FORM 10-KSB.--ANNUAL OR TRANSITIONAL REPORT UNDER
SECTION 13 OR 15(D)
FORM 10-KSB
(Mark One)
[] ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES AND EXCHANGE ACT
OF 1934 [NO FEE REQUIRED]
For the fiscal year ended December 31, 1996
[] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 0-9508
PREFERRED PROPERTIES FUND 80
(Name of small business issuer in its charter)
California 94-2599964
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Insignia Financial Plaza, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (864) 239-1000
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Limited Partnership Units
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of Registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. X
State issuer's revenues for its most recent fiscal year. $864,000.
State the aggregate market value of the voting stock held by nonaffiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days. Market value information for Registrant's Partnership Interests is not
available. Should a trading market develop for these Interests, it is the
Managing General Partner's belief that such trading would not exceed $25
million.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Preferred Properties Fund 80 (the "Partnership" or the "Registrant") was
organized in 1979 as a California limited partnership under the Uniform Limited
Partnership Act of the California Corporation Code. The general partner is
Montgomery Realty Company-80, ("MRC-80") a California limited partnership, of
which Fox Realty Investors ("FRI"), a California General Partnership, is the
general partner and Montgomery Realty Corporation, a California corporation, is
the co-general partner. NPI Equity Investments II, Inc. ("NPI Equity" or the
"Managing General Partner") is the managing general partner of FRI.
The Partnership's Registration Statement, filed pursuant to the Securities Act
of 1933 (No. 2-65332), was declared effective by the Securities and Exchange
Commission on February 12, 1980. The Partnership marketed its securities
pursuant to (i) its Prospectus dated February 12, 1980, which was republished
on April 2, 1980, and May 30, 1980 (the "Initial Prospectus"), and (ii) its
Prospectus dated July 1, 1980, and thereafter supplemented (hereinafter the
"Final Prospectus"). The Prospectus was filed with the Securities and Exchange
Commission pursuant to Rule 424(b) of the Securities Act of 1933. The principal
business of the Partnership is and has been to acquire, hold for investment and
ultimately sell income-producing real property.
Beginning in February 1980 through December 1980, the Partnership offered and
sold $19,997,000 in Limited Partnership Units and $19,651,000 in Nonrecourse
Promissory Notes. Principal payments to the Promissory Note holders of
$2,260,000 were made in fiscal year 1986, $6,858,000 in fiscal year 1987, and
$3,972,000 in fiscal year 1988. On March 20, 1994, the Partnership called the
Promissory Notes for redemption at a price equal to the outstanding principal
amount plus accrued and default interest thereon. As of December 31, 1996,
holders of 8,950.45 of the remaining 9,644.5 Promissory Notes have redeemed, and
the Partnership has paid $5,102,692 (including $2,114,494 of accrued and
deferred interest) for the redemption of the notes. The net proceeds of this
offering were used to acquire ten income-producing real properties and a parcel
of undeveloped land. The Partnership's original property portfolio was
geographically diversified with properties acquired in five states. The
Partnership's acquisition activities were completed in 1981 and since then the
principal activity of the Partnership has been managing its portfolio. In the
period from July 1986 to December 1989, two apartment and two hotel properties
were sold and one office building was acquired by the lender through
foreclosure. In 1994, two apartment properties, one commercial property, and a
hotel were sold. The Partnership's remaining asset is the Creekside Business
Park. See "Item 2, Description of Properties" for a description of the
Partnership's remaining property.
On December 6, 1993, NPI Equity became the managing Partner of FRI and assumed
operational control over Fox Capital Management Corporation ("FCMC"), an
affiliate of FRI. As a result, NPI Equity became responsible for the operation
and management of the business and affairs of the Partnership and the other
investment partnerships sponsored by FRI and/or FCMC. NPI Equity is a wholly-
owned subsidiary of National Property Investors, Inc. ("NPI"). The individuals
who had served previously as partners of FRI and as officers and directors of
FCMC contributed their general partnership interests in FRI to a newly formed
limited partnership, Portfolio Realty Associates, L.P. ("PRA"), in exchange for
limited partnership interests in PRA. In the foregoing capacity, such partners
continue to hold indirectly certain economic interests in the Partnership and
such other investment partnerships, but ceased to the responsible for the
operation and management of the Partnership and such other partnerships.
On October 12, 1994, NPI sold one-third of the stock of NPI to an affiliate of
Apollo Real Estate Advisors, L.P. ("Apollo"). Apollo was entitled to designate
three of the seven directors of NPI Equity. In addition, the approval of
certain major actions on behalf of the Partnership required the affirmative vote
of at least five directors of NPI Equity.
Pursuant to a series of transactions which closed during the first half of 1996,
affiliates of Insignia Financial Group, Inc. ("Insignia") acquired control of
NPI Equity, the managing general partner of FRI. In connection with these
transactions, affiliates of Insignia appointed new officers and directors of NPI
and NPI Equity.
The Partnership is involved in only one industry segment, as described above.
The Partnership does not engage in any foreign operations or derive revenues
from foreign sources.
