SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10Q/A
AMENDMENT NO. 2
Filed pursuant to Section 12, 13, or 15(d) of the
Securities Exchange Act of 1934
JMB INCOME PROPERTIES, LTD. - VII
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
IRS Employer Identification
Commission File No. 0-9555 No. 36-2999384
The undersigned registrant hereby amends the following sections of its
Report for September 30, 1995 on Form 10-Q as set forth in the pages
attached hereto:
ITEM 1. FINANCIAL STATEMENTS
Pages 3 to 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Pages 12 to 14
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.
JMB INCOME PROPERTIES, LTD. - VII
By: JMB Realty Corporation
Managing General Partner
By: GAILEN J. HULL
Gailen J. Hull, Senior Vice President
and Principal Accounting Officer
Dated: November 17, 1995
<TABLE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
JMB INCOME PROPERTIES, LTD. - VII
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1995 AND DECEMBER 31, 1994
(UNAUDITED)
ASSETS
------
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents (note 1). . . . . . . . . . . . . . . . . . . . . . . . $ 5,622,273 3,483,861
Short-term investments (note 1) . . . . . . . . . . . . . . . . . . . . . . . . . 976,599 1,956,495
Interest, rents and other receivables . . . . . . . . . . . . . . . . . . . . . . 809,962 1,011,048
Prepaid expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,606 18,412
Escrow deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 835,801 798,114
------------ -----------
Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . 8,257,241 7,267,930
------------ -----------
Investment properties, at cost (note 2):
Land. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,394,540 1,394,540
Buildings and improvements. . . . . . . . . . . . . . . . . . . . . . . . . . . . 59,170,801 59,101,445
------------ -----------
60,565,341 60,495,985
Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . 37,564,853 35,834,904
------------ -----------
Total investment properties,
net of accumulated depreciation . . . . . . . . . . . . . . . . . . . . 23,000,488 24,661,081
Deferred expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,046,140 1,005,658
Accrued rents receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,956,903 2,056,774
Venture partners' deficit in venture. . . . . . . . . . . . . . . . . . . . . . . . . 2,425,875 2,219,108
------------ -----------
$ 36,686,647 37,210,551
============ ===========
JMB INCOME PROPERTIES, LTD. - VII
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
CONSOLIDATED BALANCE SHEETS - CONTINUED
LIABILITIES AND PARTNERS' CAPITAL ACCOUNTS (DEFICITS)
-----------------------------------------------------
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------- -----------
Current liabilities:
Current portion of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . $ 12,628,701 12,603,179
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,110,457 1,031,081
Accrued interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 281,695 284,080
Accrued real estate taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,774,546 2,175,872
------------ -----------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . 16,795,399 16,094,212
Tenant security deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133,829 92,429
Long-term debt, less current portion. . . . . . . . . . . . . . . . . . . . . . . . . 20,832,367 21,059,132
------------ -----------
Commitments and contingencies (notes 2, 3 and 4)
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,761,595 37,245,773
------------ -----------
Venture partners' subordinated equity in venture. . . . . . . . . . . . . . . . . . . 1,658,547 1,961,141
Partners' capital accounts (deficits):
General partners:
Capital contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000 1,000
Cumulative net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,067,857 1,081,208
Cumulative cash distributions . . . . . . . . . . . . . . . . . . . . . . . . . (7,964,817) (7,924,480)
------------ -----------
(6,895,960) (6,842,272)
------------ -----------
Limited partners (60,505 interests):
Capital contributions, net of offering costs. . . . . . . . . . . . . . . . . . 54,676,276 54,676,276
Cumulative net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49,347,476 49,667,890
Cumulative cash distributions . . . . . . . . . . . . . . . . . . . . . . . . . (99,861,287) (99,498,257)
------------ -----------
4,162,465 4,845,909
------------ -----------
Total partners' capital accounts (deficits) . . . . . . . . . . . . . . . (2,733,495) (1,996,363)
------------ -----------
$ 36,686,647 37,210,551
============ ===========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
JMB INCOME PROPERTIES, LTD. - VII
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(UNAUDITED)
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
-------------------------- --------------------------
1995 1994 1995 1994
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Income:
Rental income . . . . . . . . . . . . . . . . . . . . . . $ 2,743,523 2,690,608 8,349,242 8,103,135
Interest income . . . . . . . . . . . . . . . . . . . . . 89,112 74,966 263,361 175,408
----------- ---------- ----------- ----------
2,832,635 2,765,574 8,612,603 8,278,543
----------- ---------- ----------- ----------
