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 June 30, 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 of (I.R.S. Employer Identification No.)
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 - JUNE 30, 1995
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets
June 30, December 31,
1995 1994
(Unaudited) (Audited)
Assets
Cash and cash equivalents $ 774,000 $ 2,498,000
Other assets 56,000 140,000
Real Estate:
Real estate 5,345,000 4,620,000
Accumulated depreciation (1,691,000) (1,635,000)
----------- -----------
Real estate, net 3,654,000 2,985,000
Deferred costs, net 20,000 25,000
----------- -----------
Total assets $ 4,504,000 $ 5,648,000
=========== ===========
Liabilities and Partners' Deficit
Notes payable $ 5,444,000 $ 5,476,000
Accrued expenses and other liabilities 133,000 203,000
Promissory notes:
Principal 288,000 514,000
Deferred interest payable 209,000 373,000
----------- -----------
Total liabilities 6,074,000 6,566,000
----------- -----------
Minority interest in joint venture -- (706,000)
----------- -----------
Partners' Deficit:
General partner's (deficit) (877,000) (874,000)
Limited partners' equity (deficit) (19,997 units
outstanding at June 30, 1995 and
December 31, 1994) (693,000) 662,000
----------- -----------
Total partners' deficit (1,570,000) (212,000)
----------- -----------
Total liabilities and partners' deficit $ 4,504,000 $ 5,648,000
=========== ===========
See notes to consolidated financial statements.
2 of 13
PREFERRED PROPERTIES FUND 80 - FORM 10-Q - JUNE 30, 1995
Consolidated Statements of Operations (Unaudited)
For the Six Months Ended
June 30, 1995 June 30, 1994
Revenues:
Room revenue $ -- $ 1,442,000
Food and beverage revenue -- 740,000
Other operating revenue -- 105,000
Commercial operations 439,000 2,001,000
Interest income 53,000 58,000
Disposition of rental properties -- 13,899,000
---------- -----------
Total revenues 492,000 18,245,000
---------- -----------
Expenses:
Room expenses -- 270,000
Food and beverage expenses -- 596,000
Other operating expenses -- 831,000
Commercial expense 80,000 780,000
Interest 273,000 1,557,000
Depreciation 56,000 558,000
General and administrative 140,000 329,000
Provision for impairment of value -- 1,444,000
---------- -----------
Total expenses 549,000 6,365,000
----------- -----------
(Loss) income before minority interest in joint
ventures' operations and extraordinary item (57,000) 11,880,000
Minority interest in joint ventures' operations -- 190,000
----------- -----------
(Loss) income before extraordinary item (57,000) 12,070,000
Extraordinary item:
Gain on extinguishment of debt -- 5,163,000
----------- -----------
Net (loss) income $ (57,000) $17,233,000
=========== ===========
Net (loss) income per limited partnership unit:
(Loss) income before extraordinary item $ (3) $ 574
Extraordinary item -- 245
----------- -----------
Net (loss) income $ (3) $ 819
=========== ===========
See notes to consolidated financial statements.
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PREFERRED PROPERTIES FUND 80 - FORM 10-Q - JUNE 30, 1995
Consolidated Statements of Operations (Unaudited)
For the Three Months Ended
June 30, 1995 June 30, 1994
Revenues:
Commercial operations $ 240,000 $ 849,000
Interest income 14,000 36,000
----------- -----------
Total revenues 254,000 885,000
----------- -----------
Expenses:
Other operating expenses -- 63,000
Commercial expense 59,000 263,000
Interest 139,000 528,000
Depreciation 28,000 172,000
General and administrative 72,000 200,000
----------- -----------
Total expenses 298,000 1,226,000
----------- -----------
Loss before minority interest in joint
ventures' operations (44,000) (341,000)
Minority interest in joint ventures' operations -- 163,000
----------- -----------
Net loss $ (44,000) $ (178,000)
=========== ===========
Net loss per limited partnership unit $ (2) $ (8)
=========== ===========
See notes to consolidated financial statements.
