SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarter ended June 30, 1995 Commission file number 0-9485
JMB INCOME PROPERTIES, LTD. - VI
(Exact Name of registrant as specified in its charter)
Illinois 36-2936728
(State of organization) (I.R.S. Employer Identification No.)
900 N. Michigan Ave., Chicago, IL 60611
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code 312/915-1987
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
such filing requirements for the past 90 days. Yes X No
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1. Financial Statements. . . . . . . . . . . . . . 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . 15
PART II OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . 19
Item 5. Other Information . . . . . . . . . . . . . . . 20
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . 21
<TABLE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
JMB INCOME PROPERTIES, LTD. - VI
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1995 AND DECEMBER 31, 1994
(UNAUDITED)
ASSETS
------
<CAPTION>
JUNE 30, DECEMBER 31,
1995 1994
------------ -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents (note 1) . . . . . . . . . . . . . . . . $ 66,649 264,327
Short-term investments (note 1). . . . . . . . . . . . . . . . . . 53,289 9,634
Rents and other receivables (net of allowance for doubtful
accounts of $0 in 1995 and $93,208 in 1994). . . . . . . . . . . 1,015 287,683
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . -- 114,165
Escrow deposits (note 3) . . . . . . . . . . . . . . . . . . . . . -- 2,793,451
----------- -----------
Total current assets. . . . . . . . . . . . . . . . . . . . . 120,953 3,469,260
----------- -----------
Investment properties, at cost:
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 3,383,142
Buildings and improvements . . . . . . . . . . . . . . . . . . . . -- 68,474,063
----------- -----------
-- 71,857,205
Less accumulated depreciation. . . . . . . . . . . . . . . . . . . -- 39,870,367
----------- -----------
Total investment properties, net of accumulated depreciation. -- 31,986,838
Deferred expenses. . . . . . . . . . . . . . . . . . . . . . . . . . -- 2,215,938
Accrued rents receivable . . . . . . . . . . . . . . . . . . . . . . -- 8,043,818
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,802 37,802
----------- -----------
$ 158,755 45,753,656
=========== ===========
JMB INCOME PROPERTIES, LTD. - VI
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
CONSOLIDATED BALANCE SHEETS - CONTINUED
LIABILITIES AND PARTNERS' CAPITAL ACCOUNTS (DEFICITS)
-----------------------------------------------------
JUNE 30, DECEMBER 31,
1995 1994
------------ -----------
Current liabilities:
Current portion of long-term debt (in default - note 3). . . . . . $ -- 100,196,278
Notes payable. . . . . . . . . . . . . . . . . . . . . . . . . . . -- 202,843
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . 368,256 669,622
Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . -- 9,790,534
----------- -----------
Total current liabilities . . . . . . . . . . . . . . . . . . 368,256 110,859,277
Amounts due to affiliates (note 5) . . . . . . . . . . . . . . . . . 4,899,324 4,907,019
Tenant security deposits . . . . . . . . . . . . . . . . . . . . . . -- 496,817
----------- -----------
Commitments and contingencies (notes 1, 2, 3 and 5)
Total liabilities . . . . . . . . . . . . . . . . . . . . . . 5,267,580 116,263,113
----------- -----------
Partners' capital accounts (deficits):
General partners:
Capital contributions. . . . . . . . . . . . . . . . . . . . . . 1,000 1,000
Cumulative net earnings. . . . . . . . . . . . . . . . . . . . . 1,299,638 714,396
Cumulative cash distributions. . . . . . . . . . . . . . . . . . (6,507,073) (6,507,073)
------------ -----------
(5,206,435) (5,791,677)
------------ -----------
Limited partners (60,005 interests):
Capital contributions, net of offering costs . . . . . . . . . . 54,556,949 54,556,949
Cumulative net earnings. . . . . . . . . . . . . . . . . . . . . 50,025,835(14,789,555)
Cumulative cash distributions. . . . . . . . . . . . . . . . . . (104,485,174) (104,485,174)
------------ -----------
97,610 (64,717,780)
------------ -----------
Total partners' capital accounts (deficits). . . . . . . . . . . (5,108,825) (70,509,457)
------------ -----------
$ 158,755 45,753,656
============ ===========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
JMB INCOME PROPERTIES, LTD. - VI
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1995 AND 1994
(UNAUDITED)
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
-------------------------- --------------------------
1995 1994 1995 1994
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Income:
Rental income. . . . . . . . . . . . . . . . $ 3,033,143 3,848,868 6,454,219 8,338,599
Interest income. . . . . . . . . . . . . . . 40,822 13,498 64,787 33,389
------------ ----------- ------------ -----------
3,073,965 3,862,366 6,519,006 8,371,988
------------ ----------- ------------ -----------
Expenses:
Mortgage and other interest. . . . . . . . . 2,192,056 2,950,329 6,497,870 6,248,345
Depreciation . . . . . . . . . . . . . . . . 231,248 382,947 534,016 864,470
Property operating expenses. . . . . . . . . 1,260,241 2,074,555 2,585,762 4,145,486
Professional services. . . . . . . . . . . . 67,001 56,352 72,534 112,590
Amortization of deferred expenses. . . . . . 102,223 262,865 233,883 390,355
General and administrative . . . . . . . . . 18,372 8,397 33,166 50,612
------------ ----------- ------------ -----------
3,871,141 5,735,445 9,957,231 11,811,858
------------ ----------- ------------ -----------
Operating loss. . . . . . . . . . . . . (797,176) (1,873,079) (3,438,225) (3,439,870)
Venture partners' share of
venture operations . . . . . . . . . . . . . -- (548) -- 74,906
------------ ----------- ------------ -----------
Net operating earnings (loss) . . . . . (797,176) (1,873,627) (3,438,225) (3,364,964)
Gain from disposition of
investment properties, net of
venture partners' share of
gain of $0 in 1995 and $114,899
in 1994 (notes 3 and 4) . . . . . . . 68,838,857 3,743,348 68,838,857 3,743,348
------------ ----------- ------------ -----------
Net earnings. . . . . . . . . . . . . . $ 68,041,681 1,869,721 65,400,632 378,384
============ =========== ============ ===========
JMB INCOME PROPERTIES, LTD. - VI
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
CONSOLIDATED STATEMENTS OF OPERATIONS - CONTINUED
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
-------------------------- --------------------------
1995 1994 1995 1994
------------ ----------- ------------ -----------
Net earnings (loss) per limited
partnership interest
(note 1):
Net operating loss . . . . . . . . . $ (12.89) (30.29) (55.58) (54.40)
Gain from disposition
of investment properties,
net of venture partners'
share in 1994. . . . . . . . . . . 1,135.75 61.76 1,135.75 61.76
------------ ----------- ------------ -----------
$ 1,122.86 31.47 1,080.17 7.36
============ =========== ============ ===========
Cash distributions per
limited partnership
interest. . . . . . . . . . . . . . . $ -- -- -- --
============ =========== ============ ===========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
JMB INCOME PROPERTIES, LTD. - VI
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1995 AND 1994
(UNAUDITED)
<CAPTION>
1995 1994
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss). . . . . . . . . . . . . . . . . . . . . . . . . . $ 65,400,632 378,384
Items not requiring (providing) cash or cash equivalents:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 534,016 864,470
Amortization of deferred expenses. . . . . . . . . . . . . . . . . . 233,883 390,355
Venture partners' share of venture operations. . . . . . . . . . . . -- 39,993
Total gain on disposition of investment property . . . . . . . . . . (68,838,857) (3,858,247)
Changes in:
Rents and other receivables. . . . . . . . . . . . . . . . . . . . . (239,438) 279,906
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 81,353 386,088
Escrow deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . 920,078 528,955
Accrued rents receivable . . . . . . . . . . . . . . . . . . . . . . 444,251 349,637
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . 1,106,258 (154,330)
Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . . 871,142 77,310
Amounts due to affiliates. . . . . . . . . . . . . . . . . . . . . . (7,694) 302,606
Tenant security deposits . . . . . . . . . . . . . . . . . . . . . . 2,015 (28,361)
------------ -----------
Net cash provided by (used in) operating activities. . . . . . 507,639 (443,234)
------------ -----------
Cash flows from investing activities:
Net sales and maturities (purchases) of short-term investments . . . . (53,289) 97,996
Additions to investment properties . . . . . . . . . . . . . . . . . . (724,571) (32,347)
Payment of deferred expenses . . . . . . . . . . . . . . . . . . . . . (71,045) (82,886)
------------ -----------
Net cash used in investing activities. . . . . . . . . . . . . (848,905) (17,237)
------------ -----------
JMB INCOME PROPERTIES, LTD. - VI
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
1995 1994
------------ -----------
Cash flows from financing activities:
Proceeds from long-term debt (note 3). . . . . . . . . . . . . . . . . 241,423 159,206
Principal payments on note payable . . . . . . . . . . . . . . . . . . (97,835) (117,401)
------------ -----------
Net cash provided by financing activities. . . . . . . . . . . 143,588 41,805
------------ -----------
Net decrease in cash and cash equivalents. . . . . . . . . . . (197,678) (418,666)
Cash and cash equivalents, beginning of year . . . . . . . . . 264,327 1,026,094
------------ -----------
Cash and cash equivalents, end of period . . . . . . . . . . . $ 66,649 607,428
============ ===========
Supplemental disclosure of cash flow information:
Cash paid for mortgage and other interest. . . . . . . . . . . . . . . $ 5,385,305 6,011,829
============ ===========
Non-cash investing and financing activities:
Deferred expenses payable to affiliates (notes 2 and 5). . . . . . . $ -- 300,435
============ ===========
Balance due on mortgage notes payable cancelled. . . . . . . . . . . . $100,437,701 14,243,816
Reduction of land. . . . . . . . . . . . . . . . . . . . . . . . . . . (3,383,142) (2,642,045)
Reduction of buildings and improvements. . . . . . . . . . . . . . . . (69,198,634) (23,482,956)
Reduction of accumulated depreciation. . . . . . . . . . . . . . . . . 40,404,383 15,057,577
Reduction of accrued interest payable. . . . . . . . . . . . . . . . . 10,661,676 1,235,769
Reduction of other assets and liabilities. . . . . . . . . . . . . . . (10,083,127) (553,914)
Non-cash gains recognized on dispositions of investment
properties (notes 3 and 4) . . . . . . . . . . . . . . . . . $ 68,838,857 $ 3,858,247
============ ===========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
JMB INCOME PROPERTIES, LTD. - VI
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995 AND 1994
(UNAUDITED)
Readers of this quarterly report should refer to the Partnership's
audited financial statements for the year ended December 31, 1994 which are
included in the Partnership's 1994 Annual Report, as certain footnote
disclosures which would substantially duplicate those contained in such
audited financial statements have been omitted from this report.
(1) BASIS OF ACCOUNTING
The accompanying consolidated financial statements include the
accounts of the Partnership and its venture, Fishkill Associates
("Fishkill"), which owned Dutchess Mall until it was transferred to the
mortgage lender for the property in May of 1994 (see note 4). The effect
of all transactions between the Partnership and the venture have been
eliminated in the accompanying consolidated financial statements.
The Partnership records are maintained on the accrual basis of
accounting as adjusted for Federal income tax reporting purposes. The
accompanying consolidated financial statements have been prepared from such
records after making appropriate adjustments to present the Partnership's
accounts in accordance with generally accepted accounting principles
("GAAP") and to consolidate the accounts of the venture as described above.
Such adjustments are not recorded on the records of the Partnership. The
effect of these items for the six months ended June 30, 1995 and 1994 is
summarized as follows:
1995 1994
------------------------- ----------------------
GAAP BASIS TAX BASIS GAAP BASIS TAX BASIS
----------- ---------- ---------- ---------
Net earnings . . .$65,400,632 60,608,855 378,384 1,425,647
Net earnings
per limited
partnership
interest. . . . .$ 1,080.17 1,001.10 7.36 8.15
=========== ========== ======= =========
The net earnings per Interest is based upon the number of Interests
outstanding at the end of each period (60,005). Deficit capital accounts
will result, through the duration of the Partnership, in net gain for
financial reporting and Federal income tax purposes.
Statement of Financial Accounting Standards No. 95 requires the
Partnership to present a statement which classifies receipts and payments
according to whether they stem from operating, investing or financing
activities. The required information has been segregated and accumulated
according to the classifications specified in the pronouncement. The
Partnership records amounts held in U.S. Government obligations at cost,
which approximates market. For the purposes of these statements, the
Partnership's policy is to consider all such amounts held with original
maturities of three months or less ($0 and $173,979 at June 30, 1995 and
December 31, 1994, respectively) as cash equivalents with any remaining
amounts (generally with original maturities of one year or less) reflected
as short-term investments being held to maturity.
JMB INCOME PROPERTIES, LTD. - VI
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
No provision for State or Federal income taxes has been made as the
liability for such taxes is that of the partners rather than the
Partnership. However, in certain circumstances, the Partnership has been
and may be required under applicable law to remit directly to the tax
authorities amounts representing withholding related to taxable gains
applicable to partners.
(2) MANAGEMENT AGREEMENTS
The Century City North Office Building was managed by an assignee of
the General Partners for a fee computed as a percentage of certain rents
received by the property. The property had previously been managed by an
affiliate of the General Partners. In December 1994, the affiliated
property manager sold substantially all of its assets and assigned its
interest in its management contracts to an unaffiliated third party. In
addition, certain of the management personnel of the property manager
became management personnel of the purchaser and it affiliates. The
successor to the affiliated property manager's assets was acting as the
property manager of the Century City North Office Building after the sale
on terms similar to those that existed prior to the sale.
Since 1991, property management fees of approximately $2,052,000 had
been deferred by the former affiliated property manager in connection with
the Century City North Office Building representing deferrals required in
accordance with the modification of the debt secured by the property. In
addition, approximately $391,000 of 1991 property management fees related
to the Dutchess Mall were also deferred. The Partnership's share of such
deferred fees related to the Dutchess Mall (approximately $352,000) were to
have been payable out of the net sales proceeds, if any, of the Century
City North Office Building. The former affiliated property manager also
earned commissions in connection with leasing activity at the Century City
North Office Building but had deferred the payment of a portion of the
commissions otherwise payable pursuant to the Partnership and Management
Agreements. On June 9, 1995, as more fully discussed in note 3, the
Partnership transferred title to the Century City North Office Building to
the first mortgage lender. As of the date of transfer, such deferrals were
approximately $2,495,000, of which approximately $376,000 represented
deferrals required in accordance with the Partnership Agreement. Due to
the transfer of title of the Century City North Office Building to the
first mortgage lender in June 1995, it is unlikely that any of these
deferred fees or commissions related to Dutchess Mall or Century City North
will be paid. (Reference is made to note 3).
(3) CENTURY CITY NORTH BUILDING
On June 9, 1995, the Partnership transferred title to the lender as
discussed below.
In October 1985, the Partnership refinanced the existing mortgage debt
secured by the Century City North Building, which had a balance at the date
of refinancing of $18,221,662, with a non-recourse first mortgage loan
originally due November 1, 1990, in the amount of $92,000,000. The
Partnership received net refinancing proceeds of approximately $72,463,000
(after retirement of the existing mortgage debt and payment of certain
other related costs). In October 1991, the first mortgage loan was
modified, effective November 1, 1990, to extend the maturity date to
November 1, 1995 and to temporarily provide reduced interest only pay rates
from the 10.875% contract rate.
JMB INCOME PROPERTIES, LTD. - VI
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The lender was also entitled to receive contingent interest based upon
a formula (as defined) ranging from $5,000,000 to $8,000,000. For
financial reporting purposes, based on a notice of default received from
the first mortgage lender in January 1995, as more fully discussed below,
the Partnership had determined that $5,000,000 in additional interest was
due. Such amount is reflected in accrued interest in the consolidated
financial statements at December 31, 1994 and in the gain on disposition at
June 30, 1995. In addition, the Partnership determined that approximately
$3,973,387 in late fees and prepayment penalties were due in accordance
with the debt agreement. The Partnership was required to escrow (reflected
as escrow deposits in the accompanying consolidated balance sheet at
December 31, 1994) any cash flow produced by the property, after payment of
modified debt service, for the period November 1, 1990 through October 31,
1993. This escrow was established to pay for approved capital and tenant
improvements related to the property. In addition, the property management
fee was required to be deferred until the first mortgage was repaid in
full. The debt service reduction period expired and, as a result, the
Partnership met with the first mortgage lender to obtain further debt
service relief until such time as significant leasing in the building was
achieved. The lender did not grant any additional debt service relief, but
allowed a portion of the funds previously escrowed, plus interest thereon,
to be used for future leasing and capital costs at the building. These
escrowed funds otherwise would have been applied as a reduction of the
outstanding principal balance of the loan pursuant to the modification
documents. In March of 1995, the first mortgage lender required the
Partnership to establish a restricted funds account in which all cash flow
from the property was controlled by the first mortgage lender.