Expenses:
Mortgage and other interest . . . . . . . . . . . . . . . 938,499 943,593 2,823,183 2,842,756
Depreciation. . . . . . . . . . . . . . . . . . . . . . . 576,590 575,190 1,729,949 1,725,570
Property operating expenses . . . . . . . . . . . . . . . 1,477,851 1,371,612 4,283,826 4,198,433
Professional services . . . . . . . . . . . . . . . . . . -- -- 56,354 56,814
Amortization of deferred expenses . . . . . . . . . . . . 47,353 44,937 147,278 134,611
General and administrative. . . . . . . . . . . . . . . . 21,497 19,687 72,164 73,252
----------- ---------- ----------- ----------
3,061,790 2,955,019 9,112,754 9,031,436
----------- ---------- ----------- ----------
Operating loss. . . . . . . . . . . . . . . . . . 229,155 189,445 500,151 752,893
Venture partners' share of
ventures' operations. . . . . . . . . . . . . . . . . . . (82,240) (60,662) (166,386) (222,891)
----------- ---------- ----------- ----------
Net loss. . . . . . . . . . . . . . . . . . . . . $ 146,915 128,783 333,765 530,002
=========== ========== =========== ==========
Net loss per limited
partnership interest. . . . . . . . . . . . . . $ 2.34 2.04 5.30 8.41
=========== ========== =========== ==========
Cash distributions per
limited partnership
interest. . . . . . . . . . . . . . . . . . . . $ 2.00 2.00 6.00 6.00
=========== ========== =========== ==========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
JMB INCOME PROPERTIES, LTD. - VII
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(UNAUDITED)
<CAPTION>
1995 1994
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (333,765) (530,002)
Items not requiring (providing) cash or cash equivalents:
Depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,729,949 1,725,570
Amortization of deferred expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 147,278 134,611
Amortization of discounts on long-term debt . . . . . . . . . . . . . . . . . . . . . . 160,791 149,288
Venture partners' share of ventures' operations . . . . . . . . . . . . . . . . . . . . (166,386) (222,891)
Changes in:
Interest, rents and other receivables . . . . . . . . . . . . . . . . . . . . . . . . . 300,957 24,710
Prepaid expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,806 (37,701)
Escrow deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (37,687) 147,074
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79,376 (61,095)
Accrued interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,385) (2,181)
Accrued real estate taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 598,674 (384,695)
Tenant security deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,400 (38,676)
------------ -----------
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . 2,524,008 904,012
------------ -----------
Cash flows from investing activities:
Net sales and maturities (purchases) of short-term investments. . . . . . . . . . . . . . 979,896 (250,161)
Additions to investment properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . (69,356) (291,886)
Payment of deferred expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (187,760) (263,967)
------------ -----------
Net cash provided by (used in) investing activities . . . . . . . . . . . . . . . 722,780 (806,014)
------------ -----------
JMB INCOME PROPERTIES, LTD. - VII
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
1995 1994
------------ -----------
Cash flows from financing activities:
Principal payments on long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . (362,034) (331,160)
Distributions to venture partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . (342,975) (279,829)
Distributions to limited partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . (363,030) (363,030)
Distributions to general partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . (40,337) (40,337)
------------ -----------
Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . (1,108,376) (1,014,356)
------------ -----------
Net increase (decrease) in cash and cash equivalents. . . . . . . . . . . . . . . 2,138,412 (916,358)
Cash and cash equivalents, beginning of year. . . . . . . . . . . . . . . . . . . 3,483,861 1,386,270
------------ -----------
Cash and cash equivalents, end of period. . . . . . . . . . . . . . . . . . . . . $ 5,622,273 469,912
============ ===========
Supplemental disclosure of cash flow information:
Cash paid for mortgage and other interest . . . . . . . . . . . . . . . . . . . . . . . . $ 2,664,777 2,695,649
============ ===========
Non-cash investing and financing activities . . . . . . . . . . . . . . . . . . . . . . . $ -- --
============ ===========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
JMB INCOME PROPERTIES, LTD. - VII
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995 AND 1994
Readers of this report should refer to the Partnership's audited
financial statements for the year ended December 31, 1994 which are
included in the Partnership's 1994 Annual Report, as certain footnote
disclosures which would substantially duplicate those contained in such
audited financial statements have been omitted from this report.
(1) BASIS OF ACCOUNTING
The accompanying consolidated financial statements include the
accounts of the Partnership and its ventures, One Woodfield Lake
("Woodfield"), Westdale Associates ("Westdale") and Properties Partners.
