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 March 31, 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 . . . . . . 14
PART II OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . 19
Item 3. Defaults Upon Senior Securities . . . . . . . . 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
MARCH 31, 1995 AND DECEMBER 31, 1994
(UNAUDITED)
ASSETS
------
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1994
------------ -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents (note 1) . . . . . . . . . . . . . . . . $ 198,960 264,327
Restricted funds (note 3). . . . . . . . . . . . . . . . . . . . . 2,091,096 --
Short-term investments (note 1). . . . . . . . . . . . . . . . . . 159,812 9,634
Rents and other receivables (net of allowance for doubtful
accounts of $110,001 in 1995 and $93,208 in 1994). . . . . . . . 320,850 287,683
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . 45,666 114,165
Escrow deposits (note 3) . . . . . . . . . . . . . . . . . . . . . 2,309,959 2,793,451
------------ -----------
Total current assets. . . . . . . . . . . . . . . . . . . . . 5,126,343 3,469,260
------------ -----------
Investment properties, at cost:
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,383,142 3,383,142
Buildings and improvements . . . . . . . . . . . . . . . . . . . . 68,984,124 68,474,063
------------ -----------
72,367,266 71,857,205
Less accumulated depreciation. . . . . . . . . . . . . . . . . . . 40,173,135 39,870,367
------------ -----------
Total investment properties, net of accumulated depreciation. 32,194,131 31,986,838
Deferred expenses. . . . . . . . . . . . . . . . . . . . . . . . . . 2,096,650 2,215,938
Accrued rents receivable . . . . . . . . . . . . . . . . . . . . . . 7,777,750 8,043,818
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,802 37,802
------------ -----------
$ 47,232,676 45,753,656
============ ============
JMB INCOME PROPERTIES, LTD. - VI
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
CONSOLIDATED BALANCE SHEETS - CONTINUED
LIABILITIES AND PARTNERS' CAPITAL ACCOUNTS (DEFICITS)
-----------------------------------------------------
MARCH 31, DECEMBER 31,
1995 1994
------------ -----------
Current liabilities:
Current portion of long-term debt (in default - note 3). . . . . . $100,312,828 100,196,278
Notes payable. . . . . . . . . . . . . . . . . . . . . . . . . . . 144,142 202,843
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . 1,027,375 669,622
Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . 13,357,199 9,790,534
Accrued real estate taxes. . . . . . . . . . . . . . . . . . . . . 141,406 --
------------ -----------
Total current liabilities . . . . . . . . . . . . . . . . . . 114,982,950 110,859,277
Amounts due to affiliates (note 5) . . . . . . . . . . . . . . . . . 4,899,324 4,907,019
Tenant security deposits . . . . . . . . . . . . . . . . . . . . . . 500,908 496,817
------------ -----------
Commitments and contingencies (notes 2, 3 and 5)
Total liabilities . . . . . . . . . . . . . . . . . . . . . . 120,383,182 116,263,113
------------ -----------
Partners' capital accounts (deficits):
General partners:
Capital contributions. . . . . . . . . . . . . . . . . . . . . . 1,000 1,000
Cumulative net earnings. . . . . . . . . . . . . . . . . . . . . 635,165 714,396
Cumulative cash distributions. . . . . . . . . . . . . . . . . . (6,507,073) (6,507,073)
------------ -----------
(5,870,908) (5,791,677)
------------ -----------
Limited partners (60,005 interests):
Capital contributions, net of offering costs . . . . . . . . . . 54,556,949 54,556,949
Cumulative net losses. . . . . . . . . . . . . . . . . . . . . . (17,351,373)(14,789,555)
Cumulative cash distributions. . . . . . . . . . . . . . . . . . (104,485,174) (104,485,174)
------------ -----------
(67,279,598) (64,717,780)
------------ -----------
Total partners' capital accounts (deficits). . . . . . . . . . . (73,150,506) (70,509,457)
------------ -----------
$ 47,232,676 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 MONTHS ENDED MARCH 31, 1995 AND 1994
(UNAUDITED)
<CAPTION>
1995 1994
------------ -----------
<S> <C> <C>
Income:
Rental income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,421,076 4,489,731
Interest income. . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,965 13,821
------------ -----------
3,445,041 4,503,552
------------ -----------
Expenses:
Mortgage and other interest. . . . . . . . . . . . . . . . . . . . . . 4,305,814 3,298,016
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 302,768 481,523
Property operating expenses. . . . . . . . . . . . . . . . . . . . . . 1,325,521 2,070,931
Professional services. . . . . . . . . . . . . . . . . . . . . . . . . 5,533 56,238
