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, 2004
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
Greenwich, Connecticut 06830
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(Address of principal executive offices) 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
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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
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,
2004 December 31,
(Unaudited) 2003
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ASSETS
Property and equipment (net of accumulated
depreciation of $23,985,484 and $23,611,796) $ 20,885,025 $ 21,212,956
Cash and cash equivalents 3,540,189 3,729,130
Restricted assets and funded reserves 1,504,242 992,446
Tenant security deposits 584,501 575,179
Accounts receivable 45,800 48,711
Prepaid expenses 484,713 924,520
Intangible assets, net of accumulated amortization 1,967,247 1,995,543
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$ 29,011,717 $ 29,478,485
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LIABILITIES AND PARTNERS' DEFICIT
Liabilities
Mortgages payable $ 40,690,840 $ 40,830,762
Accounts payable and accrued expenses 228,798 361,704
Tenant security deposits payable 584,514 565,641
Due to general partners and affiliates 44,257 57,965
Deferred revenue 80,690 80,690
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41,629,099 41,896,762
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Partners' deficit
Limited partners (11,013,727) (10,812,676)
General partners (1,603,655) (1,605,601)
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(12,617,382) (12,418,277)
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$ 29,011,717 $ 29,478,485
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See notes to consolidated financial statements.
3
SECURED INCOME L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
THREE MONTHS ENDED MARCH 31, 2004 AND 2003
(Unaudited)
2004 2003
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REVENUE
Rental $2,025,130 $2,152,560
Interest 6,203 10,684
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TOTAL REVENUE 2,031,333 2,163,244
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EXPENSES
Administrative and management 220,093 219,499
Operating and maintenance 315,762 308,976
Taxes and insurance 482,194 387,656
Financial 416,657 452,098
Depreciation and amortization 401,984 402,564
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TOTAL EXPENSES 1,836,690 1,770,793
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NET EARNINGS $ 194,643 $ 392,451
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NET EARNINGS ATTRIBUTABLE TO
Limited partners $ 192,697 $ 388,526
General partners 1,946 3,925
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$ 194,643 $ 392,451
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NET EARNINGS ALLOCATED PER UNIT OF
LIMITED PARTNERSHIP INTEREST $ .20 $ .39
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See notes to consolidated financial statements.
4
SECURED INCOME L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2004 AND 2003
(Unaudited)
2004 2003
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CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 194,643 $ 392,451
Adjustments to reconcile net earnings to net cash
provided by operating activities
Depreciation and amortization 401,984 402,564
Increase in restricted assets and funded reserves (511,796) (395,827)
Increase in tenant security deposits (9,322) (11,822)
Decrease in accounts receivable 2,911 24,028
Decrease in prepaid expenses 439,807 341,253
Decrease in accounts payable and accrued expenses (132,906) (35,188)
Increase in tenant security deposits payable 18,873 9,531
Decrease in due to general partners and affiliates (13,708) (20,336)
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Net cash provided by operating activities 390,486 706,654
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CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (45,757)
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Net cash used in investing activities (45,757)
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CASH FLOWS FROM FINANCING ACTIVITIES
Distributions to partners (393,748) (652,377)
Principal payments on mortgages (139,922) (129,884)
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Net cash used in financing activities (533,670) (782,261)
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NET DECREASE IN CASH AND CASH EQUIVALENTS (188,941) (75,607)
Cash and cash equivalents at beginning of period 3,729,130 4,269,304
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,540,189 $ 4,193,697
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SUPPLEMENTAL INFORMATION
Financial expenses paid $ 387,670 $ 417,324
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See notes to consolidated financial statements.
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SECURED INCOME L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004
(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, 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, 2004 are not
necessarily indicative of the results to be expected for the entire year.
2. Additional information, including the audited December 31, 2003 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, 2003 on file with the Securities and Exchange Commission.
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SECURED INCOME L.P. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and 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.
Although the Partnership generated cash from operations during the three months
ended March 31, 2004, cash and cash equivalents decreased by approximately
$189,000 primarily as a result of distributions to limited partners. Mortgages
payable decreased due to principal amortization of approximately $140,000.
Property and equipment decreased by approximately $328,000 due to depreciation
of approximately $374,000, partially offset by capital improvements of
approximately $46,000, 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 and
accounts payable and accrued expenses decreased, while restricted assets and
funded reserves increased in the ordinary course of operations.
The Partnership made quarterly distributions to the limited partners in May,
August and November 2003 and in March 2004 totaling $1,574,990. Such
distributions represent an annualized return to the limited partners of
approximately 8% for the year ended December 31, 2003. The Partnership's ability
to make quarterly distributions on an ongoing basis is subject to the operating
results of the Operating Partnerships, which are highly contingent upon the
interest rates of the Columbia Partnership's low-floater mortgage and the
strength of their respective rental markets. Accordingly, 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, 2004
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During the three months ended March 31, 2004, the Columbia Partnership and the
Carrollton Partnership generated income from operating activities, before
financial expenses, of approximately $743,000 and approximately $302,000,
respectively. Mortgage principal payments during the period for the Columbia
Partnership and the Carrollton Partnership were approximately $98,000 and
approximately $42,000, 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
$424,000 during the three months ended March 31, 2004. There can be no assurance
that the level of cash flow generated by the Complexes during the three months
ended March 31, 2004 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)
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Results of operations for the three months ended March 31, 2004 reflect a
decline as compared to the three months ended March 31, 2003. Rental revenue is
lower in the first three months of 2004 as compared to the first three months of
2003 due in part to one of the Columbia Partnership's commercial tenants
breaking its lease in the second quarter of 2003. A termination fee of
approximately $211,000, representing approximately eighteen months of rent for
such space, was recognized as income in the second quarter of 2003. 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 May
14, 2004. Taxes and insurance have increased primarily as the result of an
increase in the real estate taxes of the Columbia Partnership. However, Columbia
management has reported that a 2004 real estate tax appeal was successful and
the Columbia Partnership will receive a refund of 2003 real estate taxes of
approximately $170,000, which amount is net of legal fees incurred in connection
with the appeal; such refund is not reflected in the accompanying financial
statements. As part of the appeal, the assessed value of the apartment complex
was reduced. The weighted average interest rate on the Columbia Partnership's
first mortgage was approximately .93% for the first three months of 2004 as
compared to approximately 1.38% for the first three months of 2003.
As of March 31, 2004, the occupancy of Fieldpointe Apartments (Carrollton) was
approximately 96% and the occupancy of The Westmont (Columbia) was approximately
96% as to residential units and approximately 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.
Three Months Ended March 31, 2003
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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. 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.
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.
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SECURED INCOME L.P. AND SUBSIDIARIES
Item 4. Controls and Procedures
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As of March 31, 2004, under the direction of the Chief Executive Officer and
Chief Financial Officer, Registrant evaluated the effectiveness of its
disclosure controls and procedures and internal controls over financial
reporting and concluded that (i) Registrant's disclosure controls and procedures
were effective as of March 31, 2004, and (ii) no changes occurred during the
quarter ended March 31, 2004, that materially affected, or are reasonably likely
to materially affect, such internal controls.
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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
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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
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 17th day of May 2004.
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