The effect of all transactions between the Partnership and the ventures has
been eliminated.
The Partnership's records are maintained on the accrual basis of
accounting as adjusted for Federal income tax reporting purposes. The
accompanying consolidated financial statements have been prepared from such
records after making appropriate adjustments to reflect the Partnership's
accounts in accordance with generally accepted accounting principles
("GAAP") and to consolidate the accounts of the ventures as described
above. Such adjustments are not recorded on the records of the
Partnership. The net effect of these items for the nine months ended
September 30, 1995 and 1994 is summarized as follows:
<TABLE>
<CAPTION>
1995 1994
----------------------- -------------------------
GAAP BASIS TAX BASIS GAAP BASIS TAX BASIS
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Net loss. . . . . . . . $333,765 96,981 530,002 263,804
Net loss
per limited
partnership
interest . . . . . . . $ 5.30 1.54 8.41 4.19
======== ======= ======= =======
</TABLE>
The net loss per limited partnership interest is based upon the
limited partnership interests outstanding at the end of each period
(60,505). Deficit capital accounts will result, through the duration of
the Partnership, in net gain for financial reporting and Federal income tax
reporting purposes.
The Partnership records amounts held in U.S. Government obligations at
cost, which approximates market. For the purposes of these statements, the
Partnership's policy is to consider all such amounts held with original
maturities of three months or less ($4,084,061 and $2,644,833 at September
30, 1995 and December 31, 1994, respectively) as cash equivalents with any
remaining amounts (generally with maturities of one year or less) reflected
as short-term investments being held to maturity.
No provision for State or Federal income taxes has been made as the
liability for such taxes is that of the partners rather than the
Partnership. However, in certain instances, the Partnership has been
required under applicable law to remit directly to the tax authorities
amounts representing withholding from distributions paid to partners.
JMB INCOME PROPERTIES, LTD. - VII
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(2) VENTURE AGREEMENTS
(a) General
The Partnership at September 30, 1995 is currently a party to two
operating joint venture agreements which acquired one office building and
one regional shopping center. Under certain circumstances, either pursuant
to the venture agreements or due to the Partnership's obligations as a
general partner, the Partnership may be required to make additional cash
contributions to the ventures.
There are certain risks associated with the Partnership's investments
made through joint ventures including the possibility that the
Partnership's joint venture partners in an investment might become unable
or unwilling to fulfill their financial or other obligations, or that such
joint venture partners may have economic or business interests or goals
that are inconsistent with those of the Partnership.
(b) One Woodfield Lake
The Partnership owns an 80% general partnership interest in an
existing joint venture whose sole investment is an office building in
Schaumburg, Illinois. The venture agreement, as amended, provides that the
Partnership has a cumulative annual preference in the distribution of net
cash receipts (as defined) of $546,000. The next $136,500 of annual net
cash receipts is to be distributed to the venture partners; any remaining
net cash receipts are to be distributed 80% to the Partnership and 20% to
the venture partners. As of September 30, 1995 cumulative preference
payments to the Partnership are in arrears in the amount of $4,996,000.
The venture agreement provides that operating deficits are scheduled
to be funded 80% by the Partnership and 20% by the joint venture partner
with the repayment of such contributions (as defined) prior to the
distributions of the cumulative annual preferences of net cash receipts.
Operating profits and losses are allocated 80% to the Partnership and 20%
to the joint venture partner.
The long-term mortgage loan secured by the property matured on
September 1, 1995. The joint venture has negotiated an agreement in
principle with the mortgage lender regarding an extension of the maturity
date of the mortgage loan until September 1, 1998. Though the monthly
mortgage loan payments are expected to decline as a result of this
agreement in principle, any excess cash flow, as defined, must be escrowed
at the property for future deficits and capital improvements. The joint
venture is current in its payments to the mortgage lender under the
agreement in principle as of the date of this report. There can be no
assurance that this extension of the mortgage loan will be finalized. As
the leases of existing tenants expire, there will likely be a negative
impact on cash flow due to the downward pressure on net effective market
rental rates. The joint venture may decide not to commit any significant
additional amounts of capital to this property due to the fact that
recovery of such amounts is uncertain. Although the property currently
produces sufficient cash flow to fund the mortgage loan under the proposed
terms, upon any significant decline in future operating cash flow, or if
the aforementioned mortgage loan extension is not finalized, and if the
joint venture decides not to commit additional funds to the property, the
mortgage lender would likely realize on its security and the joint venture
would no longer have an ownership interest in the property. In such event,
the joint venture would recognize a gain for financial reporting and
Federal income tax purposes without any net realizable proceeds.