There have been, and it is possible there may be other, Federal, state and local
legislation and regulations enacted relating to the protection of the
environment. The Partnership is unable to predict the extent, if any, to which
such new legislation or regulations might occur and the degree to which such
existing or new legislation or regulations might adversely affect the property
owned by the Partnership.
The Partnership monitors its property for evidence of pollutants, toxins and
other dangerous substances, including the presence of asbestos. In certain
cases, environmental testing has been performed which resulted in no material
adverse conditions or liabilities. In no case has the Partnership received
notice that it is a potentially responsible party with respect to an
environmental clean up site.
The Partnership has no full time employees. The Managing General Partner is
vested with full authority as to the general management and supervision of the
business and affairs of the Partnership. The limited partners have no right to
participate in the management or conduct of such business and affairs. A third
party management company provides day-to-day management services to the
Partnership's investment property.
The business in which the Partnership is engaged is highly competitive, and the
Partnership is not a significant factor in its industry. The remaining shopping
center competes for tenants with other shopping centers throughout the urban
area. Such competition is primarily on the basis of location, lease terms,
services, and amenities. In addition, the Partnership competes with significant
numbers of individuals and organizations (including similar partnerships, real
estate investment trusts and financial institutions) with respect to the sale of
improved real properties, primarily on the basis of the prices and terms of such
transactions.
ITEM 2. DESCRIPTION OF PROPERTY:
The following table sets forth the Partnership's investment in property:
Date of
Property Purchase Type of Ownership (1) Use
Creekside Business Park 10/80 Fee ownership sub- Industrial park
Milpitas, California ject to first 81,267 sq. ft.
mortgage and
ground lease
(1) The Nonrecourse Promissory Notes are secured by a subordinated lien on all
Partnership real estate.
SCHEDULE OF PROPERTY:
Gross
Carrying Accumulated Federal
Property Value Depreciation Rate Method Tax Basis
Creekside Business Park $ 5,345 $ 1,857 5-39 yrs. SL $2,244,000
See "Note A" to the financial statements, in "Item 7" for description of the
Partnership's depreciation policy.
SCHEDULE OF MORTGAGES:
(dollar amounts in thousands)
<TABLE>
<CAPTION>
Principal Balance Stated Interest Period Maturity Principal Balance
Property December 31, 1996 Rate Amortized Date Due at Maturity
<S> <C> <C> <C> <C> <C>
Creekside Business
Park
First mortgage $ 4,052 9.5% 25 years 4/1/97 (2) $ 4,036
Ground lease 1,300 12.0% (1) 4/1/98 1,300
Total $ 5,352 $ 5,336
<FN>
(1) Monthly payments are for interest only. The ground lease terminates at
maturity. At maturity, there is an option to purchase the land at a
purchase price of $1,300,000.
(2) The Managing General Partner is currently negotiating and expects that they
will be able to refinance the mortgage.
</TABLE>
SCHEDULE OF RENTAL RATES AND OCCUPANCY:
Average Annual Average
Rental Rates Occupancy
Property 1996 1995 1996 1995
Creekside Business Park $8.79/sq.ft. $10.10/sq.ft. 100% 100%
As noted under "Item 1, Description of Business", the real estate industry is
highly competitive. The property is subject to competition from other shopping
centers in the area. The Managing General Partner believes that the property is
adequately insured.
The following is a schedule of the lease expirations for the years 1997-2006:
(dollar amounts in thousands)
Number of % of Gross
Expirations Square Feet Annual Rent (1) Annual Rent
Creekside
Business Park
1997 -- -- $ -- --
1998-1999 -- -- -- --
2000 1 33,922 265 37%
2001-2006 1 47,345 449 63%
(1) Represents annualized base rent excluding additional rent due as operating
expense reimbursements, percentage rents, and future contractual
escalations.
The following schedule reflects information on tenants occupying 10% or more of
leasable square footage:
<TABLE>
<CAPTION>
Square Footage Annual Rent Per Lease
Nature of Business Leased Square Foot (1) Expiration
<S> <C> <C> <C>
Computer 47,345 $9.49/sq. ft. 12/31/2001
Computer 33,922 7.80/sq. ft. 12/31/2000
<FN>
(1) Represents annualized base rent per square foot excluding additional rent
due as operating expense reimbursements, percentage rents, and future
contractual escalations.
</TABLE>
Real estate tax and rate in 1996 for the property was (in thousands):
1996 Billing 1996 Rate
Creekside Business Park $63 1.2%
ITEM 3. LEGAL PROCEEDINGS
Dorothy M. Kaufman and Deanne R. Erickson, Trustees of the Kaufman Family 1981
Trust, dated October 21, 1981, on behalf of themselves and all others similarly
situated v. Northern Trust Bank of California, N.A.; Montgomery Realty Company-
80, a California limited partnership; Fox Realty Investors, a California
general partner, et. al., Superior Court of California, County of Santa Clara
(Case No. CV 51777).
