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 September 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. . . . . . . . . . . . . . . . . . . 14
PART II OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . 18
Item 5. Other Information . . . . . . . . . . . . . . . 19
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . 20
<TABLE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
JMB INCOME PROPERTIES, LTD. - VI
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1995 AND DECEMBER 31, 1994
(UNAUDITED)
ASSETS
------
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents (note 1) . . . . . . . . . . . . . . . . $ 27,205 264,327
Short-term investments (note 1). . . . . . . . . . . . . . . . . . -- 9,634
Rents and other receivables (net of allowance for doubtful
accounts of $93,208 in 1994) . . . . . . . . . . . . . . . . . . -- 287,683
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . -- 114,165
Escrow deposits (note 3) . . . . . . . . . . . . . . . . . . . . . -- 2,793,451
----------- -----------
Total current assets. . . . . . . . . . . . . . . . . . . . . 27,205 3,469,260
----------- -----------
Investment property, 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 deferred assets. . . . . . . . . . . . . . . . . . . . . . . . 37,802 37,802
----------- -----------
$ 65,007 45,753,656
=========== ===========
JMB INCOME PROPERTIES, LTD. - VI
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
CONSOLIDATED BALANCE SHEETS - CONTINUED
LIABILITIES AND PARTNERS' CAPITAL ACCOUNTS (DEFICITS)
-----------------------------------------------------
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------- -----------
Current liabilities:
Current portion of long-term debt (note 3) . . . . . . . . . . . . $ -- 100,196,278
Notes payable. . . . . . . . . . . . . . . . . . . . . . . . . . . -- 202,843
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . 403,652 669,622
Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . -- 9,790,534
----------- -----------
Total current liabilities . . . . . . . . . . . . . . . . . . 403,652 110,859,277
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 . . . . . . . . . . . . . . . . . . . . . . 5,302,976 116,263,113
----------- -----------
Partners' capital accounts (deficits):
General partners:
Capital contributions. . . . . . . . . . . . . . . . . . . . . . 1,000 1,000
Cumulative net earnings. . . . . . . . . . . . . . . . . . . . . 1,295,764 714,396
Cumulative cash distributions. . . . . . . . . . . . . . . . . . (6,507,073) (6,507,073)
------------ -----------
(5,210,309) (5,791,677)
------------ -----------
Limited partners (60,005 interests):
Capital contributions, net of offering costs . . . . . . . . . . 54,556,949 54,556,949
Cumulative net earnings. . . . . . . . . . . . . . . . . . . . . 49,900,565(14,789,555)
Cumulative cash distributions. . . . . . . . . . . . . . . . . . (104,485,174) (104,485,174)
------------ -----------
(27,660) (64,717,780)
------------ -----------
Total partners' capital accounts (deficits). . . . . . . . . . . (5,237,969) (70,509,457)
------------ -----------
$ 65,007 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 NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(UNAUDITED)
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
-------------------------- --------------------------
1995 1994 1995 1994
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Income:
Rental income. . . . . . . . . . . . . . . . $ -- 3,447,070 6,454,219 11,785,669
Interest income. . . . . . . . . . . . . . . 760 23,483 65,547 56,872
------------ ----------- ------------ -----------
760 3,470,553 6,519,766 11,842,541
------------ ----------- ------------ -----------
Expenses:
Mortgage and other interest. . . . . . . . . -- 2,672,986 6,497,870 8,921,331
Depreciation . . . . . . . . . . . . . . . . -- 299,150 534,016 1,163,620
Property operating expenses. . . . . . . . . -- 1,154,691 2,585,762 5,300,177
Professional services. . . . . . . . . . . . 115,830 27,979 188,364 140,569
Amortization of deferred expenses. . . . . . -- 133,535 233,883 523,890
General and administrative . . . . . . . . . 14,074 14,358 47,240 64,970
------------ ----------- ------------ -----------
129,904 4,302,699 10,087,135 16,114,557
------------ ----------- ------------ -----------
Operating loss. . . . . . . . . . . . . (129,144) (832,146) (3,567,369) (4,272,016)
Venture partners' share of
venture operations . . . . . . . . . . . . . -- -- -- 74,906
------------ ----------- ------------ -----------
Net operating earnings (loss) . . . . . (129,144) (832,146) (3,567,369) (4,197,110)
Gain from disposition of
investment properties, net of
venture partners' share of
gain of $114,899 in 1994
(notes 3 and 4) . . . . . . . . . . . -- -- 68,838,857 3,743,348
------------ ----------- ------------ -----------
Net earnings (loss) . . . . . . . . . . $ (129,144) (832,146) 65,271,488 (453,762)
============ =========== ============ ===========
JMB INCOME PROPERTIES, LTD. - VI
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
CONSOLIDATED STATEMENTS OF OPERATIONS - CONTINUED
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
