SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------- ----------
Commission file number 0-9508
Preferred Properties Fund 80
(Exact name of Registrant as specified in its charter)
California 94-2599964
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
5665 Northside Drive N.W., Ste. 370, Atlanta, Georgia 30328
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (404) 916-9090
N/A
Former name, former address and fiscal year, if changed since last report.
Indicate by check mark whether 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
-----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 12, 13, or 15(d) of the Securities Exchange
Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common stock, as of the latest
practicable date .
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PREFERRED PROPERTIES FUND 80 - FORM 10-Q - MARCH 31, 1995
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets
March 31, December 31,
1995 1994
(Unaudited) (Audited)
Assets
Cash and cash equivalents $ 1,023,000 $ 2,498,000
Other assets 58,000 140,000
Real Estate:
Real estate 5,345,000 4,620,000
Accumulated depreciation (1,663,000) (1,635,000)
------------- -------------
Real estate, net 3,682,000 2,985,000
Deferred costs, net 23,000 25,000
------------- -------------
Total assets $ 4,786,000 $ 5,648,000
============= =============
Liabilities and Partners' Equity
Note payable $ 5,458,000 $ 5,476,000
Accrued expenses and other liabilities 133,000 203,000
Promissory notes:
Principal 418,000 514,000
Deferred interest payable 303,000 373,000
------------- -------------
Total liabilities 6,312,000 6,566,000
------------- -------------
Minority interest in joint venture - (706,000)
------------- -------------
Partners' Deficit:
General partner's (deficit) (875,000) (874,000)
Limited partners' equity (deficit) (19,997 units
outstanding at March 31, 1995 and
December 31, 1994) (651,000) 662,000
------------- -------------
Total partners' deficit (1,526,000) (212,000)
------------- -------------
Total liabilities and partners' deficit $ 4,786,000 $ 5,648,000
============= =============
See notes to consolidated financial statements.
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PREFERRED PROPERTIES FUND 80 - FORM 10-Q - MARCH 31, 1995
Consolidated Statements of Operations (Unaudited)
For the Three Months Ended
March 31, 1995 March 31, 1994
Revenues:
Room revenue $ - $ 1,442,000
Food and beverage revenue - 740,000
Other operating revenue - 105,000
Commercial operations 199,000 1,152,000
Interest income 39,000 22,000
Disposition of rental properties - 13,899,000
------------- -------------
Total revenues 238,000 17,360,000
------------- -------------
Expenses:
Room expenses - 270,000
Food and beverage expenses - 596,000
Other operating expenses - 768,000
Commercial expense 21,000 520,000
Interest 134,000 1,029,000
Depreciation 28,000 386,000
General and administrative 68,000 126,000
Provision for impairment of value - 1,444,000
------------- -------------
Total expenses 251,000 5,139,000
------------- -------------
(Loss) income before minority interest in joint ventures'
operations and extraordinary item (13,000) 12,221,000
Minority interest in joint ventures' operations - 27,000
------------- -------------
(Loss) income before extraordinary item (13,000) 12,248,000
Extraordinary Item:
Gain on extinguishment of debt - 5,163,000
------------- -------------
Net (loss) income $ (13,000) $ 17,411,000
============= =============
Net (loss) income per limited partnership unit:
(Loss) income before extraordinary item $ (1) $ 582
Extraordinary item - 245
------------- -------------
Net (loss) income $ (1) $ 827
============= =============
See notes to consolidated financial statements.
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PREFERRED PROPERTIES FUND 80 - FORM 10-Q - MARCH 31, 1995
Consolidated Statements of Cash Flows (Unaudited)
For the Three Months Ended
March 31, 1995 March 31, 1994
Operating Activities:
Net (loss) income $ (13,000) $ 17,411,000
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities:
Disposition of rental properties - (13,899,000)
Extraordinary gain on extinguishment of debt - (5,163,000)
Depreciation and amortization 30,000 757,000
Minority interest in joint ventures' operations - (27,000)
Interest payable to joint venture partner added to
principal - 2,000
Deferred interest on nonrecourse promissory notes - 253,000
Provision for impairment of value - 1,444,000
Deferred costs paid - (27,000)
Interest paid to affiliates of the general partner - (3,001,000)
Changes in operating assets and liabilities:
Other assets 82,000 772,000
Accrued expenses and other liabilities (70,000) (2,354,000)
------------- -------------
Net cash provided by (used in) operating activities 29,000 (3,832,000)
------------- -------------
Investing Activities:
Proceeds from sale of properties - 28,393,000
Restricted cash increase - (803,000)
------------- -------------
Net cash provided by investing activities - 27,590,000
------------- -------------
Financing Activities:
Payments on notes payable to affiliates of the
general partner - (5,446,000)
Satisfaction of notes payable - (12,566,000)
Notes payable principal payments (18,000) (13,000)
Joint venture partner distributions (9,000) (309,000)
Retirement of promissory notes (166,000) (1,189,000)
Purchase of minority interest in joint venture (10,000) (300,000)
Cash distributions to limited partners (1,301,000) -
------------- -------------
Cash (used in) financing activities (1,504,000) (19,823,000)
------------- -------------
(Decrease) Increase in Cash and Cash Equivalents (1,475,000) 3,935,000
Cash and Cash Equivalents at Beginning of Period 2,498,000 2,378,000
------------- -------------
Cash and Cash Equivalents at End of Period $ 1,023,000 $ 6,313,000
============= =============
Supplemental Disclosure of Cash Flow Information:
Interest paid in cash during the period $ 204,000 $ 4,320,000
Supplemental Disclosure of Non-Cash Financing ============= =============
and Investing Activities:
Purchase of minority interest (see Note 4) $ 10,000 $ 860,000
Included in other liabilities - (560,000)
------------- -------------
Cash paid $ 10,000 $ 300,000
============= =============
Mortgages assumed on property sales $ - $ 1,231,000
============= =============
See notes to consolidated financial statements.