The plaintiff in this action is a former holder of the Partnership's 10 percent
non-recourse Promissory Notes due June 30, 1994, (the "Notes") who tendered its
Notes to Wheatley Ventures Inc. ("Wheatley") pursuant to Wheatley's tender offer
for the Notes in August 1993. The plaintiff purports to represent itself and
all other tendering noteholders. The complaint was filed in August 1995 and
alleges, among other things, that the Managing General Partner breached its
fiduciary duty to the tendering noteholders and interfered with their
prospective economic advantage if they continued to hold the Notes. The Managing
General Partner believes that the claims brought by the plaintiff are without
merit and intends to vigorously defend this action. Pursuant to the terms of
the Partnership's partnership agreement, the Managing General Partner is
entitled to seek indemnification from the Partnership for any liability,
including its costs in defending this action. In February and March 1997, the
Partnership and the Managing General Partner were named as cross-defendants in
this action on cross-complaints filed by several defendants. The cross-
complaints assert claims for expenses, implied indemnity and declaratory relief.
The Partnership was only recently served with the complaints and is evaluating
its position before making a formal response to them.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The unit holders of the Partnership did not vote on any matter during the fiscal
year covered by this report.
PART II
ITEM 5. MARKET FOR THE PARTNERSHIP'S COMMON EQUITY AND RELATED SECURITY HOLDER
MATTERS
The Partnership, a publicly-held limited partnership, sold 19,997 Limited
Partnership Units aggregating $19,997,000. The Partnership currently has 19,997
units outstanding and 2,561 Limited Partners of record. There is no intention to
sell additional Limited Partnership Units nor is there an established market for
these units.
A cash distribution totaling $1,301,000 ($65.06 per limited partnership unit)
was made to the limited partners in 1995 from the proceeds received from the
sale of an investment property. No cash distribution were made during 1996. In
addition, the Partnership's cash has been adversely affected by the lawsuit
brought by former promissory note holders of the Partnership against, among
others, the Partnership's general partner, MRC-80 (see discussion in "Item 3,
Legal Proceedings"). Pursuant to the terms of the Partnership Agreement, the
Partnership is required to indemnify the general partner and its affiliates.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This item should be read in conjunction with the financial statements and other
items contained elsewhere in this report.
Results of Operations
The Partnership's net loss for the year ended December 31, 1996, was
approximately $359,000 versus a net loss of approximately $145,000 for the year
ended December 31, 1995. The increase in the net loss for the year is primarily
attributable to decreases in rental and other income and an increase in general
and administrative expenses. Rental income decreased as a result of a tenant
renewing its lease at Creekside Business Park in February 1996 at a lower rental
rate. This reduction was necessary in order to bring this tenant's rent in line
with the current market rental rates. The decrease in other income is due to a
reduction in interest earned on cash reserves in 1996 resulting primarily from a
cash distribution in 1995. General and administrative expenses increased due to
an increase in legal expenses in 1996, as a result of fees incurred in the
Kaufman et al. v. Northern Trust Bank of California, N.A., et al. litigation.
As part of the ongoing business plan of the Partnership, the Managing General
Partner monitors the rental market environment of its investment property to
assess the feasibility of increasing rents, maintaining or increasing occupancy
levels and protecting the Partnership from increases in expense. As part of
this plan, the Managing General Partner attempts to protect the Partnership from
the burden of inflation-related increases in expenses by increasing rents and
maintaining a high overall occupancy level. However, due to changing market
conditions, which can result in the use of rental concessions and rental
reductions to offset softening market conditions, there is no guarantee that the
Managing General Partner will be able to sustain such a plan.
Liquidity and Capital Resources
At December 31, 1996, the Partnership had unrestricted cash of $218,000 as
compared to $608,000 at December 31, 1995. Net cash used in operating
activities increased primarily as a result of the decrease in total revenues and
the payment of legal fees as discussed above. Also contributing to the increase
in cash used in operating activities was an increase in other assets due to
increased receivables for common area maintenance charges and increased tax
escrow funding. Net cash used in financing activities decreased due to the
Partnership not making a distribution in 1996 and fewer redemptions of
promissory notes in 1996 compared to 1995.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the property to adequately maintain the physical assets
and other operating needs of the Partnership. Such assets are currently thought
to be sufficient for any near-term needs of the Partnership. The first mortgage
indebtedness of $4,052,000 matures on April 1, 1997, at which time a balloon
payment is due. The Managing General Partner is currently negotiating and
expects that they will be able to refinance the mortgage. If the Partnership's
first mortgage is not refinanced or modified, or the property sold, the
Partnership could lose this property through foreclosure. Also included in the
Partnership's notes payable is a $1,300,000 ground lease obligation. The ground
lease is accounted for as a loan and calls for payments equal to 12 percent
interest on the principal until April 1, 1998, when the lease terminates. The
ground lease provides an option to purchase the land at a purchase price of
$1,300,000. Future cash distributions will depend on the level of net cash
generated from operations, a property sale or refinancing. A cash distribution
totaling approximately $1,301,000 ($65.06 per limited partnership unit) was made
to the limited partners in 1995 from proceeds from the sale of an investment
property in December 1994. No cash distributions were made during the year
ended December 31, 1996. In addition, the Partnership's cash has been adversely
affected by the lawsuit brought by former promissory note holders of the
Partnership against, among others, the Partnership's general partner, MRC-80
(see discussion of Kaufman et al. v. Northern Trust Bank of California, N.A. et
al. contained in "Item 3, Legal Proceedings"). Pursuant to the terms of the
Partnership Agreement, the Partnership is required to indemnify the general
partner and its affiliates.
