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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 September 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
- ----------------------------- -------------------
State or other jurisdiction of (IRS Employer
incorporation or organization Identification No.)
599 West Putnam Avenue
Greenwich, Connecticut 06830
- ------------------------------------------------ ----------
(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 |_|
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes |_| No |X|
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 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
Item 3 Quantitative and Qualitative Disclosure about Market Risk 8
Item 4 Controls and Procedures 9
2
SECURED INCOME L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
2004 2003
------------ ------------
(UNAUDITED)
ASSETS
Property and equipment (net of accumulated depreciation
of $24,732,864 and $23,611,796) $ 20,137,645 $ 21,212,956
Cash and cash equivalents 3,306,918 3,729,130
Restricted assets and funded reserves 2,294,336 992,446
Tenant security deposits 589,645 575,179
Accounts receivable 30,574 48,711
Prepaid expenses 140,178 924,520
Intangible assets, net of accumulated amortization 1,910,656 1,995,543
------------ ------------
$ 28,409,952 $ 29,478,485
============ ============
LIABILITIES AND PARTNERS' DEFICIT
Liabilities
Mortgages payable $ 40,403,054 $ 40,830,762
Accounts payable and accrued expenses 665,656 361,704
Tenant security deposits payable 589,297 565,641
Due to general partners and affiliates 44,257 57,965
Deferred revenue 80,690 80,690
------------ ------------
41,782,954 41,896,762
------------ ------------
Partners' deficit
Limited partners (11,661,532) (10,812,676)
General partners (1,711,470) (1,605,601)
------------ ------------
(13,373,002) (12,418,277)
------------ ------------
$ 28,409,952 $ 29,478,485
============ ============
See notes to consolidated financial statements.
3
SECURED INCOME L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2004 AND 2003
(UNAUDITED)
THREE MONTHS NINE MONTHS THREE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2004 2004 2003 2003
---------- ---------- ---------- ----------
REVENUE
Rental $2,076,280 $6,165,995 $1,990,738 $6,459,177
Interest 10,953 22,264 7,519 27,888
---------- ---------- ---------- ----------
TOTAL REVENUE 2,087,233 6,188,259 1,998,257 6,487,065
---------- ---------- ---------- ----------
EXPENSES
Administrative and management 243,905 667,687 229,543 621,761
Operating and maintenance 375,062 1,171,126 377,406 1,050,280
Taxes and insurance 486,343 1,541,512 373,185 1,145,324
Financial 425,446 1,266,235 413,596 1,287,958
Depreciation and amortization 401,986 1,205,955 402,566 1,207,691
---------- ---------- ---------- ----------
TOTAL EXPENSES 1,932,742 5,852,515 1,796,296 5,313,014
---------- ---------- ---------- ----------
NET EARNINGS $ 154,491 $ 335,744 $ 201,961 $1,174,051
========== ========== ========== ==========
NET EARNINGS ATTRIBUTABLE TO
Limited partners $ 152,947 $ 332,387 $ 199,941 $1,162,310
General partners 1,544 3,357 2,020 11,741
---------- ---------- ---------- ----------
$ 154,491 $ 335,744 $ 201,961 $1,174,051
========== ========== ========== ==========
NET EARNINGSALLOCATED
PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ .16 $ .34 $ .20 $ 1.18
========== ========== ========== ==========
See notes to consolidated financial statements.
4
SECURED INCOME L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(UNAUDITED)
2004 2003
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 335,744 $ 1,174,051
Adjustments to reconcile net earnings to net cash provided
by operating activities
Depreciation and amortization 1,205,955 1,207,691
Increase in restricted assets and funded reserves (1,301,890) (585,081)
Decrease (increase) in tenant security deposits (14,466) 2,328
Decrease in accounts receivable 18,137 19,501
Decrease (increase) in prepaid expenses 784,342 (9,595)
Increase (decrease) in accounts payable and accrued expenses 303,952 (129,163)
Increase (decrease) in tenant security deposits payable 23,656 (4,653)
Decrease in due to general partners and affiliates (13,708) (46,413)
----------- -----------
Net cash provided by operating activities 1,341,722 1,628,666
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (45,757)
-----------
Net cash used in investing activities (45,757)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions to partners (1,290,469) (1,451,197)
Principal payments on mortgages (427,708) (397,017)
----------- -----------
Net cash used in financing activities (1,718,177) (1,848,214)
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (422,212) (219,548)
Cash and cash equivalents at beginning of period 3,729,130 4,269,304
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,306,918 $ 4,049,756
=========== ===========
SUPPLEMENTAL INFORMATION
Financial expenses paid $ 1,262,249 $ 1,299,367
=========== ===========
See notes to consolidated financial statements.