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PREFERRED PROPERTIES FUND 80 - FORM 10-Q - MARCH 31, 1995
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. General
The accompanying consolidated financial statements, footnotes and
discussions should be read in conjunction with the consolidated financial
statements, related footnotes and discussions contained in the Partnership's
Annual Report for the year ended December 31, 1994. Certain accounts have been
reclassified in order to conform to the current period.
The financial information contained herein is unaudited. In the opinion
of management, however, all adjustments necessary for a fair presentation of
such financial information have been included. All adjustments are of a normal
recurring nature, except for the transaction discussed in Note 4.
At March 31, 1995, the Partnership had approximately $219,000 invested in
overnight repurchase agreements earning approximately 6% per annum.
The results of operations for the three months ended March 31, 1995 and
1994 are not necessarily indicative of the results to be expected for the full
year.
2. Transactions with Related Parties
An affiliate of MGP received reimbursement of administrative expenses
amounting to $44,000 and $42,000 during the three months ended March 31, 1995
and 1994, respectively. These reimbursements are included in general and
administrative expenses.
3. Promissory Notes Payable
During the three months ended March 31, 1995 and 1994, the Partnership
paid $166,000 and $1,189,000, respectively, including accrued and deferred
interest, for the redemption of promissory notes.
4. Purchase of Minority Interest
(a) On January 3, 1995, a newly formed, wholly-owned subsidiary of the
Partnership acquired the 40% minority interest in the joint venture which
owned Creekside Business Park for $10,000. The carrying value of the property
was increased by $725,000. The basis increase in the real estate is comprised
of the receivable from the joint venture partner of $706,000 (as of December
31, 1994), $9,000 of distributions to the joint venture partner and the
$10,000 cash purchase price.
(b) In January 1994, the Partnership acquired the 40% minority interest in
the joint venture which owned the Plaza San Antonio for $860,000 (including
accrued interest). The book value of the minority interest at the time was
$542,000. The carrying value of the property, prior to the sale of Plaza San
Antonio, was increased by $318,000 as a result of the purchase of the minority
interest.
5. Distributions
On February 15, 1995, the Partnership distributed $1,301,000 ($65 per
unit) to the limited partners from the proceeds of the sale of Winding Creek
Village Apartments in December 1994.
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PREFERRED PROPERTIES FUND 80 - FORM 10-Q - MARCH 31, 1995
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Disposition of Rental Properties
(a) On February 23, 1994, Valley View Apartments was sold for $6,500,000.
Net proceeds, after repayment of the existing loan, deferred interest, closing
costs and adjustments, received by the Partnership were approximately
$1,069,000. The sale resulted in a gain of $2,216,000.
(b) On March 18, 1994, Plaza San Antonio was sold for $22,300,000. Net
proceeds, after repayment of existing loans, notes payable and accrued
interest to affiliates of the general partner, closing costs and adjustments,
received by the Partnership were approximately $13,258,000. The sale resulted
in a gain of $11,938,000.
(c) On March 18, 1994, Corporate Center Business Park was sold for
$1,500,000, subject to a $1,231,000 mortgage. Net proceeds, after repayment
of the existing loan, notes payable and interest to affiliates of the general
partner, closing costs and adjustments, received by the Partnership were
approximately $130,000. The sale resulted in a loss of $255,000.
7. Extraordinary Gain on Extinguishment of Debt and Provision for Impairment
of Value
(a) In February 1994, the mortgage securing Winding Creek Village
Apartments was modified. The resulting reduction in principal of $818,000 has
been recorded as an extraordinary gain on extinguishment of debt.
Simultaneous with the mortgage modification, the Partnership recorded a
provision for impairment of value of $1,444,000 on Winding Creek Village
Apartments to reflect a write down of the property to the level of its related
mortgage indebtedness.