ITEM 7. FINANCIAL STATEMENTS
PREFERRED PROPERTIES FUND 80
LIST OF CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report
Consolidated Balance Sheet - December 31, 1996
Consolidated Statements of Operations - Years ended December 31, 1996 and
1995
Consolidated Statements of Changes in Partners' Deficit - Years ended
December 31, 1996 and 1995
Consolidated Statements of Cash Flows - Years ended December 31, 1996 and
1995
Notes to Consolidated Financial Statements
Independent Auditors' Report
To The Partners
Preferred Properties Fund 80
Greenville, South Carolina
We have audited the accompanying consolidated balance sheet of Preferred
Properties Fund 80 (a limited partnership) (the "Partnership") and its
subsidiaries as of December 31, 1996, and the related consolidated statements of
operations, partners' deficit and cash flows for each of the two years in the
period ended December 31, 1996. These consolidated financial statements are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
The accompanying consolidated financial statements have been prepared assuming
that the Partnership will continued as a going concern. As discussed in Note H
to the consolidated financial statements, the Partnership's potential liability
in connection with legal proceedings raises substantial doubt about the
Partnership's ability to continue as a going concern. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Preferred Properties Fund 80 and its subsidiaries as of December 31, 1996, and
the results of its operations and its cash flows for each of the two years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
/s/Imowitz Koenig & Co., LLP
New York, New York
February 13, 1997
PREFERRED PROPERTIES FUND 80
CONSOLIDATED BALANCE SHEET
(in thousands, except unit data)
December 31, 1996
Assets
Cash and cash equivalents $ 218
Other assets 122
Deferred costs, net 56
Investment property:
Land $ 1,059
Buildings and related personal 4,286
property
5,345
Less accumulated depreciation (1,857) 3,488
$ 3,884
Liabilities and Partners' Deficit
Liabilities
Accrued expenses and other $ 150
liabilities
Notes payable 5,352
Promissory notes:
Principal 231
Deferred interest payable 168
Partners' Deficit:
General partner's $ (899)
Limited partners' (19,997 units
issued and outstanding) (1,118) (2,017)
$ 3,884
See Accompanying Notes to Consolidated Financial Statements
PREFERRED PROPERTIES FUND 80
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except unit data)
Years Ended December 31,
1996 1995
Revenues:
Rental income $ 830 $ 888
Other income 34 72
Total income 864 960
Expenses:
Operating 147 137
Interest 546 548
Depreciation 111 111
General and administrative 419 309
Total expenses 1,223 1,105
Net loss $ (359) $ (145)
Net loss allocated to general $ (18) $ (7)
partner (5%)
Net loss allocated to limited (341) (138)
partners (95%)
$ (359) $ (145)
Net loss per limited partnership $ (17.06) $ (6.90)
unit:
Distribution per limited $ -- $ 65.06
partnership unit
See Accompanying Notes to Consolidated Financial Statements
PREFERRED PROPERTIES FUND 80
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' (DEFICIT) EQUITY
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partner's Partners' Total
Original Capital contributions 19,997 $ 100 $ 19,997 $20,097
Partners' (deficit) equity at
December 31, 1994 19,997 $ (874) $ 662 $ (212)
Net loss for the year ended
December 31,1995 -- (7) (138) (145)
Distributions paid to partners -- -- (1,301) (1,301)
Partners' deficit at
December 31, 1995 19,997 (881) (777) (1,658)
Net loss for the year ended
December 31, 1996 -- (18) (341) (359)
Partners' deficit at
December 31, 1996 19,997 $ (899) $(1,118) $(2,017)
See Accompanying Notes to Consolidated Financial Statements
PREFERRED PROPERTIES FUND 80
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended December 31,
1996 1995
Cash flows from operating activities:
Net loss $ (359) $ (145)
Adjustments to reconcile net loss to
net cash used in operating activities
Depreciation and amortization 128 121
Deferred costs paid (16) (42)
Change in accounts:
Other assets (93) 111
Accrued expenses and other liabilities 45 (98)
Net cash used in operating
activities (295) (53)
Cash flows from investing activities:
Net cash provided by investing activities -- --
Cash flows from financing activities:
Notes payable principal payments (63) (61)
Joint venture partner distributions -- (9)
Retirement of promissory notes (32) (456)
Purchase of minority interest in joint venture -- (10)
Cash distributions to limited partners -- (1,301)
Net cash used in financing activities (95) (1,837)
Net decrease in cash and cash equivalents (390) (1,890)
Cash and cash equivalents at beginning of
period 608 2,498
Cash and cash equivalents at end of period $ 218 $ 608
Supplemental disclosure of cash flow information:
Cash paid for interest $ 558 $ 737
See Accompanying Notes to Consolidated Financial Statements
PREFERRED PROPERTIES FUND 80
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
NOTE A - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization:
Preferred Properties Fund 80 (the "Partnership") is a California limited
partnership organized in 1979, to acquire, hold for investment and ultimately
sell income-producing real estate. The Partnership's general partner is
Montgomery Realty Company-80 (the "Managing General Partner" or "MRC-80"), a
limited partnership. The general partner of MRC-80 is Fox Realty Investors
("FRI"). As of December 31, 1996, the Partnership operates one business park
located in Milpitas, California. Original capital contributions of $19,997,000
($1,000 per unit) were made by the limited partners.