5
SECURED INCOME L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 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 nine months ended September 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 nine months
ended September 30, 2004, cash and cash equivalents decreased by approximately
$422,000 primarily as a result of distributions to limited partners. Mortgages
payable decreased due to principal amortization of approximately $428,000.
Property and equipment decreased by approximately $1,075,000 due to depreciation
of approximately $1,121,000, partially offset by capital improvements of
approximately $46,000, 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. Prepaid expenses decreased
while restricted assets and funded reserves and accounts payable and accrued
expenses increased in the ordinary course of operations.
The Partnership intends to make a distribution on or about November 15, 2004 of
approximately $.40 per Unit to Unit holders as of September 30, 2004. The
Partnership made distributions in August 2004 and in May 2004 of approximately
$.40 per Unit to Unit holders as of June 2004 and March 31, 2004, respectively.
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'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
Nine Months Ended September 30, 2004
During the nine months ended September 30, 2004, the Columbia Partnership and
the Carrollton Partnership generated income from operating activities, before
financial expenses, of approximately $1,999,000 and approximately $921,000,
respectively. Mortgage principal payments during the period for the Columbia
Partnership and the Carrollton Partnership were approximately $299,000 and
approximately $129,000, 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
$1,127,000 during the nine months ended September 30, 2004. There can be no
assurance that the level of cash flow generated by the Complexes during the nine
months ended September 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 nine months ended September 30, 2004 reflect a
significant decline as compared to the nine months ended September 30, 2003.
Rental revenue is lower in the first nine months of 2004 as compared to the
first nine 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 November 15, 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 nine
months ended September 30, 2004 as compared to the nine months ended September
30, 2003 as a result of scheduled improvements, such expenses for the nine
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 1.04% for the first nine months
of 2004 as compared to approximately .97% for the first nine months of 2003.
As of September 30, 2004, the occupancy of Fieldpointe Apartments (Carrollton)
was approximately 99% and the occupancy of The Westmont (Columbia) was
approximately 98% 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.
Nine Months Ended September 30, 2003
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. 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 approximately 88% 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
As of September 30, 2004, under the direction of the Chief Executive Officer and
Chief Financial Officer of Wilder Richman Resources Corporation, 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 September 30, 2004, and
(ii) no changes occurred during the quarter ended September 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
Registrant is not aware of any material legal proceedings.
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3 Defaults upon Senior Securities
None
Item 4 Submission of Matters to a Vote of Security Holders
None
Item 5 Other Information
An affiliate of Real Estate Equity Partners L.P., an affiliate of
Apartment Investment and Management Company (the "AIMCO General Partner"),
filed a tender offer dated September 1, 2004, offering to acquire up to
821,805 units of limited partnership interest at $23.30 per Unit, which
offer expired September 29, 2004. The tender offer was filed with the SEC
on Schedule TO on September 1, 2004 and is publicly available at
www.sec.gov. Such tender offer resulted in the acquisition of 71,301
Units; affiliates of the AIMCO General Partner own 233,865 Units,
representing approximately 23.8% of the outstanding Units.
Affiliates of Mackenzie Patterson Fuller, Inc. and C. E. Patterson filed a
tender offer dated September 22, 2004, offering to acquire up to 100,000
Units of limited partnership interest at $24.25 per Unit, which offer
expired October 20, 2004. The tender offer was filed with the SEC on
Schedule TO on September 23, 2004 and is publicly available at
www.sec.gov. The offer was amended October 5, 2004, increasing the
offering price to $30.00 per Unit and extending the expiration date to
November 2, 2004, and was further amended October 25, 2004 increasing the
offering price to $34.00 per Unit and extending the expiration date to
November 5, 2004.
An affiliate of Wilder Richman Resources Corporation (the "WRC General
Partner") filed a tender offer dated September 30, 2004, offering to
acquire up to 286,600 units of limited partnership interest at $26.00 per
Unit, which offer expired October 28, 2004. The tender offer was filed
with the SEC on Schedule TO on September 30, 2004 and is publicly
available at www.sec.gov. The offer was amended October 14, 2004,
increasing the offering price to $32.00 per Unit. Such tender offer
resulted in the acquisition of 16,357 Units; affiliates of the WRC General
Partner own 249,785 Units, representing approximately 25.4% of the
outstanding Units.
Item 6 Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit 31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief
Executive Officer Exhibit 31.2 Rule 13a-14(a)/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
A Current Report on Form 8-K, dated September 8, 2004, was filed
relating to the WRC General Partner's having solicited offers from,
and being in discussion with, a number of potential purchasers for
the Westmont and Fieldpointe apartment complexes, the two properties
in which Secured Income, L.P. is indirectly invested.
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 November 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
------------------------------------------------
Neal Ludeke - Chief Financial Officer
By: WRC-87A Corporation, General Partner
By: /s/Richard Paul Richman
------------------------------------------------
Richard Paul Richman - Executive Vice President
and Treasurer
11