(b) In 1993, Wheatley Ventures, Inc. ("Wheatley"), an affiliate of MGP,
commenced a tender offer to purchase up to 75 percent of the Promissory Notes
at a cash price of $75 per $333.86 outstanding principal balance of the
Promissory Notes. Pursuant to the tender offer, Wheatley acquired
approximately 51% of the outstanding Promissory Notes. The Partnership paid
$1,189,000 to Wheatley to satisfy the Promissory Notes it had previously
acquired. The resulting discount of approximately $4,345,000 on retiring the
Promissory Notes has been recorded as an extraordinary gain on extinguishment
of debt.
8. Commitment and Contingency
A tenant's lease, which had been scheduled to expire on January 31, 1996,
was extended for approximately five years, with lease payments beginning at
approximately $265,000 per annum. As part of the agreement, the tenant was
granted an option to purchase Creekside Business Park Building #1 for
$2,777,000. The option expires on April 1, 1996.
6 of 11
PREFERRED PROPERTIES FUND 80 - FORM 10-Q - MARCH 31, 1995
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
This item should be read in conjunction with the Consolidated Financial
Statements and other Items contained elsewhere in this Report.
Liquidity and Capital Resources
Registrant's remaining real estate property, Creekside Business Park, is
leased to two tenants. One tenant's lease, which had been scheduled to expire
on January 31, 1996, was extended, for approximately five years, with lease
payments beginning at approximately $265,000 per annum. As part of the
agreement, the tenant was granted an option to purchase Creekside Business
Park Building #1 for $2,777,000. The option expires on April 1, 1996. The
second tenant's lease expires on September 30, 1997. The property is located
in Milpitas, California. Registrant receives rental income from its property
and is responsible for operating expenses, administrative expenses, capital
improvements and debt service payments. As of May 1, 1995, nine of the ten
properties originally purchased by Registrant were sold or otherwise disposed.
Registrant's remaining property generated positive cash flow from operations
during the three months ended March 31, 1995.
Registrant uses working capital reserves provided from any undistributed cash
flow from operations, refinancing and sales of the properties as its primary
source of liquidity. There was no excess cash from operations available for
distribution to the limited partners for the quarter ended March 31, 1995.
Registrant did, however, distribute $1,301,000 ($65 per unit) to limited
partners in February 1995, from proceeds received from the December 16, 1994
sale of Winding Creek Village Apartments. It is not currently anticipated
that Registrant will make distributions from operations in the near future.
Working capital reserves will be used to satisfy Registrant's remaining
Promissory Note obligations and other expenses.
The level of liquidity based upon cash and cash equivalents experienced a
$1,475,000 decrease at March 31, 1995, as compared to December 31, 1994.
Registrant's $29,000 of cash provided by operating activities was more than
offset by $1,504,000 of cash used in financing activities. Registrant's cash
used in financing activities consisted of $18,000 of note payable principal
payments, $166,000 of cash used to retire Promissory Notes, $10,000 of cash
used for the purchase of a minority interest in a joint venture, $9,000 of
distributions to a joint venture partner and $1,301,000 of cash distributions
to the limited partners. All other increases (decreases) in certain assets
and liabilities are the result of the timing of receipt and payment of various
operating activities.
On January 3, 1995, a newly formed, wholly-owned subsidiary of the Partnership
acquired the 40% minority interest in the joint venture which owned Creekside
Business Park for $10,000. The carrying value of the property was increased
by $725,000. The basis increase in the real estate is comprised of the
receivable from the joint venture partner of $706,000 (as of December 31,
1994), $9,000 of distributions to the joint venture partner and the $10,000
cash purchase price.
Working capital reserves are invested in a money market account or in
repurchase agreements secured by United States Treasury obligations. The
Managing General Partner believes that, if market conditions remain relatively
stable, cash flow from operations, when combined with working capital
reserves, will be sufficient to fund required capital improvements and regular
debt service payments until September 30, 1997. The mortgage encumbering
Registrant's Creekside property matures in 1998, however, a tenant's lease,
representing 58% of leasable space, expires prior to the mortgage due date.
Registrant
7 of 11
PREFERRED PROPERTIES FUND 80 - FORM 10-Q - MARCH 31, 1995
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Liquidity and Capital Resources (Continued)
does not expect to be able to continue its debt service payments unless this
lease is either extended or replaced. In that case, if the loan is not
refinanced or modified, or the property sold, Registrant could lose this
property through foreclosure.
At this time it appears that the investment objective of capital growth will
not be attained and that investors will not be attained and that limited
partners will not receive a return of a substantial portion of their invested
capital. The extent to which invested capital is returned to limited partners
is dependent upon the performance of Registrant's remaining property and the
market in which the property is located and on the sales price of the
remaining property. The ability to hold and operate this property is
dependent upon the Registrant's ability to obtain refinancing or debt
modification as required. It is anticipated that the Promissory Note holders
will not receive any payment of residual interest income.