JMB INCOME PROPERTIES, LTD. - VII
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(c) Westdale
During September 1980, the Partnership acquired, through a joint
venture partnership with the seller, an interest in Westdale Mall shopping
center. The venture agreement provides that the first $1,267,500 of annual
net cash receipts shall be distributed 64.7% to the Partnership and 35.3%
to the venture partner; all remaining annual net cash receipts are to be
distributed 45.5% to the Partnership, 24.8% to the venture partner and
29.7% to the ground lessor as additional rent. The Partnership has a
preferred position (related to the Partnership's cash investment in the
venture) with respect to distributions of sale or refinancing proceeds from
the venture, after payment to the ground lessor of the amounts entitled
under the lease. As required by the venture agreement, any deficit from
operations is to be funded 45.5% by the Partnership and 54.5% by the
venture partner.
Venture operating profits and losses are allocated 64.7% to the
Partnership and 35.3% to the venture partner.
(3) PARTNERSHIP AGREEMENT
Pursuant to the terms of the Partnership Agreement, net profits or
losses of the Partnership from operations are allocated 96% to the Limited
Partners and 4% to the General Partners. Profits from the sale or
refinancing of investment properties are to be allocated to the General
Partners to the greater of 1% of such profits or the amount of cash
distributable to the General Partners from any such sale or refinancing (as
described below). Losses from the sale or refinancing of investment
properties are to be allocated 1% to the General Partners. The remaining
sale or refinancing profits and losses will be allocated to the Limited
Partners.
An amendment to the Partnership Agreement, effective January 1, 1991,
generally provides that notwithstanding any allocation contained in the
Agreement, if at any time profits are realized by the Partnership, any
current or anticipated event that would cause the deficit balance in
absolute amount in the Capital Account of the General Partners to be
greater than their share of the Partnership's indebtedness (as defined)
after such event, then the allocation of profits to the General Partners
shall be increased to the extent necessary to cause the deficit balance in
the Capital Account of the General Partners to be no less than their
respective shares of the Partnership's indebtedness after such event. In
general, the effect of this amendment is to allow the deferral of the
recognition of taxable gain to the Limited Partners.
The General Partners are not required to make any capital contribu-
tions except under certain limited circumstances upon termination of the
Partnership. Distributions of "cash flow" of the Partnership are allocated
90% to the Limited Partners and 10% to the General Partners. However,
portions of such distributions to the General Partners are subordinated to
the Limited Partners' receipt of a stipulated return on capital.
JMB INCOME PROPERTIES, LTD. - VII
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONCLUDED
The Partnership Agreement provides that the General Partners shall
receive as a distribution from the sale of a real property by the
Partnership an amount equal to 3% of the selling price, and that the
remaining proceeds (net after expenses and retained working capital) be
distributed 85% to the Limited Partners and 15% to the General Partners.
However, the Limited Partners shall receive 100% of such net sale proceeds
until the Limited Partners (i) have received cash distributions of sale or
refinancing proceeds in an amount equal to the Limited Partners' aggregate
initial capital investment in the Partnership and (ii) have received
cumulative cash distributions from the Partnership's operations which, when
combined with sale or refinancing proceeds previously distributed, equal a
6% annual return on the Limited Partners' average capital investment for
each year (their initial capital investment as reduced by sale or
refinancing proceeds previously distributed) commencing with the fourth
fiscal quarter of 1980. Two-thirds of the 3% General Partner distribution
discussed above is further subordinated to the Limited Partners receiving
out of sales proceeds an amount equal to 110% of their initial capital
investment in the Partnership. The Limited Partners have received cash
distributions that satisfied the requirements in (i) and (ii) above. Also,
the Limited Partners have received an amount equal to 110% of their initial
capital investment with the August 1993 cash distribution. Therefore,
approximately $4,500,000 of sale proceeds have been distributed to the
General Partners pursuant to the distribution levels described above.
(4) TRANSACTIONS WITH AFFILIATES
Fees, commissions and other expenses required to be paid by the
Partnership to the General Partners and their affiliates as of September
30, 1995 and for the nine months ended September 30, 1995 and 1994 are as
follows:
<TABLE>
<CAPTION>
Unpaid at
September 30,
1995 1994 1995
------ ------ -------------
<S> <C> <C> <C>
Reimbursement (at cost) for
out-of-pocket expenses. . . . . . $3,557 11,070 --
====== ====== =======
</TABLE>
The Managing General Partner of the Partnership has determined to use
independent third parties to perform certain administrative services
beginning in the fourth quarter of 1995. Use of such third parties is not
expected to have a material effect on the operations of the Partnership.