Amortization of deferred expenses. . . . . . . . . . . . . . . . . . . 131,660 127,490
General and administrative . . . . . . . . . . . . . . . . . . . . . . 14,794 42,215
------------ -----------
6,086,090 6,076,413
------------ -----------
Operating loss. . . . . . . . . . . . . . . . . . . . . . . . . . (2,641,049) (1,572,861)
Venture partners' share of venture operations. . . . . . . . . . . . . . -- 75,454
------------ -----------
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (2,641,049) (1,497,407)
============ ===========
Net loss per limited partnership interest (note 1). . . . . . . . $ (42.69) (24.21)
============ ===========
<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
THREE MONTHS ENDED MARCH 31, 1995 AND 1994
(UNAUDITED)
<CAPTION>
1995 1994
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (2,641,049) (1,497,407)
Items not requiring (providing) cash or cash equivalents:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 302,768 481,523
Amortization of deferred expenses. . . . . . . . . . . . . . . . . . 131,660 127,490
Long-term debt - deferred accrued interest . . . . . . . . . . . . . -- 75,688
Venture partners' share of venture operations. . . . . . . . . . . . -- (75,454)
Changes in:
Restricted funds . . . . . . . . . . . . . . . . . . . . . . . . . . (2,091,096) --
Rents and other receivables. . . . . . . . . . . . . . . . . . . . . (33,167) (37,259)
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 68,499 275,951
Escrow deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . 483,492 (13,484)
Accrued rents receivable . . . . . . . . . . . . . . . . . . . . . . 266,068 167,044
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . 357,753 (36,349)
Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . . 3,566,665 321,710
Accrued real estate taxes. . . . . . . . . . . . . . . . . . . . . . 141,406 135,666
Amounts due to affiliates. . . . . . . . . . . . . . . . . . . . . . (7,695) 113,595
Tenant security deposits . . . . . . . . . . . . . . . . . . . . . . 4,091 3,133
------------ -----------
Net cash provided by operating activities. . . . . . . . . . . 549,395 41,847
------------ -----------
Cash flows from investing activities:
Net purchases of short-term investments. . . . . . . . . . . . . . . . (150,178) --
Additions to investment properties . . . . . . . . . . . . . . . . . . (510,061) (22,923)
Payment of deferred expenses . . . . . . . . . . . . . . . . . . . . . (12,372) (6,145)
------------ -----------
Net cash used in investing activities. . . . . . . . . . . . . (672,611) (29,068)
------------ -----------
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). . . . . . . . . . . . . . . . . 116,550 --
Principal payments on note payable . . . . . . . . . . . . . . . . . . (58,701) (58,701)
------------ -----------
Net cash provided by (used in) financing activities. . . . . . 57,849 (58,701)
------------ -----------
Net decrease in cash and cash equivalents. . . . . . . . . . . (65,367) (45,922)
Cash and cash equivalents, beginning of period . . . . . . . . 264,327 1,026,094
------------ -----------
Cash and cash equivalents, end of period . . . . . . . . . . . $ 198,960 980,172
============ ===========
Supplemental disclosure of cash flow information:
Cash paid for mortgage and other interest. . . . . . . . . . . . . . . $ 622,599 2,900,618
============ ===========
<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
MARCH 31, 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 three months ended March 31, 1995 and 1994 is
summarized as follows:
1995 1994
----------------------- -------------------------
GAAP BASIS TAX BASIS GAAP BASIS TAX BASIS
---------- --------- ---------- ---------
Net loss . . . . . $2,641,049 1,087,064 1,497,407 1,126,511
Net loss
per limited
partnership
interest. . . . . $ 42.69 17.57 24.21 18.21
========== ========= ========= =========
The net loss 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 March 31, 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
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 is 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 is 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 have
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 has deferred the payment of a portion of the
commissions otherwise payable pursuant to the Partnership and Management
Agreements. At March 31, 1995, such deferrals were approximately
$2,495,000, of which approximately $547,000 represents deferrals required
in accordance with the Partnership Agreement. In light of the recent
developments with the first mortgage lender of the Century City North
Office Building, as further described in note 3, none of these deferred
fees or commissions related to Dutchess Mall or Century City North will be
paid.