Principles of Consolidation:
The consolidated financial statements include all the accounts of the
Partnership, joint ventures in which the Partnership had a controlling interest,
and the wholly-owned subsidiary that acquired the minority interest in the joint
venture which owned Creekside Business Park (see "Note D"). All significant
inter-partnership balances have been eliminated.
Distributions:
In February 1995, a distribution of $1,301,000 ($65.06 per unit) was made to the
limited partners from the proceeds of the 1994 sale of Winding Creek Village
Apartments.
Depreciation:
Depreciation is computed by the straight-line method over the estimated useful
lives ranging from 5 to 39 years.
Cash and Cash Equivalents:
The Partnership considers all highly liquid investments with a maturity, when
purchased, of three months or less to be cash equivalents. At certain times,
the amount of cash deposited at a bank may exceed the limit on insured deposits.
Leases:
The Partnership leases commercial space to tenants under various lease terms.
The Partnership recognizes income as earned on its leases.
Lease Commissions:
Deferred lease commissions are amortized using the straight-line method over the
lives of the related leases. Such amortization is charged to operating
expenses. Unamortized lease commissions are included in deferred costs. At
December 31, 1996 accumulated amortization of lease commissions totaled $48,000.
Investment Properties:
In 1995, the Partnership adopted Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of", which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. The impairment loss is measured by
comparing the fair value of the asset to its carrying amount. The effect of
adoption was not material.
Fair Value:
In 1995, the Partnership implemented Statement of Financial Accounting Standards
No. 107, "Disclosure about Fair Value of Financial Instruments," which requires
disclosure of fair value information about financial instruments for which it is
practicable to estimate that value. The carrying amount of the Partnership's
cash and cash equivalents approximates fair value due to short-term maturities.
The fair value of the Partnership's long term debt, after discounting the
scheduled loan payments to maturity, approximates its carrying value.
Net Income (Loss) Per Weighted Average Limited Partnership Unit:
Net income (loss) per Limited Partnership Unit is computed by dividing net
income (loss) allocated to the limited partners by 19,997 units outstanding.
Use of Estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Reclassifications:
Certain reclassifications have been made to the 1995 balances to conform to the
1996 presentation.
NOTE B - TRANSACTIONS WITH AFFILIATED PARTIES
The Partnership has no employees and is dependent on the Managing General
Partner and its affiliates for the management and administration of all
partnership activities. The Partnership Agreement provides for payments to
affiliates for services and as reimbursement of certain expenses incurred by
affiliates on behalf of the Partnership.
Pursuant to a series of transactions which closed during the first half of 1996,
affiliates of Insignia Financial Group, Inc. ("Insignia") acquired control of
NPI Equity Investments II, Inc. ("NPI Equity"), the managing general partner of
FRI. NPI Equity is a wholly-owned subsidiary of National Property Investors,
Inc. ("NPI"). In connection with these transactions, affiliates of Insignia
appointed new officers and directors of NPI and NPI Equity.
The following transactions with affiliates of Insignia, NPI and affiliates of
NPI were incurred in 1996 and 1995 (dollar amounts in thousands):
For the years Ended December 31,
1996 1995
Reimbursement for services of
affiliates (included in general
and administrative expenses) $102 $166
For the period from January 19, 1996 to December 31, 1996, the Partnership
insured its properties under a master policy through an agency and insurer
unaffiliated with the Managing General Partner. An affiliate of the Managing
General Partner acquired, in the acquisition of a business, certain financial
obligations from an insurance agency which was later acquired by the agent who
placed the current year's master policy. The current agent assumed the
financial obligations to the affiliate of the Managing General Partner, who
received payments on these obligations from the agent. The amount of the
Partnership's insurance premiums accruing to the benefit of the affiliate of the
General Partner by virtue of the agent's obligations is not significant.
In accordance with the partnership agreement, the general partner was also
allocated its continuing interest of five percent of the Partnership's net
income (loss) and taxable income (loss), including gain on sale of properties
and extraordinary gain on extinguishment of debt. Upon disposition of the
remaining property and termination of the Partnership, the general partners may
be required to contribute certain funds to the Partnership in accordance with
the Partnership agreements.
NOTE C - MORTGAGE NOTES PAYABLE
(Dollar amounts in thousands)
The principal terms of mortgage notes payable are as follows:
<TABLE>
<CAPTION>
Monthly
Principal Payment Principal
Balance At Including Stated Interest Balance Due At
Property December 31, 1996 Interest Rate Maturity Date Maturity
<S> <C> <C> <C> <C> <C>
Creekside
Business Park
First Mortgage $ 4,052 $ 38 9.50% 4/1/97 (2) $ 4,036
Ground lease (1) 1,300 13 12.00% 4/1/98 1,300
$ 5,352 $ 51 $ 5,336
<FN>
(1) The ground lease is accounted for as a loan and calls for monthly interest
payments on the principal until April 1, 1998, when the lease terminates.
