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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2003
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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
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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
Greenwich, Connecticut 06830
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(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code: (203) 869-0900
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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
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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
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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
September 30,
2003 December 31,
(Unaudited) 2002
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ASSETS
Property and equipment (net of accumulated depreciation
of $23,232,177 and $22,109,373) $ 21,517,330 $ 22,640,134
Cash and cash equivalents 4,049,756 4,269,304
Restricted assets and funded reserves 1,172,924 587,843
Tenant security deposits 571,575 573,903
Accounts receivable 25,345 44,846
Prepaid expenses 764,515 754,920
Intangible assets, net of accumulated amortization 2,028,508 2,113,395
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$ 30,129,953 $ 30,984,345
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LIABILITIES AND PARTNERS' DEFICIT
Liabilities
Mortgages payable $ 40,968,103 $ 41,365,120
Accounts payable and accrued expenses 202,515 331,678
Tenant security deposits payable 565,278 569,931
Due to general partners and affiliates 125,892 172,305
Deferred revenue 92,644 92,644
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41,954,432 42,531,678
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Partners' deficit
Limited partners (10,225,114) (10,206,181)
General partners (1,599,365) (1,341,152)
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(11,824,479) (11,547,333)
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$ 30,129,953 $ 30,984,345
============ ============
See notes to consolidated financial statements.
3
SECURED INCOME L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
Three Months Nine Months Three Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
2003 2003 2002 2002
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REVENUE
Rental $1,990,738 $6,459,177 $2,029,549 $6,173,360
Interest 7,519 27,888 26,480 72,086
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TOTAL REVENUE 1,998,257 6,487,065 2,056,029 6,245,446
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EXPENSES
Administrative and management 229,543 621,761 208,321 615,368
Operating and maintenance 377,406 1,050,280 395,069 1,071,945
Taxes and insurance 373,185 1,145,324 355,240 1,046,855
Financial 413,596 1,287,958 453,698 1,355,341
Depreciation and amortization 402,566 1,207,691 405,884 1,217,650
---------- ---------- ---------- ----------
TOTAL EXPENSES 1,796,296 5,313,014 1,818,212 5,307,159
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NET EARNINGS $ 201,961 $1,174,051 $ 237,817 $ 938,287
========== ========== ========== ==========
NET EARNINGS ATTRIBUTABLE TO
Limited partners $ 199,941 $1,162,310 $ 235,439 $ 600,137
General partners 2,020 11,741 2,378 338,150
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$ 201,961 $1,174,051 $ 237,817 $ 938,287
========== ========== ========== ==========
NET EARNINGSALLOCATED
PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ .20 $ 1.18 $ .24 $ .61
========== ========== ========== ==========
See notes to consolidated financial statements.
4
SECURED INCOME L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(Unaudited)
2003 2002
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CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 1,174,051 $ 938,287
Adjustments to reconcile net earnings to net cash provided
by operating activities
Depreciation and amortization 1,207,691 1,217,650
Increase in restricted assets and funded reserves (585,081) (200,193)
Decrease in tenant security deposits 2,328 10,943
Decrease (increase) in accounts receivable 19,501 (27,454)
Decrease (increase) in prepaid expenses (9,595) 109,295
Increase (decrease) in accounts payable and accrued expenses (129,163) 181,415
Decrease in tenant security deposits payable (4,653) (18,340)
Decrease in due to general partners and affiliates (46,413) (142,045)
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Net cash provided by operating activities 1,628,666 2,069,558
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CASH FLOWS FROM FINANCING ACTIVITIES
Distributions to partners (1,451,197) (2,057,210)
Principal payments on mortgages (397,017) (341,042)
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Net cash used in financing activities (1,848,214) (2,398,252)
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Net decrease in cash and cash equivalents (219,548) (328,694)
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 $ 4,049,756 $ 4,502,381
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SUPPLEMENTAL INFORMATION
Financial expenses paid $ 1,299,367 $ 1,302,517
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See notes to consolidated financial statements.
5
SECURED INCOME L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 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 September 30, 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 nine months ended September 30, 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
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Results of Operations
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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.