(5) ADJUSTMENTS
In the opinion of the Managing General Partner, all adjustments
(consisting solely of normal recurring adjustments) necessary for a fair
presentation have been made to the accompanying figures as of September 30,
1995 and for the three and nine months ended September 30, 1995 and 1994.
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
All references to "Notes" are to Notes to Consolidated Financial
Statements contained in this report.
At September 30, 1995, the Partnership and its consolidated ventures
had cash and cash equivalents of approximately $5,622,000 and short-term
investments of approximately $976,600. Such funds are available for
distributions to partners and for working capital requirements including
costs to be incurred for capital additions and tenant improvements at
Westdale Mall and the Partnership's portion of tenant improvement costs
which may be incurred at One Woodfield Lake. The Partnership and its
consolidated ventures have currently budgeted in 1995 approximately
$991,000 for tenant improvements and other capital expenditures primarily
at Westdale Mall (approximately $70,000 has been incurred at September 30,
1995). The Partnership's share of such items in 1995 is currently budgeted
to be approximately $466,000. Actual amounts expended may vary depending
on a number of factors including actual leasing activity, results of
property operations, liquidity considerations and other market conditions
over the course of the year. The sources of capital (in addition to the
cash and cash equivalents and short-term investments noted above) for such
items and for both short-term and long-term future liquidity and distribu-
tions are expected to be through net cash generated by the Partnership's
investment properties and through the sale of such investments. However,
the Partnership does not consider the One Woodfield Lake investment
property to be a significant source of short or long-term liquidity. In
such regard, reference is made to the Partnership's property specific
discussion below. The Partnership and its ventures' mortgage obligations
are all non-recourse. Therefore, the Partnership and its ventures are not
obligated to pay mortgage indebtedness unless the related property produces
sufficient net cash flow from operations or sale.
The One Woodfield Lake building currently operates in a market which
is characterized by lower than normal occupancies and reduced net effective
rent levels. Such competitive conditions resulted in operating deficits
during prior periods though the property is now generating a positive
nominal cash flow. The long-term mortgage loan secured by the property
matured on September 1, 1995. The joint venture has negotiated an
agreement in principle with the mortgage lender regarding an extension of
the maturity date of the mortgage loan until September 1, 1998. Though the
monthly mortgage loan payments are expected to decline as a result of this
agreement in principle, any excess cash flow, as defined, must be escrowed
at the property for future deficits and capital improvements. The joint
venture is current in its payments to the mortgage lender under the
agreement in principle as of the date of this report. There can be no
assurance that this extension of the mortgage loan will be finalized. As
the leases of existing tenants expire, there will likely be a negative
impact on cash flow due to the downward pressure on net effective market
rental rates. The joint venture may decide not to commit any significant
additional amounts of capital to this property due to the fact that
recovery of such amounts is uncertain. Although the property currently
produces sufficient cash flow to fund the mortgage loan under the proposed
terms, upon any significant decline in future operating cash flow, or if
the aforementioned mortgage loan extension is not finalized, and if the
joint venture decides not to commit additional funds to the property, the
mortgage lender would likely realize on its security and the joint venture
would no longer have an ownership interest in the property. In such event,
the joint venture would recognize a gain for financial reporting and
Federal income tax purposes without any net realizable proceeds.
Although the area surrounding the Westdale Mall in Cedar Rapids, Iowa
has shown some signs of commercial and residential growth, the mall
continues to operate in a very competitive retail environment. Currently,
as leases at Westdale Mall expire, lease renewals and new leases are likely
to be at rental rates equal to or slightly below rates on existing leases.
In addition, new leases will likely require expenditures for lease
commissions and tenant improvements prior to tenant occupancy. This
anticipated decline in rental rates, an anticipated increase in re-leasing
time and the costs upon re-leasing will result in a decrease in cash flow
from operations over the near term. The joint venture is also evaluating
the competitive positioning of this property in its market. The joint
venture intends to provide the resources necessary for the manager of the
mall to continue to attract new tenants.
There are certain risks associated with the Partnership's investments
made through joint ventures including the possibility that the
Partnership's joint venture partners in an investment might become unable
or unwilling to fulfill their financial or other obligations, or that such
joint venture partners may have economic or business interests or goals
that are inconsistent with those of the Partnership.
While the real estate markets are recuperating, highly competitive
market conditions continue to exist in most locations. The Partnership's
approach has been to aggressively and creatively manage the Partnership's
real estate assets to attract and retain tenants. