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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 March 31, 2005
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.
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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.)
340 Pemberwick Road
Greenwich, Connecticut 06831
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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 |_|
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
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
Item 3 Quantitative and Qualitative Disclosure about Market Risk 9
Item 4 Controls and Procedures 9
2
SECURED INCOME L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31,
2005 December 31,
(Unaudited) 2004
------------ ------------
ASSETS
Property and equipment (net of accumulated depreciation
of $25,481,785 and $25,109,102) $ 19,406,630 $ 19,779,313
Cash and cash equivalents 3,162,549 3,189,581
Restricted assets and funded reserves 1,552,406 1,130,638
Tenant security deposits 595,923 583,295
Accounts receivable 26,116 21,695
Due from affiliate 28,677
Prepaid expenses 486,838 892,000
Intangible assets, net of accumulated amortization 1,849,395 1,877,691
------------ ------------
$ 27,079,857 $ 27,502,890
============ ============
LIABILITIES AND PARTNERS' DEFICIT
Liabilities
Mortgages payable $ 40,104,343 $ 40,255,090
Accounts payable and accrued expenses 245,609 270,883
Tenant security deposits payable 580,469 576,439
Due to general partners and affiliates 22,990
Deferred revenue 68,736 68,736
------------ ------------
40,999,157 41,194,138
------------ ------------
Partners' deficit
Limited partners (12,227,784) (12,003,510)
General partners (1,691,516) (1,687,738)
------------ ------------
(13,919,300) (13,691,248)
------------ ------------
$ 27,079,857 $ 27,502,890
============ ============
See notes to consolidated financial statements.
3
SECURED INCOME L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
THREE MONTHS ENDED MARCH 31, 2005 AND 2004
(Unaudited)
2005 2004
------------ ------------
REVENUE
Rental $ 2,114,940 $ 2,025,130
Interest 14,135 6,203
------------ ------------
TOTAL REVENUE 2,129,075 2,031,333
------------ ------------
EXPENSES
Administrative and management 258,909 220,093
Operating and maintenance 316,359 315,762
Taxes and insurance 524,514 482,194
Financial 457,128 416,657
Depreciation and amortization 400,979 401,984
------------ ------------
TOTAL EXPENSES 1,957,889 1,836,690
------------ ------------
NET EARNINGS $ 171,186 $ 194,643
============ ============
NET EARNINGS ATTRIBUTABLE TO
Limited partners $ 169,474 $ 192,697
General partners 1,712 1,946
------------ ------------
$ 171,186 $ 194,643
============ ============
NET EARNINGS ALLOCATED PER UNIT OF
LIMITED PARTNERSHIP INTEREST $ .17 $ .20
============ ============
See notes to consolidated financial statements.
4
SECURED INCOME L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2005 AND 2004
(Unaudited)
2005 2004
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 171,186 $ 194,643
Adjustments to reconcile net earnings to net cash provided
by operating activities
Depreciation and amortization 400,979 401,984
Increase in restricted assets and funded reserves (421,768) (511,796)
Increase in tenant security deposits (12,628) (9,322)
Decrease (increase) in accounts receivable (4,421) 2,911
Decrease in prepaid expenses 405,162 439,807
Decrease in accounts payable and accrued expenses (25,274) (132,906)
Increase in tenant security deposits payable 4,030 18,873
Decrease in due to general partners and affiliates (22,990) (13,708)
------------ ------------
Net cash provided by operating activities 494,276 390,486
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Repayment of advance to affiliate 28,677
Capital expenditures (45,757)
------------ ------------
Net cash provided by (used in) investing activities 28,677 (45,757)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions to partners (399,238) (393,748)
Principal payments on mortgages (150,747) (139,922)
------------ ------------
Net cash used in financing activities (549,985) (533,670)
------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (27,032) (188,941)
Cash and cash equivalents at beginning of period 3,189,581 3,729,130
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,162,549 $ 3,540,189
============ ============
SUPPLEMENTAL INFORMATION
Financial expenses paid $ 486,028 $ 387,670
============ ============
See notes to consolidated financial statements.
5
SECURED INCOME L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005
(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,
(collectively, the "Operating 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, 2004 and no material contingencies exist which would require
additional disclosure in the report under Regulation S-X, Rule 10-01
paragraph A-5.
The Partnership is considering the sale of the underlying properties of
the Operating Partnerships. It is possible that those sales could be
consummated within approximately four to six months. If those transactions
are consummated, understanding that there is a reasonable possibility that
they may not be consummated at all, the operations of the Partnership
would cease. It is the Partnership's understanding that certain approvals
may be required by the lenders and others. Even if a sale of the
properties can be successfully negotiated, there can be no assurance that
all required approvals to the sales can be obtained. The preliminary
offers indicate that the carrying amount of these long-lived assets is
recoverable based on applying the standard accounting tests for
impairment. However, since the offers are still preliminary, the assets
continue to be classified as held and used assets in the accompanying
balance sheets.
