SECURITIES AND EXCHANGE COMMISSION
Washington, DC
_________________________
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, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from__________ to___________
Commission file number 0-17412
Secured Income L.P.
(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 Page
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Item 1 Financial Statements
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Consolidated Balance Sheets 3
Consolidated Statements of Operations 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
June 30,
2004 December 31,
(Unaudited) 2003
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ASSETS
Property and equipment (net of accumulated
depreciation of $24,359,174 and $23,611,796) $ 20,511,335 $ 21,212,956
Cash and cash equivalents 3,374,699 3,729,130
Restricted assets and funded reserves 1,959,712 992,446
Tenant security deposits 588,413 575,179
Accounts receivable 32,886 48,711
Prepaid expenses 53,919 924,520
Intangible assets, net of accumulated
amortization 1,938,952 1,995,543
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$ 28,459,916 $ 29,478,485
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LIABILITIES AND PARTNERS' DEFICIT
Liabilities
Mortgages payable $ 40,548,287 $ 40,830,762
Accounts payable and accrued expenses 332,324 361,704
Tenant security deposits payable 582,872 565,641
Due to general partners and affiliates 44,257 57,965
Deferred revenue 80,690 80,690
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41,588,430 41,896,762
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Partners' deficit
Limited partners (11,420,732) (10,812,676)
General partners (1,707,782) (1,605,601)
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(13,128,514) (12,418,277)
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$ 28,459,916 $ 29,478,485
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See notes to consolidated financial statements.
3
SECURED INCOME L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2004 AND 2003
(Unaudited)
Three Months Six Months Three Months Six Months Three Months
Ended Ended Ended Ended
June 30, 2004 June 30, 2004 June 30, 2003 June 30, 2003
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REVENUE
Rental $ 2,064,585 $ 4,089,715 $ 2,315,879 $ 4,468,439
Interest 5,108 11,311 9,685 20,369
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TOTAL REVENUE 2,069,693 4,101,026 2,325,564 4,488,808
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EXPENSES
Administrative and management 203,689 423,782 172,719 392,218
Operating and maintenance 480,302 796,064 363,898 672,874
Taxes and insurance 572,975 1,055,169 384,483 772,139
Financial 424,132 840,789 422,264 874,362
Depreciation and amortization 401,985 803,969 402,561 805,125
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TOTAL EXPENSES 2,083,083 3,919,773 1,745,925 3,516,718
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NET EARNINGS (LOSS) $ (13,390) $ 181,253 $ 579,639 $ 972,090
=========== =========== =========== ===========
NET EARNINGS (LOSS) ATTRIBUTABLE TO
Limited partners $ (13,257) $ 179,440 $ 573,843 $ 962,369
General partners (133) 1,813 5,796 9,721
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$ (13,390) $ 181,253 $ 579,639 $ 972,090
=========== =========== =========== ===========
NET EARNINGS (LOSS) ALLOCATED
PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ (.02) $ .18 $ .59 $ .98
=========== =========== =========== ===========
See notes to consolidated financial statements.
4
SECURED INCOME L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2004 AND 2003
(Unaudited)
2004 2003
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CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 181,253 $ 972,090
Adjustments to reconcile net earnings to net
cash provided by operating activities
Depreciation and amortization 803,969 805,125
Increase in restricted assets and funded reserves (967,266) (823,254)
Increase in tenant security deposits (13,234) (11,584)
Decrease (increase) in accounts receivable 15,825 (2,085)
Decrease in prepaid expenses 870,601 636,790
Decrease in accounts payable and accrued expenses (29,380) (128,810)
Increase in tenant security deposits payable 17,231 9,300
Decrease in due to general partners and affiliates (13,708) (20,336)
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Net cash provided by operating activities 865,291 1,437,236
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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 (891,490) (1,050,066)
Principal payments on mortgages (282,475) (262,207)
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Net cash used in financing activities (1,173,965) (1,312,273)
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (354,431) 124,963
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 $ 3,374,699 $ 4,394,267
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SUPPLEMENTAL INFORMATION
Financial expenses paid $ 797,358 $ 898,095
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See notes to consolidated financial statements.
5
SECURED INCOME L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 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 six months ended June 30, 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.
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 six months
ended June 30, 2004, cash and cash equivalents decreased by approximately
$354,000 primarily as a result of distributions to limited partners. Mortgages
payable decreased due to principal amortization of approximately $282,000.
Property and equipment decreased by approximately $701,000 due to depreciation
of approximately $747,000, partially offset by capital improvements of
approximately $46,000, 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
while restricted assets and funded reserves increased in the ordinary course of
operations.
The Partnership intends to make a distribution on or about August 15, 2004 of
approximately $.40 per Unit to Unit holders as of June 30, 2004. The Partnership
made a distribution in May 2004 of approximately $.40 per Unit to Unit holders
as of March 31, 2004. In addition, the Partnership made quarterly distributions
to the limited partners in May, August and November 2003 and in March 2004
totaling approximately $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 is currently considering reducing the next quarterly
distribution, depending on the operating results for the quarter. 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.
Results of Operations
Six Months Ended June 30, 2004
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During the six months ended June 30, 2004, the Columbia Partnership and the
Carrollton Partnership generated income from operating activities, before
financial expenses, of approximately $1,301,000 and approximately $591,000,
respectively. Mortgage principal payments during the period for the Columbia
Partnership and the Carrollton Partnership were approximately $197,000 and
approximately $85,000, 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
$688,000 during the six months ended June 30, 2004. There can be no assurance
that the level of cash flow generated by the Complexes during the six months
ended June 30, 2004 will continue in future periods.
7
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 six months ended June 30, 2004 reflect a decline
as compared to the six months ended June 30, 2003. Rental revenue is lower in
the first six months of 2004 as compared to the first six 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 with the lender 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
August 13, 2004. Taxes and insurance have increased primarily as the result of
an increase in the real estate taxes of the Columbia Partnership, including
approximately $83,000 of prior year taxes expensed in the second quarter of 2004
resulting from a billing error on the part of the taxing authority. However,
Columbia management has reported that a 2004 real estate tax appeal was
successful and that the assessed value of the apartment complex was reduced.
Although operating and maintenance expenses are higher in the six months ended
June 30, 2004 as compared to the six months ended June 30, 2003 as a result of
scheduled improvements, such expenses for the six months are reasonable when
compared to the total incurred for the year ended December 31, 2003. The
weighted average interest rate on the Columbia Partnership's first mortgage was
approximately .98% for the first six months of 2004 as compared to approximately
1.08% for the first six months of 2003.
As of June 30, 2004, the occupancy of Fieldpointe Apartments (Carrollton) was
100% 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.
Six Months Ended June 30, 2003
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During the six months ended June 30, 2003, the Columbia Partnership and the
Carrollton Partnership generated income from operating activities, before
financial expenses, of approximately $2,097,000 and approximately $602,000,
respectively. Mortgage principal payments during the period for the Columbia
Partnership and the Carrollton Partnership were approximately $182,000 and
approximately $80,000, 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
$1,529,000 during the six months ended June 30, 2003. As of June 30, 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 88% 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
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
As of June 30, 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 June 30, 2004, and (ii) no changes occurred during the
quarter ended June 30, 2004, that materially affected, or are reasonably likely
to materially affect, such internal controls.
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 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 16th day of August 2004.
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
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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