Real Estate Market
The California real estate market has suffered from the effects of the real
estate recession including, but not limited to, a downward trend in market
values of existing properties. In addition, the bailout of the savings and
loan associations and sales of foreclosed properties by auction reduced market
values and caused a further restriction on the ability to obtain credit. As a
result, Registrant's ability to refinance or sell its remaining property may
be restricted. These factors caused a decline in market property values and
serve to reduce market rental rates and/or sales prices. Despite the weak
rental market, management anticipates that increases in revenue will exceed
increases in expenses during 1995. Furthermore, management believes that the
emergence of new institutional purchasers, including real estate investment
trusts and insurance companies should create a more favorable market value for
Registrant's remaining property in the future.
Results of Operations
Three Months Ended March 31, 1995 vs. 1994
Operating results (before minority interest in joint ventures' operations and
extraordinary gain on extinguishment of debt) declined by $12,234,000 for the
three months ended March 31, 1995, as compared to 1994, due to a decrease in
revenues of $17,122,000, which was only partially offset by a decrease in
expenses of $4,888,000. Operating results declined due to the $13,899,000
gain on sale of properties. With respect to the remaining property, operating
results improved by $352,000 for the three months ended March 31, 1995, as
compared to 1994, due to an increase in revenues of $5,000 and a decrease in
expenses of $347,000.
Commercial operation revenues decreased by $19,000 for the three months ended
March 31, 1995, as compared to 1994, with respect to the remaining property,
due to an over accrual of estimated billbacks at Creekside Business Park in
the prior year comparative period. Interest income increased by $24,000 for
the three months ended March 31, 1995, as compared to 1994, due to an increase
in average working capital reserves available for investment and the effect of
higher interest rates.
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PREFERRED PROPERTIES FUND 80 - FORM 10-Q - MARCH 31, 1995
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Three Months Ended March 31, 1995 vs. 1994 (Continued)
The decrease in expenses, with respect to the remaining property, for the
three months ended March 31, 1995, as compared to 1994, is due to decreases in
interest expense (on the note payable) of $5,000 and in commercial property
expense of $7,000. Interest expense on the note payable declined due to
mortgage principal amortization. Commercial property expense declined due to
lower repair and maintenance expense at Creekside Business Park. Depreciation
expense remained constant. Interest expense on Promissory Notes declined by
$277,000 due to the redemption of Promissory Notes. General and
administrative expenses declined by $58,000 due to a reduction in asset
management costs.
Properties
A description of the property in which Registrant has an ownership interest,
during the period covered by this Report, along with occupancy data, follows:
PREFERRED PROPERTIES FUND 80
OCCUPANCY RATE SUMMARY
For the Quarters Ended March 31, 1995 and 1994
Average
Occupancy Rate (%)
Date For Quarter Ended
of March 31,
Name and Location Size Purchase 1995 1994
- ----------------- ---- -------- ------------------
Commercial Building:
Creekside Business Park (1) 79,300 10/80 100 100
Buildings #1 and #2
Milpitas, California sq. ft.
(1) On January 3, 1995, Registrant acquired the 40% minority interest in the
joint venture which owns the property.
9 of 11
PREFERRED PROPERTIES FUND 80 - FORM 10-Q - MARCH 31, 1995
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
No reports on Form 8-K were required to be filed during the period.
10 of 11
PREFERRED PROPERTIES FUND 80 - FORM 10-Q - MARCH 31, 1995
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PREFERRED PROPERTIES FUND 80
By: MONTGOMERY REALTY COMPANY - 80,
its General Partner
By: FOX REALTY INVESTORS,
the managing general partner of the
General Partner
By: NPI Equity Investments II, Inc.,
managing partner
---------------------------------------
ARTHUR N. QUELER
Secretary/Treasurer and Director
(Principal Financial Officer)
11 of 11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from Preferred
Properties Fund 80 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 1,023,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 5,345,000
<DEPRECIATION> (1,663,000)
<TOTAL-ASSETS> 4,786,000
<CURRENT-LIABILITIES> 0
<BONDS> 6,179,000 <F1>
<COMMON> 0
0
0
<OTHER-SE> (1,526,000)
<TOTAL-LIABILITY-AND-EQUITY> 4,786,000
<SALES> 0
<TOTAL-REVENUES> 199,000
<CGS> 0
<TOTAL-COSTS> 49,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 134,000
<INCOME-PRETAX> (13,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (13,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,000)
<EPS-PRIMARY> (1)
<EPS-DILUTED> (1)
<FN>
<F1> Bonds include $303,000 of deferred interest payable
</FN>
</TABLE>