The Partnership had been exploring the possibility of selling its
interest in the building. The Los Angeles office building market is
depressed at the present time and the building had a considerable amount of
vacancy. In view of the extremely competitive nature of the marketplace,
releasing costs (including the downtime to locate new tenants) were
expected to continue to be high. Because the Partnership's and the
property's reserves had been virtually exhausted, the Partnership was
delinquent in the payment of its November and December of 1994 scheduled
debt service and, as of January 1, 1995, had suspended all payments of the
scheduled debt service on the first mortgage loan. Accordingly, in January
1995, the Partnership received a notice of default from the first mortgage
lender. In May of 1995, the first mortgage lender notified the Partnership
that it had decided to acquire title to the property. On June 9, 1995, the
property was transferred to the lender through a deed in lieu of
foreclosure and the remaining balance in the restricted funds account was
applied against the outstanding principal balance of the loan.
As a result of the transfer to the lender as discussed above, the
Partnership no longer has an ownership interest in the property and
recognized a gain for financial reporting purposes of $68,838,857 and
expects to recognize a gain of approximately $62,145,000 for Federal income
tax purposes during 1995 with no corresponding distributable proceeds. It
is anticipated that the Partnership will terminate its affairs in 1995.
The consolidated financial statements do not include any adjustments that
might result from the termination of the Partnership's operations.
JMB INCOME PROPERTIES, LTD. - VI
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
In October 1991, an agreement was reached whereby an existing
unsecured line of credit was converted to a non-recourse second mortgage in
an amount not to exceed $7,000,000, secured by the Century City North
Building and due November 1, 1995. At the disposition date, June 9, 1995,
$5,794,745 ($241,423 in 1995) had been funded thereunder. Interest was
paid at an adjustable rate (approximately 8.63% at the disposition date,
June 9, 1995). The Partnership was previously allowed to draw proceeds
under this facility to pay the interest due on this mortgage loan in
addition to any related bank fees which may have been incurred.
Significant capital improvements continued to be required at the
Century City North Building in order to comply with local fire, life and
safety code regulations as well as for tenant improvement costs being
incurred to retain and procure tenants in what had become an extremely
competitive market. At the disposition date, June 9, 1995, approximately
40% of the fire, life and safety code compliance work had been completed.
These costs were anticipated to continue over the next several years until
the entire building conformed to such regulations. Though the Partnership
had been granted extensions through November 1995 by the local regulating
authorities to complete the compliance work, there were no assurances that
any future extensions would have been granted.
The Partnership entered into a lease agreement in 1993 whereby a
tenant paid the costs associated with renovating its leased space at the
Century City North Building. According to the terms of the lease, the
Partnership was to pay to the tenant a negotiated amount, initially
$469,605 (reflected as notes payable in the accompanying consolidated
balance sheet at December 31, 1994) in monthly installments of principal
and interest through November 1995. The balance remaining at the
disposition date, June 9, 1995, was $105,009 and assumed by the lender at
the transfer date.
The Partnership and certain associated companies have been named in a
lawsuit entitled HOLWICK, INC. V. JMB/1888 PARTNERS, ET AL. which was filed
in the Superior Court for the County of Los Angeles, seeking damages for
breach of contract and fraud, among other things, in connection with the
installation of sprinkler and alarm systems at the Century City North
Building and two other properties not owned by the Partnership. Plaintiff,
who was the general contractor for the installation, seeks in excess of
$4.5 million in compensatory damages, punitive damages in an unspecified
amount, and costs of the suit. The Partnership has prevailed on a motion
striking portions of the complaint; however, it is too early in the
proceedings to predict whether there will be any ultimate exposure to the
Partnership. In the event the Partnership is found to have liability
concerning these disputes, the resulting cash outflow could have a material
adverse effect on the Partnership. In addition, two of the general
contractor's subcontractors have filed mechanics' liens against the Century
City North Building claiming non-payment of $246,256 for services
performed. The Partnership is entitled to indemnification from the general
contractor for these claims as the Partnership has previously submitted
payment for said services to the general contractor. It is unclear whether
the general contractor will have the financial resources to fulfill its
indemnity obligation. Accordingly, the Partnership has accrued for the
subcontractors' claims in the accompanying consolidated financial
statements.
(4) VENTURE AGREEMENT - DUTCHESS MALL
On May 13, 1994, Dutchess transferred title to the lender as discussed
below.
JMB INCOME PROPERTIES, LTD. - VI
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The Partnership owned a 90% interest in Fishkill, which owned an 80%
interest in Dutchess Mall Associates ("Dutchess"), the former owner of
Dutchess Mall located in Fishkill, New York. A 10% interest in Fishkill
was owned by JMB Income Properties, Ltd. - V, a partnership sponsored by
the managing general partner of the Partnership. Dutchess had been
actively negotiating with the first mortgage lender to seek a modification
of the terms of the current mortgage loan to provide the funds necessary
for a much needed renovation of the center. During 1993, Dutchess received
a notice of default and acceleration from the first mortgage lender. In
this regard, Dutchess and the lender reached a six-month standstill
agreement (which expired on July 31, 1993) whereby Dutchess proceeded with
an aggressive leasing and remerchandising program in order to re-position
the mall to better compete within its market. Pursuant to the terms of the
agreement, Dutchess had remitted the monthly net cash flow (as defined) to
the lender as debt service. Upon expiration of the standstill agreement,
interest on the mortgage was accrued at a default rate of 18% as opposed to
the contract rate of 13.75% in 1993. Efforts to lease the center did not
meet with lender approval and on May 13, 1994 the property was transferred
to the lender. However, pursuant to the agreement to transfer title, the
management agreement with the affiliate of the general partners of the
Partnership was assigned to the lender and therefore such affiliate
continues to manage the property on the lender's behalf.