(3) CENTURY CITY NORTH BUILDING
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 long-term mortgage note secured by the Century
City North Building was modified, effective November 1, 1990, to extend the
maturity date to November 1, 1995. Effective November 1, 1991 and 1992,
the modified loan terms provided for monthly installments of interest only
with pay rates of 9.5% and 10%, respectively, instead of the 10.875%
contract rate. Effective November 1, 1993, the pay rate reverted back to
the 10.875% contract rate and remains constant through maturity. The
difference between the pay rate and the contract rate has been added
monthly to the loan balance and itself accrues interest at the contract
JMB INCOME PROPERTIES, LTD. - VI
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
rate of 10.875%. The lender is also entitled to receive as additional
interest ("Contingent Interest"), should the future sales proceeds or
appraised value upon maturity exceed a certain base amount, or if the
Partnership defaults on its first mortgage obligation, an amount 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 has determined that $5,000,000 in additional interest is
due. Such amount is reflected in accrued interest in the consolidated
financial statements at March 31, 1995 and December 31, 1994. In addition,
the Partnership has determined that approximately $3,855,000 in late fees
and prepayment penalties are due in accordance with the debt agreement. In
accordance with the debt agreement, interest is being accrued at the
default rate of 16.875% instead of the contract rate of 10.875%. The
Partnership was required to escrow (reflected as escrow deposits in the
accompanying consolidated balance sheets) 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 is required to be deferred until the
first mortgage is repaid in full. The debt service reduction period has
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 is achieved. The lender did not grant any
additional debt service relief, but has 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 will be controlled
by the first mortgage lender. The first mortgage lender has notified the
Partnership that any remaining restricted funds in the above account will
be applied toward the payment of debt service.
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 March 31, 1995, $5,794,745 ($116,550
in 1995) had been funded thereunder. As of the date of this report, an
additional $82,579 has been funded on this second mortgage. Interest is
paid at an adjustable rate (approximately 8.16% at March 31, 1995). The
Partnership can draw proceeds under this facility to pay the interest due
on this mortgage loan in addition to any related bank fees which may be
incurred.
Significant capital improvements continue 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 has become an extremely
competitive market. At March 31, 1995, approximately 40% of the fire, life
and safety code compliance work had been completed. These costs are
anticipated to continue over the next several years until the entire
building conforms to such regulations. Though the Partnership has been
granted extensions through November 1995 by the local regulating
authorities to complete the compliance work, there can be no assurances
that any future extensions will be granted.
JMB INCOME PROPERTIES, LTD. - VI
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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 shall pay to the tenant a negotiated amount, initially $469,605
(reflected as notes payable in the accompanying consolidated balance
sheets) in monthly installments of principal and interest through November
1995. The balance remaining at March 31, 1995 is $144,142.
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 financial
statements.
The Partnership had been exploring the possibility of selling its
interest in the building. As previously mentioned, the Los Angeles office
building market is depressed at the present time and the building has a
considerable amount of vacancy. In view of the extremely competitive
nature of the marketplace, releasing costs (including the downtime to
locate new tenants) are expected to continue to be high. Because the
Partnership's and the property's reserves have 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, has suspended
all payments of the scheduled debt service on the first mortgage loan. As
of the date of this report, the property is approximately $15,210,000 in
arrears on first mortgage interest and other fees in accordance with the
debt agreement. 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 has decided to act
upon its available remedies under the loan documents and will acquire title
to the building either through a deed in lieu of foreclosure or a
foreclosure sale by the end of May 1995. Since the Partnership will be
unable to retain its ownership interest in the property, a gain will result
for financial reporting and Federal income tax reporting purposes with no
corresponding distributable proceeds. Once the Partnership divests of its
Century City North property, the Partnership will then proceed to terminate
its affairs. 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
(4) VENTURE AGREEMENT - DUTCHESS MALL
On May 13, 1994, Dutchess transferred title to the lender as discussed
below.