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PREFERRED PROPERTIES FUND 80 - FORM 10-Q - JUNE 30, 1995
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
June 30, 1995 June 30, 1994
Operating Activities:
<S> <C> <C>
Net (loss) income $ (57,000) $ 17,233,000
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 61,000 1,014,000
Minority interest in joint ventures' operations -- (190,000)
Interest payable to joint venture partner added
to principal -- 3,000
Deferred interest on nonrecourse promissory notes -- 368,000
Provision for impairment of value -- 1,444,000
Deferred costs paid -- (27,000)
Interest payable to affiliates of the general
partner -- (3,001,000)
Changes in operating assets and liabilities:
Other assets 84,000 456,000
Accrued expenses and other liabilities (70,000) (2,384,000)
---------- -----------
Net cash provided by (used in) operating activities 18,000 (4,146,000)
---------- -----------
Investing Activities:
Proceeds from sale of properties -- 28,393,000
Restricted cash -- 238,000
---------- -----------
Cash provided by investing activities -- 28,631,000
---------- -----------
Financing Activities:
Payments on notes payable to affiliates of the
general partner -- (6,373,000)
Satisfaction of notes payable -- (12,566,000)
Notes payable principal payments (32,000) (43,000)
Joint venture partner distributions (9,000) (319,000)
Retirement of promissory notes (390,000) (3,553,000)
Purchase of minority interest in joint venture (10,000) (860,000)
Cash distributions to limited partners (1,301,000) --
---------- -----------
Cash (used in) financing activities (1,742,000) (23,714,000)
---------- -----------
(Decrease) Increase in Cash and Cash Equivalents (1,724,000) 771,000
Cash and Cash Equivalents at Beginning of Period 2,498,000 2,378,000
------------ ------------
Cash and Cash Equivalents at End of Period $ 774,000 $ 3,149,000
============ ============
Supplemental Disclosure of Cash Flow Information:
Interest paid in cash during the period $ 437,000 $ 4,636,000
============ ============
Supplemental Disclosure of Non-Cash Financing
and Investing Activities:
Mortgage assumed on property sale $ -- $ 1,231,000
============ ============
</TABLE>
See notes to consolidated financial statements.
5 of 13
PREFERRED PROPERTIES FUND 80 - FORM 10-Q - JUNE 30, 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.
The results of operations for the six and three months ended June 30, 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 $80,000 and $123,000 during the six months ended June 30, 1995
and 1994, respectively. These reimbursements are included in general and
administrative expenses.
3. Promissory Notes Payable
During the six months ended June 30, 1995 and 1994, the Partnership paid
$390,000 and $3,553,000, 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 - JUNE 30, 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.
7 of 13
PREFERRED PROPERTIES FUND 80 - FORM 10-Q - JUNE 30, 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 August 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 six months ended June 30, 1995.
Registrant uses working capital reserves provided from any undistributed cash
flow from operations, refinancing and sales of properties as its primary source
of liquidity. There has been no excess cash from operations available for
distribution to the limited partners during 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
$1,724,000 decrease at June 30, 1995, as compared to December 31, 1994.
Registrant's $18,000 of cash provided by operating activities was more than
offset by $1,742,000 of cash used in financing activities. Registrant's cash
used in financing activities consisted of $32,000 of note payable principal
payments, $390,000 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
8 of 13
PREFERRED PROPERTIES FUND 80 - FORM 10-Q - JUNE 30, 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 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
Six Months Ended June 30, 1995 vs. June 30, 1994
Operating results (before minority interest in joint ventures' operations and
extraordinary gain on extinguishment of debt) declined by $11,937,000 for the
six months ended June 30, 1995, as compared to 1994, due to a decrease in
revenues of $17,753,000 which was only partially offset by a decrease in
expenses of $5,816,000. Operating results declined due to the $13,899,000 gain
on sale of properties.
With respect to the remaining property, commercial operation revenues decreased
by $4,000 for the six months ended June 30, 1995, as compared to 1994.