-------------------------- --------------------------
1995 1994 1995 1994
------------ ----------- ------------ -----------
Net earnings (loss) per limited
partnership interest
(note 1):
Net operating loss . . . . . . . . . $ (2.09) (13.45) (57.67) (67.84)
Gain from disposition
of investment properties,
net of venture partners'
share in 1994. . . . . . . . . . . -- -- 1,135.75 61.76
------------ ----------- ------------ -----------
$ (2.09) (13.45) 1,078.08 (6.08)
============ =========== ============ ===========
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
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(UNAUDITED)
<CAPTION>
1995 1994
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss). . . . . . . . . . . . . . . . . . . . . . . . . . $ 65,271,488 (453,762)
Items not requiring (providing) cash or cash equivalents:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 534,016 1,163,620
Amortization of deferred expenses. . . . . . . . . . . . . . . . . . 233,883 523,890
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. . . . . . . . . . . . . . . . . . . . . (238,423) 357,012
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 81,353 203,436
Escrow deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . 920,078 506,014
Accrued rents receivable . . . . . . . . . . . . . . . . . . . . . . 444,251 553,099
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . 1,141,654 (55,096)
Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . . 871,142 77,310
Accrued real estate taxes. . . . . . . . . . . . . . . . . . . . . . -- 145,503
Amounts due to affiliates. . . . . . . . . . . . . . . . . . . . . . (7,694) 466,430
Tenant security deposits . . . . . . . . . . . . . . . . . . . . . . 2,015 (84,536)
------------ -----------
Net cash provided by (used in) operating activities. . . . . . 414,906 (415,334)
------------ -----------
Cash flows from investing activities:
Net purchases of short-term investments. . . . . . . . . . . . . . . . -- (50,215)
Additions to investment properties . . . . . . . . . . . . . . . . . . (724,571) (27,789)
Payment of deferred expenses . . . . . . . . . . . . . . . . . . . . . (71,045) (220,622)
------------ -----------
Net cash used in investing activities. . . . . . . . . . . . . (795,616) (298,626)
------------ -----------
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). . . . . . . . . . . . . . . . . 241,423 254,074
Principal payments on note payable . . . . . . . . . . . . . . . . . . (97,835) (176,102)
Contribution from venture partner. . . . . . . . . . . . . . . . . . . -- 39,124
Distribution to venture partner. . . . . . . . . . . . . . . . . . . . -- (252)
------------ -----------
Net cash provided by financing activities. . . . . . . . . . . 143,588 116,844
------------ -----------
Net decrease in cash and cash equivalents. . . . . . . . . . . (237,122) (597,116)
Cash and cash equivalents, beginning of year . . . . . . . . . 264,327 1,026,094
------------ -----------
Cash and cash equivalents, end of period . . . . . . . . . . . $ 27,205 428,978
============ ===========
Supplemental disclosure of cash flow information:
Cash paid for mortgage and other interest. . . . . . . . . . . . . . . $ 5,385,305 8,844,021
============ ===========
Non-cash investing and financing activities:
Deferred expenses payable to affiliates (notes 2 and 5). . . . . . . $ -- 477,980
============ ===========
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 current and long-term 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
SEPTEMBER 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 investment property until it was
transferred to the mortgage lender 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 nine months ended September 30, 1995 and 1994
is summarized as follows:
1995 1994
------------------------- ----------------------
GAAP BASIS TAX BASIS GAAP BASIS TAX BASIS
----------- ---------- ---------- ---------
Net earnings . . .$65,271,488 60,479,711 (453,762) 926,711
Net earnings
per limited
partnership
interest. . . . .$ 1,078.80 999.01 (6.08) 15.04
=========== ========== ======== =======
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.
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 September 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 its 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 at the Century City North Office Building representing
deferrals required in accordance with the modification of the debt (note 3)
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.
(3) CENTURY CITY NORTH BUILDING
On June 9, 1995, the Partnership transferred title to the lender as
discussed below.
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.
JMB INCOME PROPERTIES, LTD. - VI
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The first mortgage loan, in addition to periodic interest at 10.875%
provided for contingent interest based upon a formula (as defined) ranging
from $5,000,000 to $8,000,000. For financial reporting purposes, based on
the notice of default, the Partnership had determined that $5,000,000 in
additional interest was due. Such amount was 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.