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.
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 March 31, 1995 and for the three months ended March 31, 1995 and 1994
are as follows:
Unpaid at
March 31,
1995 1994 1995
-------- ------ -------------
Property management
and leasing fees . . . . . $ -- 168,563 4,899,324
Insurance commissions. . . . -- 138 --
Reimbursement (at cost)
for out-of-pocket
expenses . . . . . . . . . 1,528 9,837 --
------ ------- ---------
$1,528 178,538 4,899,324
====== ======= =========
JMB INCOME PROPERTIES, LTD. - VI
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONCLUDED
An affiliate of the General Partners has 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 will only be paid in future periods to the extent cash is
generated from the sale or refinancing of the Partnership's remaining
investment property.
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 Partnership's remaining investment property. 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 for the three months ended March 31, 1995 were
approximately $22,000, 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 March 31, 1995 and
for the three months ended March 31, 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 only one remaining property and the first
mortgage lender of the property has placed the Partnership in default due
to non-payment of interest and has given notice that it intends to proceed
to realize upon its security by the end of May 1995, 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).
At March 31, 1995, the Partnership had cash and cash equivalents of
approximately $199,000. Such funds and short-term investments of
approximately $160,000 are available for capital improvements and leasing
costs at the Century City North Building and for working capital
requirements. In addition, the Partnership had approximately $2,091,000 in
restricted funds as required by the first mortgage lender for use in the
payment of first mortgage debt service. (Reference is made to Note 3).
The Partnership has currently budgeted in 1995 approximately $457,000 for
code compliance, tenant improvements and other capital expenditures at the
Century City North Building. Actual amounts expended in 1995 may vary
depending on a number of factors including actual leasing activity, results
of property operations, liquidity considerations and other market
conditions over the course of the year.
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. Additionally, Jamesway Department Stores (a tenant in a building
adjacent to the property, but not owned by the former Dutchess venture) had
filed for protection pursuant to a Chapter 11 bankruptcy petition. The
department store continued to operate since the filing. Furthermore, IBM
vacated the space it was leasing above Jamesway as part of their downsizing
efforts. IBM's cutbacks resulted in the loss of a large number of jobs
from the area surrounding the mall. The owner of the department store,
J.W. Mays, did not have a replacement tenant. As a result of this
situation, the increased competition in the immediate area with a new Wal-
Mart store which recently opened near the center, and in view of the
anticipated future deficits at the mall in order to lease the vacant space,
Dutchess 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. 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. Efforts to lease
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 transfer to the lender as discussed above, 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
During the quarter, occupancy at the Century City North Building
remained at 83%. The market in which the Century City North Building is
located is extremely competitive due to increased amounts of vacant space
available. This has 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 March 31, 1995,
the Partnership has $2,309,959 on deposit in an escrow account which is
reserved for future leasing costs attributable to the vacated space, unless
expressly approved for other uses by the lender. While the escrowed funds
will enable the Partnership to proceed with releasing portions of this
particular space, the loss of revenue from a major tenant which vacated its
space in 1993 has 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 due from this tenant have been
excluded from the accompanying consolidated financial statements at March
31, 1995 and December 31, 1994. The loss of revenue from these situations
has 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. Accordingly, the first
and second mortgage balances related to Century City North have been
classified as current liabilities in the accompanying consolidated
financial statements at March 31, 1995 and December 31, 1994. In 1995, the
Partnership received a notice of default and acceleration from the first
mortgage lender. As of the date of this report, the property is
approximately $15,210,000 in arrears on first mortgage interest and other
fees in accordance with the debt agreement. At March 31, 1995, the property
has accrued default interest (at a rate of 16.875% per annum) and other
fees in accordance with the debt agreement of approximately $13,357,000.
