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 March 31, 2003
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
State or other jurisdiction of (IRS Employer
incorporation or organization Identification No.)
599 West Putnam Avenue
Greenwich, Connecticut
(Address of principal executive offices) 06830
Zip Code
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
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Item 3 Quantitative and Qualitative Disclosure about
Market Risk 8
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Item 4 Controls and Procedures 9
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2
SECURED INCOME L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31,
2003 December 31,
(Unaudited) 2002
----------- -----------
ASSETS
Property and equipment (net of accumulated
depreciation of $22,483,641 and $22,109,373) $ 22,265,866 $ 22,640,134
Cash and cash equivalents 4,193,697 4,269,304
Restricted assets and funded reserves 983,670 587,843
Tenant security deposits 585,725 573,903
Accounts receivable 20,818 44,846
Prepaid expenses 413,667 754,920
Intangible assets, net of accumulated amortization 2,085,099 2,113,395
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$ 30,548,542 $ 30,984,345
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LIABILITIES AND PARTNERS' DEFICIT
Liabilities
Mortgages payable $ 41,235,236 $ 41,365,120
Accounts payable and accrued expenses 296,490 331,678
Tenant security deposits payable 579,462 569,931
Due to general partners and affiliates 151,969 172,305
Deferred revenue 92,644 92,644
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42,355,801 42,531,678
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Partners' deficit
Limited partners (10,211,403) (10,206,181)
General partners (1,595,856) (1,341,152)
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(11,807,259) (11,547,333)
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$ 30,548,542 $ 30,984,345
============ ============
See notes to consolidated financial statements.
3
SECURED INCOME L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(Unaudited)
2003 2002
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REVENUE
Rental $2,152,560 $2,077,582
Interest 10,684 29,735
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TOTAL REVENUE 2,163,244 2,107,317
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EXPENSES
Administrative and management 219,499 198,031
Operating and maintenance 308,976 301,532
Taxes and insurance 387,656 350,411
Financial 452,098 460,010
Depreciation and amortization 402,564 405,883
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TOTAL EXPENSES 1,770,793 1,715,867
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NET EARNINGS $ 392,451 $ 391,450
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NET EARNINGS ATTRIBUTABLE TO
Limited partners $ 388,526 $ --
General partners 3,925 391,450
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$ 392,451 $ 391,450
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NET EARNINGS ALLOCATED PER UNIT OF
LIMITED PARTNERSHIP INTEREST $ .39 $ --
========== ==========
See notes to consolidated financial statements.
4
SECURED INCOME L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(Unaudited)
2003 2002
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CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 392,451 $ 391,450
Adjustments to reconcile net earnings to net
cash provided by operating activities
Depreciation and amortization 402,564 405,883
Increase in restricted assets and funded reserves (395,827) (326,358)
Decrease (increase) in tenant security deposits (11,822) 12,732
Decrease in accounts receivable 24,028 15,271
Decrease in prepaid expenses 341,253 314,996
Increase (decrease) in accounts payable and
accrued expenses (35,188) 74,630
Increase (decrease) in tenant security deposits
payable 9,531 (16,271)
Decrease in due to general partners and affiliates (20,336) (2,006)
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Net cash provided by operating activities 706,654 870,327
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CASH FLOWS FROM FINANCING ACTIVITIES
Distributions to partners (652,377) (1,150,820)
Principal payments on mortgages (129,884) (93,059)
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Net cash used in financing activities (782,261) (1,243,879)
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NET DECREASE IN CASH AND CASH EQUIVALENTS (75,607) (373,552)
Cash and cash equivalents at beginning of period 4,269,304 4,831,075
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,193,697 $ 4,457,523
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SUPPLEMENTAL INFORMATION
Financial expenses paid $ 417,324 $ 406,034
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See notes to consolidated financial statements.
5
SECURED INCOME L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003
(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 March 31, 2003 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 three months ended March 31, 2003 are not
necessarily indicative of the results to be expected for the entire year.
2. Additional information, including the audited December 31, 2002 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, 2002 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, certain 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 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
any sale or refinancing proceeds.
Although the Partnership generated cash from operations during the three months
ended March 31, 2003, cash and cash equivalents decreased by approximately
$76,000 primarily as a result of distributions to limited partners and the
Columbia Partnership's distribution to its general partners of 2002 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 $130,000. Property and equipment
decreased by approximately $374,000 due to depreciation, while intangible assets
decreased by approximately $28,000 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 restricted assets and funded reserves
increased in the ordinary course of operations.
The Partnership anticipates making a distribution on or about May 15, 2003 of
approximately $.40 per Unit to Unit holders of record as of March 31, 2003. The
Partnership made quarterly distributions to the limited partners in May, August
and November 2002 and in March 2003 totaling $1,574,990, resulting primarily
from operating cash flow generated by the Operating Partnerships. Such
distributions represent an annualized return to the limited partners of
approximately 8% for the year ended December 31, 2002. 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
Three Months Ended March 31, 2003
- ---------------------------------
During the three months ended March 31, 2003, the Columbia Partnership and the
Carrollton Partnership generated income from operating activities, before
financial expenses, of approximately $958,000 and approximately $311,000,
respectively. Mortgage principal payments during the period for the Columbia
Partnership and the Carrollton Partnership were approximately $90,000 and
approximately $40,000, 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
$671,000 during the three months ended March 31, 2003. There can be no assurance
that the level of cash flow generated by the Complexes during the three months
ended March 31, 2003 will continue in future periods.
