FORM 10-QSB--QUARTERLY OR TRANSITIONAL REPORT
UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
QUARTERLY OR TRANSITIONAL REPORT
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
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 small business issuer as specified in its charter)
California 94-2599964
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Insignia Financial Plaza
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(Issuer's telephone number)
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 . No .
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a) PREFERRED PROPERTIES FUND 80
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
September 30, 1997
Assets
Cash and cash equivalents $ 2,207
Receivables and deposits (Note C) 2,406
$ 4,613
Liabilities and Partners' Capital
Liabilities
Accounts payable $ 2
Contingency for litigation settlement (Note C) 2,375
Other liabilities 518
Promissory notes:
Principal 221
Deferred interest payable 161
Partners' Capital
General partner's $ --
Limited partners' (19,997 units issued
and outstanding) 1,336 1,336
$ 4,613
See Accompanying Notes to Consolidated Financial Statements
b) PREFERRED PROPERTIES FUND 80
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 122 $ 204 $ 574 $ 618
Interest income 6 6 10 31
Gain on sale of property 5,411 -- 5,411 --
Total revenues 5,539 210 5,995 649
Expenses:
Operating 57 44 130 105
Interest 110 136 404 410
Depreciation 31 28 111 83
General and administrative 203 118 422 286
Loss contingency for
litigation settlement 2,375 -- 2,375 --
Total expenses 2,776 326 3,442 884
Net income (loss) $ 2,763 $ (116) $ 2,553 $ (235)
Net income (loss) allocated
to general partner $ 110 $ (6) $ 99 $ (12)
Net income (loss) allocated
to limited partners 2,653 (110) 2,454 (223)
$ 2,763 $ (116) $ 2,553 $ (235)
Net income (loss) per
limited partnership unit $ 132.67 $ (5.50) $ 122.72 $ (11.15)
<FN>
See Accompanying Notes to Consolidated Financial Statements
</FN>
</TABLE>
c) PREFERRED PROPERTIES FUND 80
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(Unaudited)
(in thousands, except unit data)
<TABLE>
<CAPTION>
Limited
Partnership General Limited
Units Partner's Partners' Total
<S> <C> <C> <C> <C>
Original capital contributions 19,997 $ 100 $ 19,997 $20,097
Partners' deficit
at December 31, 1996 19,997 $ (899) $ (1,118) $(2,017)
Capital contributions -- 800 -- 800
Net income for the nine months
ended September 30, 1997 -- 99 2,454 2,553
Partners' capital at
September 30, 1997 19,997 $ -- $ 1,336 $ 1,336
<FN>
See Accompanying Notes to Consolidated Financial Statements
</FN>
</TABLE>
d) PREFERRED PROPERTIES FUND 80
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 2,553 $ (235)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation 111 83
Amortization of lease commissions and loan costs 12 12
Gain on sale of property (5,411) --
Loss contingency for litigation settlement 2,375 --
Change in accounts:
Receivables and deposits (2,284) (74)
Other assets (16) (59)
Accounts payable (59) --
Tenants' security deposits payable (28) --
Other liabilities 457 10
Net cash used in operating activities (2,290) (263)
Cash flows from investing activities:
Proceeds from sale of property 8,848 --
Net cash provided by investing activities 8,848 --
Cash flows from financing activities:
Note payable principal payments (50) (46)
Repayment of notes payable (5,302) --
Capital contributions 800 --
Retirement of promissory notes (17) (32)
Net cash used in financing activities (4,569) (78)
Net increase (decrease) in cash and cash equivalents 1,989 (341)
Cash and cash equivalents at beginning of period 218 608
Cash and cash equivalents at end of period $ 2,207 $ 267
Supplemental disclosure of cash flow information:
Cash paid for interest $ 457 $ 409
<FN>
See Accompanying Notes to Consolidated Financial Statements
</FN>
</TABLE>
e) PREFERRED PROPERTIES FUND 80
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Preferred
Properties Fund 80 (the "Partnership") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of NPI Equity Investments II, Inc. ("NPI Equity" or the "Managing
General Partner"), all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. As a result of
the sale of Partnership's investment property, operating results for the three
and nine month periods ended September 30, 1997, are not indicative of the
results that may be expected for the fiscal year ending December 31, 1997. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Partnership's annual report on Form 10-KSB for
the year ended December 31, 1996.
Certain reclassifications have been made to the 1996 information to conform to
the 1997 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.
The general partner of the Partnership is Montgomery Realty Company - 80 ("MRC-
80"), a limited partnership. The general partner of MRC-80 is Fox Realty
Investors ("FRI"), the managing general partner of which is NPI Equity.