Cash and cash equivalents decreased by approximately $220,000 during the nine
months ended September 30, 2003 as the result of cash generated from operations,
offset by 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 $397,000. Property and equipment decreased by approximately
$1,123,000 due to depreciation, while intangible assets decreased by
approximately $85,000 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.
Accounts payable and accrued expenses decreased in the ordinary course of
operations. Restricted assets and funded reserves increased, in part, as the
result of the deposit of a lease breakage fee in connection with the Columbia
Partnership (see discussion below under Results of Operations).
The Partnership made distributions of approximately $.40 per Unit on or about
May 15, 2003 to Unit holders of record as of March 31, 2003 and on or about
August 15, 2003 to Unit holders of record as of June 30, 2003, and anticipates
making another distribution during November 2003 of approximately $.40 per Unit
to Unit holders of record as of September 30, 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
Nine Months Ended September 30, 2003
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During the nine months ended September 30, 2003, the Columbia Partnership and
the Carrollton Partnership generated income from operating activities, before
financial expenses, of approximately $2,855,000 and approximately $893,000,
respectively. Mortgage principal payments during the period for the Columbia
Partnership and the Carrollton Partnership were approximately $276,000 and
approximately $121,000, 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
$2,014,000 during the nine months ended September 30, 2003. There can be no
assurance that the level of cash flow generated by the Complexes during the nine
months ended September 30, 2003 will continue in future periods.
7
SECURED INCOME L.P. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
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Results of Operations (continued)
---------------------------------
Results of operations for the nine months ended September 30, 2003 reflect
improvement as compared to the nine months ended September 30, 2002. The
increase in rental revenue for the nine months ended September 30, 2003, and the
decrease in rental revenue for the three months ended September 30, 2003
relative to the nine months ended September 30, 2003, was primarily attributable
to the receipt of approximately $221,000 in connection with one of the Columbia
Partnership's commercial tenants breaking its lease in the second quarter of
2003. The termination fee represents approximately eighteen months of rent for
such space. Under the terms of the Columbia Partnership's mortgages, the fee has
been escrowed and will not be released until the earlier of the expiration of
the original lease term or such time as the space is leased to another tenant.
Any prospective tenant must be approved by the lender; the space has not been
rented as of November 2003. The weighted average interest rate on the Columbia
Partnership's first mortgage was approximately .97% for the first nine months of
2003 as compared to approximately 1.26% for the first nine months of 2002.
As of September 30, 2003, the occupancy of Fieldpointe Apartments (Carrollton)
was approximately 90% and the occupancy of The Westmont (Columbia) was
approximately 96% as to residential units and 88% as to commercial space (see
discussion above). The future operating results of the Complexes will be
extremely dependent on market conditions and therefore may be subject to
significant volatility.
Nine Months Ended September 30, 2002
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During the nine months ended September 30, 2002, the Columbia Partnership and
the Carrollton Partnership generated income from operating activities, before
financial expenses, of approximately $2,620,000 and approximately $944,000,
respectively. Mortgage principal payments during the period for the Columbia
Partnership and the Carrollton Partnership were approximately $227,000 and
approximately $114,000, 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
$1,777,000 during the nine months ended September 30, 2002. As of September 30,
2002, the occupancy of Fieldpointe Apartments (Carrollton) was approximately 95%
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
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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
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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 the
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
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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
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a. Exhibits
Exhibit 31.1 Rule 13a-14/15d-14(a) Certification of Chief Executive
Officer
Exhibit 31.2 Rule 13a-14/15d-14(a) Certification of Chief Financial
Officer
Exhibit 32.1 Section 1350 Certification of Chief Executive Officer
Exhibit 32.2 Section 1350 Certification of Chief Financial Officer
b. Reports on Form 8-K
None
10
SIGNATURES
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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 14th day of November 2003.
SECURED INCOME L.P.
By: Wilder Richman Resources Corporation, General
Partner
By: /s/Richard Paul Richman
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Richard Paul Richman - Chief Executive Officer
By: /s/Neal Ludeke
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Neal Ludeke - Chief Financial Officer
By: WRC-87A Corporation, General Partner
By: /s/Richard Paul Richman
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Richard Paul Richman - Executive Vice President
By: /s/Neal Ludeke
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Neal Ludeke - Chief Financial Officer
11