8
SECURED INCOME L.P. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Results of operations for the three months ended March 31, 2003 were comparable
to the three months ended March 31, 2002. The weighted average interest rate on
the Columbia Partnership's first mortgage was approximately 1.38% for the first
three months of 2003 as compared to approximately 1.36% for the first three
months of 2002.
As of March 31, 2003, the occupancy of Fieldpointe Apartments (Carrollton) was
approximately 94% and the occupancy of The Westmont (Columbia) 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.
Three Months Ended March 31, 2002
- ---------------------------------
During the three months ended March 31, 2002, the Columbia Partnership and the
Carrollton Partnership generated income from operating activities, before
financial expenses, of approximately $992,000 and approximately $336,000,
respectively. Mortgage principal payments during the period for the Columbia
Partnership and the Carrollton Partnership were approximately $56,000 and
approximately $37,000, 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
$726,000 during the three months ended March 31, 2002. As of March 31, 2002, the
occupancy of Fieldpointe Apartments (Carrollton) was approximately 97% and the
occupancy of The Westmont (Columbia) was approximately 94% as to residential
units and 100% as to commercial space.
Critical Accounting Policies and Estimates
- ------------------------------------------
The consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America, which requires
the Partnership to make certain estimates and assumptions. 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 the
Partnership's financial condition and results of operations. The Partnership
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.
The Partnership 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 Statement of Financial
Accounting Standards 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
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
a. Within the 90 days prior to the date of this report, the Chief Executive
Officer and Chief Financial Officer of a General Partner of the Partnership
carried out an evaluation of the effectiveness of Partnership's "disclosure
controls and procedures" as defined in the Securities Exchange Act of 1934
Rules 13a-14(c) and 15(d)-14(c)). Based on that evaluation, the Chief
Executive Officer and Chief Financial Officer have concluded that as of the
date of the evaluation, the Partnership's disclosure controls and procedures
were adequate and effective in timely alerting them to material information
relating to the Partnership required to be included in the Partnership's
periodic SEC filings.
Changes in Internal Controls
b. There were no significant changes in the Partnership's internal controls or
in other factors that could significantly affect the Partnership's internal
controls subsequent to the date of that evaluation.
9
SECURED INCOME L.P. AND SUBSIDIARIES
Part II - Other Information
Item 1 Legal Proceedings
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Registrant is not aware of any material legal proceedings.
Item 2 Changes in Securities
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None
Item 3 Defaults upon Senior Securities
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None
Item 4 Submission of Matters to a Vote of Security Holders
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None
Item 5 Other Information
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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
10
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 15th day of May 2003.
SECURED INCOME L.P.
By: Wilder Richman Resources Corporation, General
Partner
By: /s/Richard Paul Richman
-----------------------------------------
Richard Paul Richman - Chief Executive Officer
By: /s/ Neal Ludeke
-----------------------------------------
Neal Ludeke - Chief Financial Officer
By: WRC-87A Corporation, General Partner
By: /s/ Richard Paul Richman
---------------------------------------------
Richard Paul Richman - Executive Vice President
By: /s/ Neal Ludeke
-----------------------------------------
Neal Ludeke - Chief Financial Officer
11
CERTIFICATIONS
I, Richard Paul Richman, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Secured Income L. P.
and Subsidiaries (the "Company");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Company as of, and for, the periods presented in this quarterly report;
4. The Company's other certifying officer and I are responsible for establishing
and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-14 and 15d-14) for the Company and we have:
(a) designed such disclosure controls and procedures to ensure that material
information relating to the Company, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
(b) evaluated the effectiveness of the Company's disclosure controls and
procedures as of a date (the "Evaluation Date") within 90 days prior to
the filing date of this quarterly report; and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Company's other certifying officer and I have disclosed, based on our
most recent evaluation, to the Company's auditors and the audit committee of
the Company's board of directors (or persons performing the equivalent
function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Company's ability to record,
process, summarize and report financial data and have identified for the
Company's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Company's internal controls;
and
6. The Company's other certifying officer and I have indicated in this quarterly
report whether or not there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent
to the Evaluation Date, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: May 15, 2003 /s/ Richard Paul Richman
-------------------------------
by: Richard Paul Richman
Chief Executive Officer of
Wilder Richman Resources
Corporation, a general
partner of the Company
12
I, Neal Ludeke, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Secured Income L.P. and
Subsidiaries (the "Company");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Company as of, and for, the periods presented in this quarterly report;
4. The Company's other certifying officer and I am responsible for establishing
and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-14 and 15d-14) for the Company and we have:
(a) designed such disclosure controls and procedures to ensure that material
information relating to the Company, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
(b) evaluated the effectiveness of the Company's disclosure controls and
procedures as of a date (the "Evaluation Date") within 90 days prior to
the filing date of this quarterly report; and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Company's other certifying officer and I have disclosed, based on our
most recent evaluation, to the Company's auditors and the audit committee of
the Company's board of directors (or persons performing the equivalent
function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Company's ability to record,
process, summarize and report financial data and have identified for the
Company's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Company's internal controls;
and
6. The Company's other certifying officer and I have indicated in this quarterly
report whether or not there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent
to the Evaluation Date, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: May 15, 2003 /s/ Neal Ludeke
------------------------------
by: Neal Ludeke
Chief Financial Officer
of Wilder Richman
Resources Corporation,
a general partner of
the Company
13