The ground lease provides an option to purchase the land for $1,300,000 at
that time.
(2) The Managing General Partner is currently negotiating and expects that
they will be able to refinance the mortgage.
</TABLE>
The mortgage notes payable are secured by pledge of the remaining property.
Amortization of deferred financing costs totaling $2,000 and $3,000 for 1996 and
1995, respectively, are included in interest expense.
Scheduled principal payments of mortgage notes payable subsequent to December
31, 1996, are as follows:
1997 $4,052
1998 1,300
$5,352
NOTE D - INVESTMENT PROPERTY AND ACCUMULATED DEPRECIATION
(Dollar amounts in thousands)
Initial Cost
To Partnership
Buildings Capitalized
and Related (Removed)
Encum- Personal Subsequent to
Description brances (1) Land Property Acquisition
Creekside Business
Park
Milpitas, California $ 5,352 $1,059 $ 3,398 $ 888
(1) Encumbrances do not include non-recourse promissory notes.
<TABLE>
<CAPTION>
Gross Amount at Which Carried
At December 31, 1996
Buildings Accum- Depre-
And Related ulated Year of Date ciable
Personal Depre- Const- Acqu- Life-
Description Land Property Total ciation ruction ired Years
<S> <C> <C> <C> <C> <C> <C> <C>
Creekside Business
Park $1,059 $4,286 $5,345 $ 1,857 1981 10/80 5-39 yrs.
</TABLE>
Reconciliation of Investment Properties and Accumulated Depreciation:
December 31,
1996 1995
Investment Property
Balance at beginning of year $ 5,435 $ 4,620
Purchase of minority interest in
joint venture -- 725
Balance at end of year $ 5,345 $ 5,345
December 31,
1996 1995
Accumulated Depreciation
Balance at beginning of year $ 1,746 $ 1,635
Additions charged to expense 111 111
Balance at end of year $ 1,857 $ 1,746
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
distributions to the joint venture partner and the $10,000 cash purchase price.
The aggregate cost of the real estate for Federal income tax purposes for the
years ended December 31, 1996 and 1995 is $5,528,000. The accumulated
depreciation taken for Federal income tax purposes at December 31, 1996 and 1995
is $3,283,000 and $3,073,000.
NOTE E - RECONCILIATION TO INCOME TAX METHOD OF ACCOUNTING
Taxable income or loss of the Partnership is reported in the income tax returns
of its partners. Accordingly, no provision for income taxes is made in the
financial statements of the Partnership.
The following is a reconciliation of reported net loss and Federal taxable loss:
1996 1995
Net loss as reported $ (359) $ (145)
Add (deduct):
Depreciation (99) (122)
Federal taxable loss $ (458) $ (267)
Federal taxable loss per limited
partnership unit $(21.76) $(12.68)
The following is a reconciliation between the Partnership's reported amounts and
Federal tax basis of net assets and liabilities (in thousands):
Net liabilities as reported $ (2,017)
Sale commission 2,713
Depreciation (1,430)
Interest and financing 3
Other 153
Net liabilities-Federal tax basis $ (578)
NOTE F - NON-RECOURSE PROMISSORY NOTES
The Non-Recourse Promissory Notes ("Promissory Notes") are secured by a
subordinated lien on all Partnership real estate. The original balance of the
Promissory Notes was $19,651,000 with a maturity date of June 30, 1994. The
Promissory Notes bore interest at ten percent per annum through the redemption
date, as discussed below. Interest was deferred for up to eight percent of the
outstanding principal balance of the Promissory Notes provided the Partnership
made interest payments of at least six percent per annum. Beginning with the
quarterly interest payment due on April 15, 1989, to Promissory Note holders,
the Partnership had suspended interest payments to such note holders. Such
suspension was an event of default under the Trust Indenture and resulted in,
among other things, the trustee having the power to declare the Promissory
Notes due and to foreclose on the Partnership assets securing the notes. The
Trustee, at that time, concurred that foreclosure would not be in the best
interest of the Promissory Note holders because, under then current market
conditions, it was unlikely that the amount realized from the sale of the
Partnership's remaining properties would be sufficient to fully repay the
outstanding principal balance of the Promissory Notes plus accrued and deferred
interest. Such concurrence permitted the Partnership to continue a longer term
ownership strategy which, the Partnership anticipated, would benefit the
Promissory Note holders. Pursuant to the Seventh Supplemental Indenture dated
as of July 20, 1993, the Indenture was amended to separate the right to receive
Residual Interest Income from the right to receive payments of interest and
principal under the Promissory Notes. On August 20, 1993, Wheatley Ventures,
Inc. ("Wheatley"), an affiliate of NPI Equity, in accordance with an agreement
between it and the Partnership, commenced a tender offer to purchase up to 75
percent of the Promissory Notes (exclusive of the right to receive residual
interest income), at a cash price of $75 per $333.86 outstanding principal
balance of the Promissory Notes. On August 24, 1993, the Partnership issued its
formal response to the tender offer which was made available to each Promissory
Note holder. The tender offer expired on November 29, 1993. Pursuant to the
tender offer, Wheatley acquired 50.92% (10,006.50 notes) of the outstanding
Promissory notes having an outstanding principal amount of $3,341,000 and
accrued interest of $2,169,000. Wheatley's agreement with the Partnership
provided that the Partnership was not to be obligated to make any additional
payments to Wheatley on account of its Promissory Notes acquired in the tender
offer after Wheatley had received payments from the Partnership equal to the
purchase price of such Promissory notes, plus all out-of-pocket expenses
incurred by Wheatley in connection with the tender offer, plus a return of 10
percent per annum on the foregoing amounts. In addition, until such time as the
tendered notes were redeemed and canceled, Wheatley was entitled to principal
and interest on the same basis as any other Note holder as set forth in the
Trust Indenture. In March 1994, the Partnership paid Wheatley $1,189,000
pursuant to its agreement.