Pursuant to a series of transactions which closed during 1996, affiliates of
Insignia Financial Group, Inc. ("Insignia") acquired control of NPI Equity and
National Property Investors, Inc. ("NPI"), the sole stockholder of NPI Equity.
In connection with these transactions, affiliates of Insignia appointed new
officers and directors of NPI Equity.
The following transactions with affiliates of Insignia, NPI, and affiliates of
NPI were incurred during the nine month periods ended September 30, 1997 and
1996 (in thousands):
For the Nine Months Ended
September 30,
1997 1996
Reimbursement for services of affiliates (included
in general and administrative expenses) $26 $101
For the period from January 19, 1996 to August 31, 1997, the Partnership insured
its property 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 master
policy. The 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 Managing General Partner by virtue of the
agent's obligations is not significant.
NOTE C - LEGAL PROCEEDINGS
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 Ventures, Inc. ("Wheatley") pursuant to Wheatley's tender offer (see
Part II, "Item 1. Legal Proceedings"), brought a purported class action lawsuit
against, the among others, the general partner of the Partnership. On September
12, 1997, the general partner and the Partnership entered into definitive
settlement agreements resolving, subject to court approval, the claims asserted
in the litigation and the related claims for indemnity. Total deposits of
$2,375,000 have been made to escrow accounts to fund their portion of the
anticipated settlement and legal expenses. These deposits are included in
"receivables and deposits" on the consolidated balance sheet. Concurrent with
the settlement, the Partnership has established a loss contingency in the amount
of $2,375,000.
NOTE D - SALE OF INVESTMENT PROPERTY
On September 10, 1997, the Partnership sold Creekside Business Park to an
unrelated third party for a contract amount of $9,200,000. After the payment of
the note payable of approximately $4,002,000, the sale price of the ground-
leased property of $1,300,000, and closing costs and related expenses totaling
approximately $352,000, the Partnership received net proceeds of approximately
$3,546,000. For financial statement purposes, the sale resulted in a gain of
approximately $5,411,000.
The following unaudited pro forma information reflects the operations of the
Partnership for the nine months ended September 30, 1997 and 1996, as if
Creekside Business Park had been sold January 1, 1996.
Proforma Results of
Operations for the
Nine Months Ended
September 30,
1997 1996
(in thousands)
Revenues $ 9 $ 30
Net loss (416) (256)
Net loss per limited partnership unit (19.76) (12.16)
NOTE E - CAPITAL CONTRIBUTIONS
Pursuant to the Partnership's partnership agreement, if prior to dissolution and
termination of the Partnership the general partner has a deficiency in its
capital account, the general partner shall contribute cash to the Partnership in
an amount which is equal to the deficiency in its capital account. The Managing
General Partner anticipates terminating the Partnership once the definitive
settlement agreement (see Note C) is approved. During the third quarter of
1997, the general partner contributed capital of $800,000 to the Partnership.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The Partnership sold its remaining investment property, Creekside Business Park,
on September 10, 1997, for a contract price of $9,200,000. After the payment of
encumbrances on the property of approximately $5,302,000 and closing costs and
other related expenses of approximately $352,000, the Partnership received net
proceeds of approximately $3,546,000.
The Partnership's net income for the nine months ended September 30, 1997, was
approximately $2,553,000 versus a net loss of approximately $235,000 for the
same period of 1996. For the three months ended September 30, 1997, the
Partnership's net income was approximately $2,763,000 compared to a net loss of
approximately $116,000 for the three months ended September 30, 1996. Included
in income for the nine months ended September 30, 1997, is a gain of
approximately $5,411,000 on the sale of Creekside Business Park. The increase in
net income due to the gain on property sale for the three and nine month periods
is partially offset by a $2,375,000 loss contingency for the probable litigation
settlement (see "Item 1. Note C - Legal Proceedings") and an increase in general
and administrative and depreciation expenses. The increase in general and
administrative expense is primarily due to an increase in legal costs related to
the ongoing legal proceedings. The increase in legal costs was partially offset
by a decrease in expense reimbursements to affiliates of the Managing General
Partner. The decrease in expense reimbursements is directly attributable to
costs associated with the transition and relocation of the administrative
offices during the first quarter of 1996. Depreciation expense increased due to
the capitalization and depreciation of the Partnership's basis in the buyout of
the 40% minority interest in the joint venture which owned Creekside Business
Park. Interest income decreased for the nine month period due to lower average
cash balances being held by the Partnership during 1997.