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.
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 June 9, 1995
disposition date). 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. This loan
was extinguished without payment upon the acquisition of title to the
property by the first mortgage lender.
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 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 which was assumed by the first
mortgage 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 will likely deplete
any remaining assets held by 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.
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 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.
JMB INCOME PROPERTIES, LTD. - VI
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONCLUDED
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 September 30, 1995 and for the nine months ended September 30, 1995 and
1994 are as follows:
Unpaid at
September 30,
1995 1994 1995
------ ------- -------------
Property management
and leasing fees . . . . . $ -- 553,580 4,899,324
Insurance commissions. . . . -- 25,000 --
Reimbursement (at cost)
for out-of-pocket
expenses . . . . . . . . . 6,423 3,333 --
------ ------- ---------
$6,423 581,913 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.
The Managing General Partner of the Partnership has determined to use
independent third parties to perform certain administrative services
beginning in the fourth quarter of 1995. Use of such third parties is not
expected to have a material effect on the operations of the Partnership.
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 September 30, 1995
and for the three and nine months ended September 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, it is not expected that the Partnership will
be able to continue as a going concern (see Note 3 and the Century City
North disclosure below). It is anticipated that the Partnership will
terminate its affairs in 1995; however, the existence of the Holwick
litigation discussed below may extend this timetable. The consolidated
financial statements do not include any adjustments that might result from
the termination of the Partnership's operations.
At September 30, 1995, the Partnership had cash and cash equivalents
of approximately $27,000. Such funds 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 first
mortgage 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. 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 vacated space, unless expressly approved for other uses by
the lender. 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 first
mortgage 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. This loan was
extinguished without payment upon the acquisition of the property by the
first mortgage lender.
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 will likely deplete
any remaining assets held by 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. However, the existence of
the Holwick litigation discussed above may extend this timetable.
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, there are insufficient Partnership funds to
pay any of these deferred fees or commissions related to Dutchess Mall or
the Century City North Office Building.
RESULTS OF OPERATIONS
The decrease in cash and cash equivalents, short-term investments,
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
September 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 decrease in rental income, mortgage and other interest,
depreciation, property operating expenses and amortization of deferred
expenses for the three and nine months ended September 30, 1995 as compared
to the three and nine months ended September 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 Note 3).
The increase in interest income for the nine months ended September
30, 1995 as compared to the three and nine months ended September 30, 1994
is due primarily to an increase in the average balance of U.S. Government
obligations held in 1995 prior to the disposition of the Century City North
Office Building in June of 1995.
The increase in professional services for the three and nine months
ended September 30, 1995 as compared to the three and nine months ended
September 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) and legal fees related to the lawsuit entitled
Holwick, Inc. v. JMB/1888 Partners, ET.AL. (as discussed in note 3).
The gain from disposition of investment properties for the nine months
ended September 30, 1995 is related to the disposition of the Century City
North Office Building in June of 1995 (as discussed in Note 3).
The venture partners' share of venture operations and gain from
disposition of investment properties for the nine months ended September
30, 1995 is related to the disposition of the Dutchess Mall in May of 1994
(as 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 would likely deplete
any remaining assets held by 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>
1. Century City North
Los Angeles,
California . . . . . . 78% 79% 78% 83% 83% N/A N/A
2. Dutchess Mall
Fishkill,
New York . . . . . . . 83% N/A N/A N/A N/A N/A 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
hereby incorporated herein by reference to the Partnership's Report for
June 30, 1995 on Form 10-Q (File No. 0-9485) dated August 9, 1995.
27. Financial Data Schedule.
--------------------
(b) No reports on Form 8-K 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:November 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:November 9, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S FORM 10-Q FOR THE NINE MONTHS ENDED SEPTEMBER 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 27,205
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 27,205
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 65,007
<CURRENT-LIABILITIES> 403,652
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> (5,237,969)
<TOTAL-LIABILITY-AND-EQUITY> 65,007
<SALES> 6,454,219
<TOTAL-REVENUES> 6,519,766
<CGS> 0
<TOTAL-COSTS> 3,353,661
<OTHER-EXPENSES> 235,604
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,497,870
<INCOME-PRETAX> (3,567,369)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,567,369)
<DISCONTINUED> 68,838,857
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 68,838,857
<EPS-PRIMARY> 1,078.08
<EPS-DILUTED> 1,078.08
</TABLE>