On March 20, 1994, the Partnership called the remaining Promissory Notes for
redemption at a price equal to the outstanding principal amount plus accrued
interest. The amount required to redeem the Promissory Notes was obtained from
the proceeds of the sale of Valley View Apartments in February 1994 and from the
sales of Plaza San Antonio hotel and Corporate Center Business Park in March
1994.
During the years ended December 31, 1996 and 1995, the Partnership redeemed 55
and 791.95 respectively, of the remaining 9,644.5 promissory notes (after
Wheatley's acquisition of 10,006.50 notes) and paid $32,000 and $456,000,
respectively, (including $13,000 and $192,000, of accrued and deferred interest)
for the redemption of the notes. At December 31, 1996, 694.05 notes remained
outstanding.
NOTE G - MINIMUM FUTURE RENTAL REVENUES
Minimum future rental revenues from operating leases having non-cancelable lease
terms in excess of one year are as follows (in thousands):
1997 $714
1998 816
1999 832
2000 849
Thereafter 602
Total $3,813
Amortization of deferred leasing commissions totaled $15,000 and $7,000 for the
years ended December 31, 1996 and 1995.
NOTE H - LEGAL PROCEEDINGS - GOING CONCERN
The accompanying consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. In August 1995, a former holder
of the Partnership's Promissory Notes who tendered its Promissory Notes to
Wheatley pursuant to Wheatley's tender offer (see "Note F"), brought a purported
class action lawsuit against, among others, the managing general partner of the
Partnership. Pursuant to the terms of the partnership agreement, the Managing
General Partner is entitled to seek indemnification from the Partnership for any
liability, including its costs in defending this action. The Partnership has
incurred $258,000 in defense of the Managing General Partner through December
31, 1996. The ultimate outcome of this uncertainty and the Partnership's
potential liability cannot be determined at this time, however, this raises
substantial doubt about the Partnership's ability to continue as a going
concern. The consolidated financial statements do not include any adjustments
that might result from the outcome of these uncertainties.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANT ON ACCOUNTING AND
FINANCIAL DISCLOSURES
There were no disagreements with Imowitz Koenig & Co., LLP regarding the 1996 or
1995 audits of the Partnership's financial statements.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The Partnership has no officers or directors. The general partner is Montgomery
Realty Company-80 ("MRC-80"), a California limited partnership, of which Fox
Realty Investors ("FRI"), a California general partnership, is the general
partner. NPI Equity Investments II, Inc. ("NPI Equity" or the "Managing General
Partner") is the managing general partner of FRI.
The names, ages and positions held by executive officers and directors of the
Managing General Partner, as of December 31, 1996, are as follows:
Name Age Position
William H. Jarrard, Jr. 50 President and Director
Ronald Uretta 40 Vice President and Treasurer
John K. Lines, Esq. 37 Vice President and
Secretary
Kelley M. Buechler 39 Assistant Secretary
William H. Jarrard, Jr. has been President and Director of the Managing General
Partner since January 1996 and Managing Director - Partnership Administration of
Insignia since January 1991. Mr. Jarrard served as Managing Director -
Partnership Administration and Asset Management from July 1994 to January 1996.
During the five years prior to joining Insignia in 1991, he served in similar
capacities for U. S. Shelter.
Ronald Uretta has been Vice President and Treasurer of the Managing General
Partner since January 1996 and Insignia's Chief Operating Officer since August
1996. From January 1992 to August 1996, Mr. Uretta was Insignia's Chief
Financial Officer. Mr. Uretta was Insignia's Secretary from January 1992 to
June 1994. From May 1988 until September 1990, Mr. Uretta was a self-employed
financial consultant. From January 1978 until January 1988, Mr. Uretta was
employed by Veltri Raynor & Company, independent certified public accountants.
John K. Lines has been Vice President and Secretary of the Managing General
Partner since January 1996, Insignia's General Counsel since June 1994, and
General Counsel and Secretary since July 1994. From May 1993 until June 1994,
Mr. Lines was the Assistant General Counsel and Vice President of Ocwen
Financial Corporation, West Palm Beach, Florida. From October 1991 until May
1993, Mr. Lines was a Senior Attorney with BANC ONE CORPORATION, Columbus, Ohio.