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 will be controlled by the first mortgage lender. The first
mortgage lender has notified the Partnership that any remaining restricted
funds in the above account will be applied toward the payment of debt
service.
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 shall pay to the tenant a negotiated amount, initially
$469,605, (reflected as note payable in the accompanying consolidated
financial statements) in monthly installments of principal and interest
through November 1995. The balance remaining at March 31, 1995 is
$144,142.
The Partnership had been exploring the possibility of selling its
interest in the building. As previously mentioned, the Los Angeles office
building market is depressed at the present time and the building has a
considerable amount of vacancy. In view of the extremely competitive
nature of the marketplace, releasing costs (including the downtime to
locate new tenants) are expected to continue to be high. Because the
Partnership's and the property's reserves have 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, has 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 has decided to act upon its available
remedies under the loan documents and will acquire title to the building
either through a deed in lieu of foreclosure or a foreclosure sale by the
end of May 1995. Since the Partnership will be unable to retain its
ownership interest in the property, a gain will result for financial
reporting and Federal income tax reporting purposes with no corresponding
distributable proceeds. Once the Partnership divests of its Century City
North property, the Partnership would then proceed to terminate its
affairs. The consolidated financial statements do not include any
adjustments that might result from the termination of the Partnership's
operations.
On January 17, 1994, an earthquake occurred in the Los Angeles area.
The Century City North Building sustained only minor damage as well as some
water damage caused by a broken water main. There was no structural damage
to the building and the total cost of the repairs made associated with the
earthquake damage was approximately $90,000, all of which has been paid.
Significant capital improvements continue 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 being incurred to retain
and procure tenants in what has become an extremely competitive market. At
March 31, 1995, approximately 40% of the fire, life and safety code
compliance work had been completed. The work is performed on portions of
the building as tenant leases expire and their space is vacated prior to a
new tenant taking occupancy or on occupied space if accommodations can be
arranged with the tenants. These costs are expected to continue over the
next several years until the entire building conforms to such regulations.
Though the Partnership has been granted extensions through November 1995 by
the local regulating authorities to complete the compliance work, there can
be no assurances that any future extensions will 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) 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 has 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 is achieved. The lender did not
grant any additional debt service relief, but will allow 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 is paid on this mortgage at an adjustable rate (approximately
8.16% at March 31, 1995). The Partnership may only draw proceeds under
this facility to pay the interest due on this mortgage loan in addition to
any related bank fees which may be incurred. As of the date of this
report, approximately $1,122,000 remains available in additional second
mortgage funding.
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, since the Partnership was unsuccessful in selling all or a
portion of its interest in the Century City North Building for some modest
proceeds, a substantial gain will be recognized for financial reporting and
Federal income tax purposes with no corresponding distributable proceeds.
Once the transfer of title of the Century City North Building is complete,
the Partnership will then proceed to terminate its affairs.
The source of capital for the capital expenditures discussed above and
for long-term future liquidity and distributions is dependent upon net cash
generated by the Partnership's remaining investment property and through
its sale or refinancing. The Partnership's mortgage obligation is non-
recourse. Therefore, the Partnership is not obligated to pay mortgage
indebtedness unless the related property produces sufficient net cash flow
from operations or sale.
Though the economy has recently shown signs of improvement and
financing is generally becoming more available for certain types of higher-
quality properties in healthy markets, real estate lenders are typically
requiring a lower loan-to-value ratio for mortgage financing than in the
past. This has made it difficult for owners to refinance real estate
assets at their current debt levels unless the value of the underlying
property has appreciated significantly.
Due to the factors discussed above, the Partnership continues the
suspension of operating cash distributions to the Partners.
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 has
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 $547,000 represents deferrals required in
accordance with the Partnership Agreement. In addition, through November
1994 property management fees of approximately $2,052,000 have been
deferred by the former affiliated property manager since 1991 in connection
with the Century City North Office Building. This amount represents
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, in light of the
recent developments with the first mortgage lender of the Century City
North Office Building, as further described in Note 3, none 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 and the increase in short-
term investments at March 31, 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.