At September 30, 1997, the Partnership had unrestricted cash of approximately
$2,207,000 as compared to approximately $267,000 at September 30, 1996. The
Partnership's cash has increased as a result of net proceeds received from the
sale of Creekside Business Park. A portion of these proceeds were used to fund
escrow accounts, which were set up to pay the anticipated settlement and legal
expenses resulting from 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 "Part II - Other Information, Item 1. Legal Proceedings"). Net
cash used in operating activities increased due to the funding of these escrow
accounts. Net cash provided by investing activities increased due to proceeds
from the sale of Creekside Business Park. Net cash used in financing activities
increased as a result of the payoff of the note payable on Creekside and the
payment of the sales price of the ground lease on the property, which was
accounted for as an additional note payable for the property. Partially
offsetting the payoff of the encumbrances on Creekside was a capital
contribution by the general partner.
Pursuant to the Partnership's partnership agreement, if prior to dissolution and
termination of the Partnership the general partner has a deficiency in its
capital account, the general partner shall contribute cash to the Partnership in
an amount which is equal to the deficiency in its capital account. The Managing
General Partner anticipates terminating the Partnership once the definitive
settlement agreement (see "Item 1. Note C - Legal Proceedings") is approved.
During the third quarter of 1997, the general partner contributed capital of
$800,000 to the Partnership.
The Managing General Partner expects to make a final distribution to the limited
partners after court approval of the legal settlement (refer to "Part II, Item
1. Legal Proceedings"). No cash distributions were made during the nine month
periods ended September 30, 1997 and 1996.
PART II - OTHER INFORMATION
ITEM 1. 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 MRC-80 and FRI breached their fiduciary duty
to the tendering noteholders and interfered with their prospective economic
advantage if they continued to hold the Notes.
In February and March 1997, the Partnership and NPI Equity were named as cross-
defendants in this action on cross-complaints filed by several defendants. The
indenture trustee, Northern Trust Bank of California, NA, sued both the
Partnership and NPI Equity on the theories of express contractual indemnity,
implied indemnity, fraud and negligent misrepresentation. Similarly, defendant
Wheatley asserted a cross-complaint against the Partnership alleging implied
indemnity and declaratory relief. Although the former owners of FRI who are
also defendants in the action (the "Fox Defendants") asserted demands for
express indemnity against the Partnership, they have not filed a cross-
complaint.
The Partnership moved to dismiss each of these cross-complaints on various
grounds. The cross-complaint of the Indenture Trustee was dismissed in part with
leave to replead, which the Indenture Trustee has now done. The cross-complaint
of Wheatley withstood the motion to dismiss. The Partnership has now answered
both of these cross-complaints.
This litigation commenced in August 1995, and substantial discovery was
conducted prior to and subsequent to service of the cross-complaints on the
Partnership. The Court had scheduled a trial date in November 1997. Absent the
settlement described below, substantial additional discovery, particularly with
respect to trial experts, remained to be completed.
Given the potential extraordinary expense in defending this case as well as the
potential exposure over and above the costs of defense, the Partnership has
initiated and successfully facilitated a settlement to resolve the case in its
entirety, including all claims which have been asserted in the complaint, the
various cross-complaints, and all claims for indemnity. On September 12, 1997,
the Partnership entered into definitive settlement agreements resolving, subject
to court approval, the claims asserted in the litigation and the related claims
for indemnity. Under the terms of the settlement, the Indenture Trustee,
Wheatley, the Fox Defendants, and the Partnership contributed $3,175,000 to the
settlement of the actions. The court has scheduled a hearing for November 24,
1997, on the fairness and adequacy of the terms of the settlement. The
Partnership believes that this settlement will limit the Partnership's exposure
both for costs of defense and on liability, and will allow it to make a
substantial cash distribution to the limited partners.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibit 27, Financial Data Schedule, is filed as an exhibit to this
report.
b) Reports on Form 8-K: A Form 8-K dated September 10, 1997, was filed
reporting the sale of Creekside Business Park.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant 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,
Managing General Partner of the
General Partner
By: NPI EQUITY INVESTMENTS II, INC.,
Its Managing General Partner
By: /s/William H. Jarrard, Jr.
William H. Jarrard, Jr.
President and Director
By: /s/Ronald Uretta
Ronald Uretta
Vice President and Treasurer
Date: November 13, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Preferred
Properties Fund 80 1997 Third Quarter 10-QSB and is qualified in its entirety by
reference to such 10-QSB filing.
</LEGEND>
<CIK> 0000312903
<NAME> PREFERRED PROPERTIES FUND 80
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,207
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,613
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 221
0
0
<COMMON> 0
<OTHER-SE> 1,336
<TOTAL-LIABILITY-AND-EQUITY> 4,613
<SALES> 0
<TOTAL-REVENUES> 5,995
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,442
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 404
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,553
<EPS-PRIMARY> 122.72<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