As a result of the transfer to the lender as discussed above, Dutchess
no longer has an ownership interest in the property and recognized a gain
for financial reporting purposes of $3,858,247 (of which the Partnership's
share was $3,743,348) and recognized a gain of $3,558,767 (of which the
Partnership's share was $3,471,747) for Federal income tax purposes during
1994 with no corresponding distributable proceeds. Accordingly, Dutchess
and Fishkill terminated their affairs in 1994.
(5) TRANSACTIONS WITH AFFILIATES
Fees, commissions and other expenses required to be paid by the
Partnership or its ventures to the General Partners and their affiliates as
of June 30, 1995 and for the six months ended June 30, 1995 and 1994 are as
follows:
Unpaid at
June 30,
1995 1994 1995
------ ------- -----------
Property management
and leasing fees . . . . . $ -- 376,126 4,899,324
Insurance commissions. . . . -- 32,209 --
Reimbursement (at cost)
for out-of-pocket
expenses . . . . . . . . . 5,891 5,603 --
------ ------- ---------
$5,891 413,938 4,899,324
====== ======= =========
An affiliate of the General Partners had deferred receipt of certain
property leasing commissions and management fees, as discussed in notes 2
and 3. The amounts deferred (approximately $82 per Interest) do not bear
interest and it is unlikely that any of these will be paid.
JMB INCOME PROPERTIES, LTD. - VI
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONCLUDED
Effective January 1, 1994, certain officers and directors of the
Corporate General Partner acquired interests in a company which, among
other things, has provided and continues to provide certain contract
services at the Century City North Building. Such acquisition had no
effect on the fees payable by the Partnership under any existing agreements
with such company. The fees earned by such company from the Partnership
through the date of disposition of the property were approximately $44,000,
all of which relate to previously existing contracts and all of which have
been paid.
(6) ADJUSTMENTS
In the opinion of the Managing General Partner, all adjustments (con-
sisting solely of normal recurring adjustments) necessary for a fair
presentation (assuming the Partnership continues as a going concern, see
note 3) have been made to the accompanying figures as of June 30, 1995 and
for the three and six months ended June 30, 1995 and 1994.
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
All references herein to "Notes" are to Notes to Consolidated
Financial Statements filed with this report.
As the Partnership has no remaining property, and its liabilities
exceed its remaining assets, there is substantial doubt as to the
Partnership's ability to continue as a going concern (see Note 3 and the
Century City North disclosure below). It is anticipated that the
Partnership will terminate their affairs in 1995. The consolidated
financial statements do not include any adjustments that might result from
the termination of the Partnership's operations.
At June 30, 1995, the Partnership had cash and cash equivalents of
approximately $67,000. Such funds and short-term investments of
approximately $53,000 will be exhausted during the dissolution of the
Partnership.
Dutchess Mall
Dutchess had cumulatively operated at a deficit and was expected to
operate at a deficit in the future due to the substantial releasing costs
required. Dutchess, during 1993, had been actively negotiating with the
first mortgage lender to seek a modification of the terms of its mortgage
loan to provide the funds necessary for a much needed renovation of the
center. Efforts to lease and remerchandise the center did not meet with
lender approval and on May 13, 1994 the property was transferred to the
lender.
As a result of the 1994 transfer to the lender as discussed above and
in Note 4, Dutchess no longer had an ownership interest in the property and
recognized a gain for financial reporting purposes of $3,858,247 (of which
the Partnership's share was $3,743,348) and recognized a gain of $3,558,767
(of which the Partnership's share was $3,471,747) for Federal income tax
purposes during 1994 with no corresponding distributable proceeds.
Century City North
At the time title to the property was transferred to the lender,
occupancy at the Century City North Building increased to 88%. The market
in which the Century City North Building is located is extremely
competitive due to increased amounts of vacant space available. This had
resulted in the Partnership offering increased concessions to compete with
other buildings in order to attract new tenants. In 1993, a major tenant
(approximately 47,200 square feet or 8% of the building's leasable space)
vacated its space prior to its scheduled lease expiration. The Partnership
was entitled to receive rent pursuant to the terms of the tenant's lease
through October 1997. However, the Partnership reached an agreement with
the tenant whereby the lease obligation was terminated in return for a
$5,000,000 payment to the Partnership. $2,500,000 of such payment was
remitted to the first mortgage lender as a paydown of the mortgage loan
balance. As of the disposition date, June 9, 1995, the Partnership had
$1,873,373 on deposit in an escrow account which was reserved for future
leasing costs attributable to the vacated space, unless expressly approved
for other uses by the lender. While the escrowed funds enabled the
Partnership to proceed with releasing portions of this particular space,
the overall loss of revenue from this space in 1993 had made it difficult
for the Partnership to release other vacant space in the building.