From May 1984 until October 1991, Mr. Lines was an attorney with Squire Sanders
& Dempsey, Columbus, Ohio.
Kelley M. Buechler has been Assistant Secretary of the Managing General Partner
since January 1996. Ms. Buechler has been Assistant Secretary of Insignia since
1991. During the five years prior to joining Insignia in 1991, she served in
similar capacities for U.S. Shelter.
No family relationships exist among any of the officers or directors of the
Managing General Partner.
ITEM 10. EXECUTIVE COMPENSATION
The Partnership is not required to and did not pay any compensation to the
officers or directors of the Managing General Partner. The Managing General
Partner does not presently pay any compensation to any of its officers or
directors. (See "Item 12, Certain Relationships and Related Transactions").
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of December 31, 1996, no person owned of record more than 5% of Limited
Partnership Units of the Partnership nor was any person known by the Partnership
to own of record and beneficially, or beneficially only, more than 5% of such
securities.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Partnership has no employees and is dependent on the Managing General
Partner and its affiliates for the management and administration of all
partnership activities. The Partnership Agreement provides for payments to
affiliates for services and as reimbursement of certain expenses incurred by
affiliates on behalf of the Partnership.
Pursuant to a series of transactions which closed during the first half of 1996,
affiliates of Insignia Financial Group, Inc. ("Insignia") acquired control of
NPI Equity Investments II, Inc. ("NPI Equity"), the managing general partner of
FRI. NPI Equity is a wholly-owned subsidiary of National Property Investors,
Inc. ("NPI"). In connection with these transactions, affiliates of Insignia
appointed new officers and directors of NPI and NPI Equity.
The following transactions with affiliates of Insignia, NPI and affiliates of
NPI were incurred in 1996 and 1995 (dollar amounts in thousands):
For the years Ended December 31,
1996 1995
Reimbursement for services of
affiliates (included in general
and administrative expenses) $102 $166
For the period from January 19, 1996 to December 31, 1996, the Partnership
insured its properties under a master policy through an agency and insurer
unaffiliated with the Managing General Partner. An affiliate of the Managing
General Partner acquired, in the acquisition of a business, certain financial
obligations from an insurance agency which was later acquired by the agent who
placed the current year's master policy. The current agent assumed the
financial obligations to the affiliate of the Managing General Partner, who
received payments on these obligations from the agent. The amount of the
Partnership's insurance premiums accruing to the benefit of the affiliate of the
General Partner by virtue of the agent's obligations is not significant.
In accordance with the partnership agreement, the general partner was also
allocated its continuing interest of five percent of the Partnership's net
income (loss) and taxable income (loss), including gain on sale of properties
and extraordinary gain on extinguishment of debt. Upon disposition of the
remaining property and termination of the Partnership, the general partners may
be required to contribute certain funds to the Partnership in accordance with
the Partnership agreements.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) See Exhibit Index contained herein.
(b) Reports on Form 8-K filed during the fourth quarter of 1996: None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Partnership 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 General Partner
By: /s/William H. Jarrard, Jr.
William H. Jarrard, Jr.
President and Director
Date: March 28, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Partnership and
in the capacities and on the dates indicated.
Signature/Title Title Date
/s/William H. Jarrard, Jr. President and March 28, 1997
William H. Jarrard, Jr. Director
/s/Ronald Uretta Vice President and March 28, 1997
Ronald Uretta Treasurer
EXHIBIT INDEX
Exhibit Number Description of Exhibit
2.1 NPI Stock Purchase Agreement, dated as of August 17,
1995, incorporated by reference to the Partnership's
Current Report on Form 8-K dated August 17, 1995.
3.4 Agreement of Limited Partnership, incorporated by
reference to Exhibit A to: (i) the Prospectus of the
Partnership dated February 12, 1980, and thereafter
supplemented as of April 2, 1980 and May 30, 1980
(the "Initial Prospectus") and (ii) its Prospectus
dated July 1, 1980, and thereafter supplemented as of
July 3, 1980, August 14, 1980 and September 19, 1980,
included in the Partnership's Registration Statement
on Form S-11 (Reg. No. 2-65332).
27 Financial Data Schedule.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Preferred
Properties Fund 80 1996 Year-End 10-KSB and is qualified in its entirety by
reference to such 10-KSB filing.
</LEGEND>
<CIK> 0000312903
<NAME> PREFERRED PROPERTIES FUND 80
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 218
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 5,345
<DEPRECIATION> (1,857)
<TOTAL-ASSETS> 3,884
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 5,352
0
0
<COMMON> 0
<OTHER-SE> (2,017)
<TOTAL-LIABILITY-AND-EQUITY> 3,884
<SALES> 0
<TOTAL-REVENUES> 864
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,223
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 546
<INCOME-PRETAX> (359)
<INCOME-TAX> 0
<INCOME-CONTINUING> (359)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (359)
<EPS-PRIMARY> (17.06)<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
