make quarterly distributions or that future
distributions will be in any specific amounts. The events of September 11, 2001
have increased the risk that the operations of the Properties may be adversely
impacted as a result of the effect of these events on the economy in general and
because the Properties are located in New York City and near Washington, D.C.
Results of Operations
Six Months Ended June 30, 2002
During the six months ended June 30, 2002, the Columbia Partnership and the
Carrollton Partnership generated income from operating activities, before
financial expenses, of approximately $1,816,000 and approximately $632,000,
respectively. Mortgage principal payments during the period for the Columbia
Partnership and the Carrollton Partnership were approximately $140,000 and
approximately $76,000, respectively. After considering the respective mandatory
mortgage principal payments and required deposits to mortgage escrows, among
other things, the Complexes generated combined cash flow of approximately
$1,261,000 during the six months ended June 30, 2002. There can be no assurance
that the level of cash flow generated by the Complexes during the six months
ended June 30, 2002 will continue in future periods.
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SECURED INCOME L.P. AND SUBSIDIARIES
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Results of operations improved for the six months ended June 30, 2002 as
compared to the six months ended June 30, 2001. Operating and maintenance
expenses increased for the second quarter of fiscal 2002 as compared to the
first quarter of fiscal 2002 primarily as a result of scheduled repairs and
improvements. Although administrative and management expenses for the six months
ended June 30, 2002 are higher compared to the six months ended June 30, 2001,
the expenses are consistent with the total for the 2001 fiscal year. Financial
expenses decreased primarily as a result of a decrease in the weighted average
interest rate on the Columbia Partnership's first mortgage from approximately
3.27% for the first six months of 2001 to approximately 1.44% for the first six
months of 2002.
As of June 30, 2002, the occupancy of Fieldpointe Apartments (Carrollton) was
approximately 96% and the occupancy of The Westmont (Columbia) was approximately
94% 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.
Six Months Ended June 30, 2001
During the six months ended June 30, 2001, the Columbia Partnership and the
Carrollton Partnership generated income from operating activities, before
financial expenses, of approximately $1,838,000 and approximately $622,000,
respectively. Mortgage principal payments during the period for the Columbia
Partnership and the Carrollton Partnership were approximately $155,000 and
approximately $71,000, respectively. After considering the respective mandatory
mortgage principal payments and required deposits to mortgage escrows, among
other things, the Complexes generated combined cash flow of approximately
$1,016,000 during the six months ended June 30, 2001. As of June 30, 2001, 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.
Critical Accounting Policies and Estimates
The financial statements are prepared in accordance with accounting principles
generally accepted in the United States of America, which requires Registrant to
make certain estimates and assumptions. A summary of significant accounting
policies is disclosed in Note 1 to the consolidated financial statements which
are included in Registrant's annual report on Form 10-K for the year ended
December 31, 2001. The following section is a summary of certain aspects of
those accounting policies that may require subjective or complex judgments and
are most important to the portrayal of Registrant's financial condition and
results of operations. Registrant believes that there is a low probability that
the use of different estimates or assumptions in making these judgments would
result in materially different amounts being reported in the consolidated
financial statements.
o Registrant records its real estate assets at cost less accumulated
depreciation and, if there are indications that impairment exists,
adjusts the carrying value of those assets in accordance with SFAS No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets."
Item 3 Quantitative and Qualitative Disclosure about Market Risk
The Partnership has market risk sensitivity with regard to financial instruments
concerning potential interest rate fluctuations in connection with the low
floater rates associated with the Columbia Partnership's first mortgage.
Accordingly, a fluctuation in the low-floater interest rates of .25% would have
a $60,500 annualized impact on the Partnership's results of operations.
8
SECURED INCOME L.P. AND SUBSIDIARIES
Part II - Other Information
Item 1 Legal Proceedings
Registrant is not aware of any material legal proceedings.
Item 2 Changes in Securities
None
Item 3 Defaults upon Senior Securities
None
Item 4 Submission of Matters to a Vote of Security Holders
None
Item 5 Other Information
None
Item 6 Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit 99.1 Certification of Chief Executive Officer
Exhibit 99.2 Certification of Chief Financial Officer
b. Reports on Form 8-K
None
9
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.
SECURED INCOME L.P.
By: Wilder Richman Resources Corporation
General Partner
Date: August 14, 2002 /s/ Richard Paul Richman
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Richard Paul Richman
President, Chief Executive Officer
and Director
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