Additionally, during the first quarter of 1994, another major tenant
(approximately 22,900 square feet or 4% of the building's leasable space)
was forced into involuntary bankruptcy by its creditors. Accordingly, the
receivables which were due from this tenant have been excluded from the
accompanying consolidated financial statements at December 31, 1994. The
loss of revenue from these situations had resulted in the delinquency of
payment of the November and December of 1994 scheduled debt service and the
suspension of the payment of scheduled debt service on the first mortgage
in January 1995. In January 1995, the Partnership received a notice of
default and acceleration from the first mortgage lender. In March 1995,
the first mortgage lender required the Partnership to establish a
restricted funds account in which all cash flow from the property was
controlled by the first mortgage lender. The remaining restricted funds in
the above account were applied by the lender toward the payment of debt
service. On June 9, 1995, the property was transferred to the lender.
As a result of the transfer to the lender as discussed above, the
Partnership no longer has an ownership interest in the property and has
recognized a gain for financial reporting purposes of $68,838,857 and
expects to recognize a gain of approximately $62,145,000 for Federal income
tax purposes during 1995 with no corresponding distributable proceeds.
The Partnership entered into a lease agreement in 1993 whereby a
tenant paid the costs associated with renovating its leased space at the
Century City North Building. According to the terms of the lease, the
Partnership was to pay to the tenant a negotiated amount, initially
$469,605, (reflected as note payable in the accompanying consolidated
financial statement at December 31, 1994) in monthly installments of
principal and interest through November 1995. The balance remaining at the
disposition date, June 9, 1995, was $105,009 and assumed by the lender at
the transfer date.
Significant capital improvements continued to be required at the
Century City North Building in order to comply with local fire, life and
safety code regulations (that have changed since the property's original
purchase) as well as for tenant improvement costs incurred to retain and
procure tenants in what has become an extremely competitive market. At the
disposition date, June 9, 1995, approximately 40% of the fire, life and
safety code compliance work had been completed. These costs were expected
to continue over the next several years until the entire building conformed
to such regulations. Though the Partnership had been granted extensions
through November 1995 by the local regulating authorities to complete the
compliance work, there were no assurances that any future extensions would
be granted. Due to the lack of significant cash reserves to pay for these
anticipated costs, the Partnership, in October 1991, executed a
modification of the first mortgage loan on the Century City North Building
which reduced debt service requirements through November 1, 1993.
According to the terms of the modification (which expired November 1,
1993), the Partnership was required to escrow (reflected as escrow deposits
in the accompanying consolidated financial statements at December 31, 1994)
any cash flow produced by the property, after the payment of modified debt
service for the period November 1, 1990 through October 31, 1993. This
escrow was established to pay for approved capital and tenant improvements
related to the property. The debt service reduction period had expired
and, as a result, the Partnership met with the first mortgage lender to
obtain further debt service relief until such time as significant leasing
of the building was achieved. The lender did not grant any additional debt
service relief, but allowed the funds previously escrowed to be used for
future leasing and capital costs at the building. These escrowed funds
otherwise would have been applied as a reduction of the outstanding
principal balance of the loan pursuant to the modification documents (see
Note 3). Additionally, the Partnership, in October 1991, converted an
unsecured line of credit to a non-recourse second mortgage secured by the
Century City North Building (see Note 3). Interest was paid on this
mortgage at an adjustable rate (approximately 8.63% at the disposition
date, June 9, 1995). The Partnership was only allowed to draw proceeds
under this facility to pay the interest due on this mortgage loan in
addition to any related bank fees which had been incurred.
The Partnership and certain associated companies have been named in a
lawsuit entitled HOLWICK, INC. V. JMB/1888 PARTNERS, ET AL. which was filed
in the Superior Court for the County of Los Angeles, seeking damages for
breach of contract and fraud, among other things, in connection with the
installation of sprinkler and alarm systems at the Century City North
Building and two other properties not owned by the Partnership. Plaintiff,
who was the general contractor for the installation, seeks in excess of
$4.5 million in compensatory damages, punitive damages in an unspecified
amount, and costs of the suit. The Partnership has prevailed on a motion
striking portions of the complaint; however, it is too early in the
proceedings to predict whether there will be any ultimate exposure to the
Partnership. In the event the Partnership is found to have liability
concerning these disputes, the resulting cash outflow could have a material
adverse effect on the operations of the Partnership. In addition, two of
the general contractor's subcontractors have filed mechanics' liens against
the Century City North Building claiming non-payment of $246,256 for
services performed. The Partnership is entitled to indemnification from
the general contractor for these claims as the Partnership has previously
submitted payment for said services to the general contractor. It is
unclear whether the general contractor will have the financial resources to
fulfill its indemnity obligation. Accordingly, the Partnership has accrued
for the subcontractors' claims in the accompanying consolidated balance
sheets.
General
As discussed in Note 4, the lender acquired title to the Dutchess Mall
investment property in the second quarter of 1994. In addition, as
discussed above and in Note 3, the lender acquired title to the Century
City North Office Building on June 9, 1995. It is anticipated that the
Partnership will terminate its affairs in 1995.
Commencing in 1990, the former property manager, an affiliate of the
General Partners, deferred the payment of a portion of the leasing
commissions related to the Century City North Building otherwise payable
pursuant to the Partnership Agreement. Such affiliate also began to defer
property management fees in 1991. Through November 1994, the affiliate had
deferred the receipt of leasing fees of approximately $2,495,000 in
connection with leasing activity at the Century City North Office Building.