The results of operations for the three months ended March 31, 2005 are
not necessarily indicative of the results to be expected for the entire
year.
2. Additional information, including the audited December 31, 2004
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, 2004 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, 2005, cash and cash equivalents decreased by approximately
$27,000 primarily as a result of a distribution to the limited partners.
Mortgages payable decreased due to principal amortization of approximately
$151,000. Property and equipment decreased by approximately $373,000 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 intends to make a distribution on or about May 15, 2005 of
approximately $.40 per Unit to Unit holders as of March 31, 2005. In addition,
the Partnership made quarterly distributions to the limited partners in May,
August and November 2004 and in March 2005 totaling $1,574,990. Such
distributions represent an annualized return to the limited partners of
approximately 8% for the year ended December 31, 2004. 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.
Wilder Richman Resources Corporation ("WRRC"), one of the general partners of
Registrant, is aware of several recent tender offers to purchase Units of
Secured Income L.P. The prices offered in the tender offers ranged from $23.30
per Unit to $34.00 per Unit. The sales of the two properties owned by the
Operating Partnerships are currently being negotiated, and WRRC believes that
Unit holders may realize greater value through a sale of the properties and a
liquidation of the Partnership. WRRC also believes that, barring unforeseen
issues, a sale of the properties could be accomplished within approximately four
to six months. WRRC cannot provide any assurance that one or both of the
properties can be sold at prices that would result in Unit prices higher than
those offered in the tender offers, or that a sale can be completed at a price
that would be acceptable to the Partnership.
If those transactions are consummated, understanding that there is a reasonable
possibility that they may not be consummated at all, the operations of
Registrant would cease. It is Registrant's understanding that certain approvals
may be required by the lenders and others. Even if a sale of the properties can
be successfully negotiated, there can be no assurance that all required
approvals to the sales can be obtained. The preliminary offers indicate that the
carrying amount of these long-lived assets is recoverable based on applying the
standard accounting tests for impairment. However, since the offers are still
preliminary, the assets continue to be classified as held and used assets in the
accompanying balance sheets.
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
Three Months Ended March 31, 2005
During the three months ended March 31, 2005, the Columbia Partnership's and the
Carrollton Partnership's operations resulted in net earnings of approximately
$127,000 and approximately $93,000, respectively. The Columbia Partnership's
earnings include financial expenses and depreciation and amortization of
approximately $307,000 and approximately $293,000, respectively, while the
Carrollton Partnership's earnings include financial expenses and depreciation
and amortization of approximately $150,000 and approximately $100,000,
respectively. Accordingly, the Columbia Partnership and the Carrollton
Partnership generated earnings from operating activities prior to financial
expenses and depreciation and amortization of approximately $727,000 and
approximately $343,000, respectively. Mortgage principal payments during the
period for the Columbia Partnership and the Carrollton Partnership were
approximately $106,000 and approximately $45,000, 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 $452,000 during the three months ended March
31, 2005. There can be no assurance that the level of cash flow generated by the
Complexes during the three months ended March 31, 2005 will continue in future
periods.
Results of operations for the three months ended March 31, 2005 are comparable
to the three months ended March 31, 2004. Administrative and management expenses
have increased in part as a result of costs incurred by the Partnership in
connection with the tender offers noted above. Financial expenses have increased
primarily as a result of the weighted average interest rate on the Columbia
Partnership's first mortgage increasing from approximately .93% for the first
three months of 2004 to approximately 1.78% for the first three months of 2005.
As of March 31, 2005, the occupancy of Fieldpointe Apartments (Carrollton) was
approximately 93% and the occupancy of The Westmont (Columbia) was approximately
99% as to residential units and approximately 88% as to commercial space as a
result of one of the commercial tenants breaking its lease in the second quarter
of 2003. A termination fee of approximately $221,000, representing approximately
eighteen months of rent for such space, was received and escrowed with the
lender; such escrow 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 2005. 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, 2004
During the three months ended March 31, 2004, the Columbia Partnership's and the
Carrollton Partnership's operations resulted in net earnings of approximately
$166,000 and approximately $47,000, respectively. The Columbia Partnership's
earnings include financial expenses and depreciation and amortization of
approximately $264,000 and approximately $292,000, respectively, while the
Carrollton Partnership's earnings include financial expenses and depreciation
and amortization of approximately $153,000 and approximately $102,000,
respectively. Accordingly, the Columbia Partnership and the Carrollton
Partnership generated earnings from operating activities prior to financial
expenses and depreciation and amortization of approximately $722,000 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. 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 88% as to commercial space (see discussion
above).
8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
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.
Item 4. Controls and Procedures
As of March 31, 2005, 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, 2005, and (ii) no changes occurred during the
quarter ended March 31, 2005, 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
None
Item 6 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
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 16th day of May 2005.
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