Commercial operations remained relatively constant. Interest income increased
by $4,000 for the six months ended June 30, 1995, as compared to 1994, due to a
slight increase in average working capital reserves available for investment and
the effect of higher interest rates.
9 of 13
PREFERRED PROPERTIES FUND 80 - FORM 10-Q - JUNE 30, 1995
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Six Months Ended June 30, 1995 vs. June 30, 1994 (Continued)
The decrease in expenses, with respect to the remaining property, for the six
months ended June 30, 1995, as compared to 1994, is due to decreases in interest
expense (on the note payable) of $5,000 and commercial property expense of
$25,000. 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. In addition, interest expense on Promissory Notes declined
by $425,000 due to the redemption of Promissory Notes and general and
administrative expenses declined by $189,000 due to a reduction in asset
management costs.
Three Months Ended June 30, 1995 vs. June 30, 1994
Operating results (before minority interest in joint ventures' operations)
improved by $297,000 for the three months ended June 30, 1995, as compared to
1994, due to a decrease in revenue of $631,000 which was more than offset by a
decrease in expenses of $928,000. Operating results improved due to the
disposition of Registrant's Winding Creek Village Apartments in December 1994
and the redemption of Promissory Notes in 1994.
With respect to the remaining property, commercial operating revenues increased
by $15,000 for the three months ended June 30, 1995, as compared to 1994, due to
an adjustment of estimated billbacks at Creekside Business park in the prior
year comparative period. Interest income decreased by $20,000 for the three
months ended June 30, 1995, as compared to 1994, due to a decrease in average
working capital reserves available for investment which was slightly offset by
an increase in interest rates.
The decrease in expenses, with respect to the remaining property, for the three
months ended June 30, 1995, as compared to 1994, is due to a decrease in
commercial property expense of $21,000. Commercial property expense declined due
to lower repair and maintenance expenses at Creekside Business Park.
Depreciation expense and interest expense on the note payable remained
constant. In addition, interest expense on Promissory Notes decreased by
$148,000 due to the redemption of Promissory Notes and general and
administrative expenses declined by $128,000 due to a reduction in asset
management costs.
10 of 13
PREFERRED PROPERTIES FUND 80 - FORM 10-Q - JUNE 30, 1995
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Properties
A description of the properties in which Registrant has an ownership interest
during the period covered by this Report, together with occupancy and room rate
data, follows:
PREFERRED PROPERTIES FUND 80
OCCUPANCY AND ROOM RATE SUMMARY
Average
Occupancy Rate (%)
-----------------------------
Six Months Three Months
Date Ended Ended
of June 30, June 30,
Name and Location Size Purchase 1995 1994 1995 1994
- ----------------- ---- -------- ---- ---- ---- ----
Commercial Buildings:
Creekside Business Park (1) 79,300 10/80 100 100 100 100
Buildings #1 and #2 sq. ft.
Milpitas, California
(1) On January 3, 1995, Registrant acquired the 40% minority interest in the
joint venture which owns the property.
11 of 13
PREFERRED PROPERTIES FUND 80 - FORM 10-Q - JUNE 30, 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.
12 of 13
PREFERRED PROPERTIES FUND 80 - FORM 10-Q - JUNE 30, 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
/S/ARTHUR N. QUELER
Secretary/Treasurer and Director
(Principal Financial Officer)
13 of 13
<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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 774,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 5,345,000
<DEPRECIATION> (1,691,000)
<TOTAL-ASSETS> 4,504,000
<CURRENT-LIABILITIES> 0
<BONDS> 5,941,000 <F1>
<COMMON> 0
0
0
<OTHER-SE> (1,570,000)
<TOTAL-LIABILITY-AND-EQUITY> 4,504,000
<SALES> 0
<TOTAL-REVENUES> 439,000
<CGS> 0
<TOTAL-COSTS> 136,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 273,000
<INCOME-PRETAX> (57,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (57,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (57,000)
<EPS-PRIMARY> (3)
<EPS-DILUTED> (3)
<FN>
<F1> Bonds includes deferred interest payable of $209,000.
</FN>
</TABLE>