Of this amount, approximately $376,000 represented deferrals required in
accordance with the Partnership Agreement. In addition, through November
1994 property management fees of approximately $2,052,000 had been deferred
by the former affiliated property manager since 1991 in connection with the
Century City North Office Building. This amount represented deferrals in
accordance with the modification of the debt secured by the property (see
Note 3). In addition, approximately $391,000 of 1991 property management
fees related to the Dutchess Mall were also deferred. The Partnership's
share of such deferred fees (approximately $352,000) were to have been
payable out of the net sales proceeds, if any, of the Century City North
Office Building as discussed above. However, due to the transfer of title
to the Century City North Office Building to the lender on June 9, 1995, as
further described in Note 3, it is unlikely that any of these deferred fees
or commissions related to Dutchess Mall or the Century City North Office
Building will be paid. In December 1994, the affiliated property manager
sold substantially all of its assets and assigned its interest in its
management contracts to an unaffiliated third party, as more fully
discussed in Note 2. As a result of this transaction, effective December
1994, the Century City North Office Building is managed by the
unaffiliated third party on terms similar to those of the former property
manager.
RESULTS OF OPERATIONS
The decrease in cash and cash equivalents, rents and other
receivables, prepaid expenses, escrow deposits, land, buildings and
improvements, accumulated depreciation, deferred expenses, accrued rents
receivable, current portion of long-term debt, notes payable, accounts
payable, accrued interest and tenant security deposits at June 30, 1995 as
compared to December 31, 1994 is due primarily to the disposition of the
Century City North Office Building in June of 1995 (as more fully discussed
in Note 3).
The increase in short-term investments at June 30, 1995 as compared to
December 31, 1994 is primarily due to the timing of maturity of the
Partnership's investments in U.S. Government obligations. Reference is
made to Note 1.
The decrease in rental income, depreciation, property operating
expenses and amortization of deferred expenses for the three and six months
ended June 30, 1995 as compared to the three and six months ended June 30,
1994 is due primarily to the disposition of the Dutchess Mall in May of
1994 and the disposition of the Century City North Office Building in June
of 1995 (as more fully discussed in Notes 3 and 4).
The increase in interest income for the three and six months ended
June 30, 1995 as compared to the three and six months ended June 30, 1994
is due primarily to an increase in the average balance of U.S. Government
obligations held in 1995.
The increase in mortgage and other interest for the six months ended
June 30, 1995 as compared to the six months ended June 30, 1994 is due
primarily to accruals in accordance with the loan default letter received
from the first mortgage lender at the Century City North Building in
January of 1995 (as more fully discussed in Note 3). The decrease in
mortgage and other interest for the three months ended June 30, 1995 as
compared to the three months ended June 30, 1994 is due primarily to the
disposition of the Century City North Office Building on June 9, 1995.
The increase in professional services for the three months ended June
30, 1995 as compared to the three months ended June 30, 1994 is due
primarily to fees incurred during the disposition of the Century City North
Office Building in June of 1995 (as more fully discussed in Note 3).
The decrease in professional services for the six months ended June
30, 1995 as compared to the six months ended June 30, 1994 is due primarily
to fees incurred during the disposition of the Dutchess Mall in May of 1994
(as more fully discussed in Note 4).
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Partnership and certain associated companies have been named in a
lawsuit entitled HOLWICK, INC. V. JMB/1888 PARTNERS, ET AL. which was filed
in the Superior Court for the County of Los Angeles, seeking damages for
breach of contract and fraud, among other things, in connection with the
installation of sprinkler and alarm systems at the Century City North
Building and two other properties not owned by the Partnership. Plaintiff,
who was the general contractor for the installation, seeks in excess of
$4.5 million in compensatory damages, punitive damages in an unspecified
amount, and costs of the suit. The Partnership has prevailed on a motion
striking portions of the complaint; however, it is too early in the
proceedings to predict whether there will be any ultimate exposure to the
Partnership. In the event the Partnership is found to have liability
concerning these disputes, the resulting cash outflow could have a material
adverse effect on the operations of the Partnership. In addition, two of
the general contractor's subcontractors have filed mechanics' liens against
the Century City North Building claiming non-payment of $246,256 for
services performed. The Partnership is entitled to indemnification from
the general contractor for these claims, as the Partnership has previously
submitted payment for said services to the general contractor. It is
unclear whether the general contractor will have the financial resources to
fulfill its indemnity obligation.
<TABLE>
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
OCCUPANCY
The following is a listing of approximate occupancy levels by quarter for the Partnership's remaining
investment property.
<CAPTION>
1994 1995
------------------------------------- ------------------------------
At At At At At At At At
3/31 6/30 9/30 12/31 3/31 6/30 9/30 12/31
---- ---- ---- ----- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Century City North
Los Angeles, California. . 78% 79% 78% 83% 83% N/A
<FN>
----------------
An "N/A" indicates that the property was not owned by the Partnership at the end of the quarter.
</TABLE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10-A. Acquisition documents relating to the purchase by the
Partnership of Century City North Building office building in Los Angeles,
California are hereby incorporated by reference to the Partnership's
prospectus on Form S-11 (File No. 2-61840) dated November 16, 1978.
10-B Partnership Grant Deed dated May 31, 1995 by and
between JMB Income Properties, Ltd. VI, an Illinois limited partnership,
and Century City North, L.L.C., a Delaware limited liability company, is
filed herewith.
27. Financial Data Schedule.
--------------------
(b) The following report on Form 8-K was filed for the quarter
covered by this report.
The Partnership's report dated June 23, 1995 on Form 8-K
for June 9, 1995 describing the disposition of Century City North Office
Building and exhibit thereto is hereby incorporated herein by reference.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JMB INCOME PROPERTIES, LTD. - VI
BY: JMB Realty Corporation
(Managing General Partner)
By: GAILEN J. HULL
Gailen J. Hull, Senior Vice President
Date:August 9, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following person in the capacity
and on the date indicated.