The increase in restricted funds at March 31, 1995 as compared to
December 31, 1994 is primarily due to the first mortgage lender's
requirement that all cash generated by the Century City North Building be
deposited into an account under the control of the first mortgage lender as
a result of the Partnership's suspension of payment of the scheduled debt
service (as more fully discussed in Note 3).
The increase in rents and other receivables at March 31, 1995 as
compared to December 31, 1994 is primarily due to the timing of receipt of
income from tenants at the Century City North Building.
The decrease in prepaid expenses at March 31, 1995 as compared to
December 31, 1994 is primarily due to the timing of payment of insurance
premiums at the Century City North Building.
The decrease in escrow deposits at March 31, 1995 as compared to
December 31, 1994 is primarily due to draws in accordance with the debt
modification agreement to fund tenant improvements and leasing commissions
at the Century City North Building.
The increase in buildings and improvements at March 31, 1995 as
compared to December 31, 1994 is primarily due to capitalization of tenant
leasehold improvement costs and certain leasing costs at the Century City
North Building.
The decrease in deferred expenses at March 31, 1995 as compared to
December 31, 1994 is primarily due to the amortization of certain deferred
expenses at the Century City North Building.
The decrease in accrued rents receivable at March 31, 1995 as
compared to December 31, 1994 is primarily due to the Partnership
recognizing rental income for certain major tenant leases at Century City
North over the life of the lease rather than as due per the terms of their
respective leases.
The increase in current portion of long-term debt at March 31, 1995 as
compared to December 31, 1994 is due to the Partnership's draws on the
second mortgage loan secured by the Century City North Building to pay
interest due on this loan (as more fully discussed in Note 3).
The decrease in note payable at March 31, 1995 as compared to December
31, 1994 is primarily due to principal payments made on the note during the
first quarter of 1995 (as more fully discussed in Note 3).
The increase in accounts payable at March 31, 1995 as compared to
December 31, 1994 is primarily due to deferring payment of certain
recoverable operating expenses at the Century City North Building due to
liquidity considerations as discussed above.
The increase in accrued interest at March 31, 1995 as compared to
December 31, 1994 is primarily due 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 increase in accrued real estate taxes at March 31, 1995 as
compared to December 31, 1994 is primarily due to the timing of the payment
of real estate taxes at the Century City North Building.
The decrease in rental income, depreciation, property operating,
professional services and general and administrative expenses for the three
months ended March 31, 1995 as compared to the three months ended March 31,
1994 is due primarily to the disposition of the Dutchess Mall in May of
1994 (as more fully discussed in Note 4).
The increase in interest income for the three months ended March 31,
1995 as compared to the three months ended March 31, 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 three months ended
March 31, 1995 as compared to the three months ended March 31, 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).
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.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Reference is made to Note 3 of Notes to Consolidated Financial
Statements and the Liquidity and Capital Resources section of Management's
Discussion and Analysis of Financial Condition and Results of Operations
included with this report for a discussion of the default on the first
mortgage loan due to delinquency in and the subsequent suspension of
payment of interest due on the first mortgage loan with Aetna Life
Insurance secured by the Century City North Office Building.
<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%
</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.
27. Financial Data Schedule.
--------------------
(b) No reports on Form 8-K were required or have been filed for
the quarter covered by this report.
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:May 11, 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:May 11, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S FORM 10-Q FOR THE THREE MONTHS ENDED MARCH 31, 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 198,960
<SECURITIES> 159,812
<RECEIVABLES> 4,767,571
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,126,343
<PP&E> 72,367,266
<DEPRECIATION> 40,173,135
<TOTAL-ASSETS> 47,232,676
<CURRENT-LIABILITIES> 114,982,950
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> (73,150,506)
<TOTAL-LIABILITY-AND-EQUITY> 47,232,676
<SALES> 3,421,076
<TOTAL-REVENUES> 3,445,041
<CGS> 0
<TOTAL-COSTS> 1,759,949
<OTHER-EXPENSES> 20,327
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,305,814
<INCOME-PRETAX> (2,641,049)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,641,049)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,641,049)
<EPS-PRIMARY> (42.69)
<EPS-DILUTED> 0
</TABLE>