GAILEN J. HULL
Gailen J. Hull, Principal Accounting Officer
Date:August 9, 1995
RECORDING REQUESTED BY
AND WHEN RECORDED MAIL TO:
GIBSON, DUNN & CRUTCHER
333 South Grand Avenue
Los Angeles, California 90071-3197
Attention: Dennis B. Arnold, Esq.
MAIL TAX STATEMENT TO:
AETNA LIFE INSURANCE COMPANY
151 Farmington Avenue
Hartford, Connecticut 06516
Attention: ____________________
------- (SPACE ABOVE THIS LINE FOR RECORDER'S USE) -------
PARTNERSHIP GRANT DEED
The undersigned grantor declares that Documentary Transfer
Tax is not shown pursuant to Section 11932 of the Revenue and
Taxation Code, as amended.
FOR VALUABLE CONSIDERATION, receipt and sufficiency of
which are hereby acknowledged, JMB INCOME PROPERTIES, LTD.- VI,
an Illinois limited partnership ("Grantor"), hereby grants to
CENTURY CITY NORTH, L.L.C., a Delaware limited liability
company ("Grantee"), the real property in the County of Los
Angeles, State of California more particularly described on
Exhibit "A" which is attached hereto and incorporated by this
reference (the "Land"), together with all rights, privileges,
easements, benefits, covenants, conditions and servitudes
appurtenant to or otherwise benefiting the Land, including
without limitation, all minerals, oil, gas and other
hydrocarbon substances on and under the Land, to the extent
such rights, privileges and easements are owned by Grantor, as
well as all development rights, air rights, water, water rights
and water stock relating to the Land and any other easements,
rights of way or appurtenances owned by Grantor and used in
connection with the beneficial operation, use and enjoyment of
the Land, the improvements on the Land, the intangible property
associated therewith or any other appurtenance, together with
all rights of Grantor in and to streets, sidewalks, alleys,
driveways, parking areas and areas adjacent thereto or used in
connection therewith, and all rights of Grantor in any land
lying in the bed of any existing proposed street adjacent to
the Land.
Subject to: All real property taxes and assessments not
delinquent, and all easements, covenants,
conditions, restrictions and any other matters or
agreements of record.
The parties hereto acknowledge and agree that the
beneficial interest of Aetna Life Insurance Company, a
Connecticut corporation ("Aetna"), in the real property
conveyed hereby pursuant to that certain Deed of Trust,
Assignment of Rents and Security Agreement, dated October 7,
1985, executed by Grantor, as trustor, to Ticor Title Insurance
Company of California, as trustee, in favor of Aetna, as
beneficiary, and recorded on October 8, 1985 as Instrument No.
85-1176328 in the Official Records of Los Angeles County,
California, as trustee, in favor of Aetna, as beneficiary, and
recorded on October 8, 1985 as Instrument No. 85-1176328 in the
Official Records of Los Angeles County, California (the
"Official Records") (the "Original Deed of Trust") as amended
by that certain Agreement Supplementing Deed of Trust and
Fixture Filing, dated as of November 1, 1990, executed by and
between Grantor, as trustor, and Aetna, as beneficiary, and
recorded on November 1, 1991 as Instrument No. 91-1740260 in
the Official Records (the "TD Supplement") (the Original Deed
of Trust, as amended and supplemented by TD Supplement, being
hereinafter referred to as the "Deed of Trust"), shall not
merge, but shall be and remain at all times separate and
distinct, notwithstanding any union of said interests in
Grantee and/or Aetna at any time, and that the lien of Aetna in
the real property conveyed hereby created by the Deed of Trust
shall be and remain at all times a valid and continuous lien on
such real property.
Grantor declares that this is an absolute conveyance to
Grantee for reasonably equivalent value.
IN WITNESS WHEREOF, Grantor has executed this Grant Deed
this ______ day of June ______, 1995.
JMB INCOME PROPERTIES, LTD.-IV
an Illinois limited partnership
By: JMB REALTY CORPORATION, a
Delaware corporation, its
General Partner
By: _______________________
Patrick Meara
Its: ______________________
Exhibit B
Page 2
STATE OF CALIFORNIA )
) SS:
COUNTY OF________________)
On _________________, before me, a Notary Public
in and for said State, personally appeared
___________________________________, personally known to me (or
proved to me on the basis of satisfactory evidence) to be the
person(s) whose name(s) is/are subscribed to the within
instrument and acknowledged to me that he/she/they executed the
same in his/her/their authorized capacity(ies), and that by
his/her/their signature(s) on the instrument the person(s), or
the entity upon behalf of which the person(s) acted, executed
the instrument.
WITNESS my hand and official seal.
__________________________________ (Seal)
Exhibit B
Page 3
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE REGISTRANT'S FORM 10-Q FOR THE SIX MONTHS
ENDED JUNE 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS INCLUDED IN SUCH REPORT.
</LEGEND>
<CIK> 0000275600
<NAME> JMB INCOME PROPERTIES, LTD. - VI
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 66,649
<SECURITIES> 53,289
<RECEIVABLES> 1,015
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 120,953
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 158,755
<CURRENT-LIABILITIES> 368,256
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> (5,108,025)
<TOTAL-LIABILITY-AND-EQUITY> 158,755
<SALES> 6,454,219
<TOTAL-REVENUES> 6,519,006
<CGS> 0
<TOTAL-COSTS> 3,353,661
<OTHER-EXPENSES> 105,700
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,497,870
<INCOME-PRETAX> (3,438,225)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,438,225)
<DISCONTINUED> 68,838,857
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 65,400,632
<EPS-PRIMARY> 1,080.17
<EPS-DILUTED> 1,080.17
</TABLE>
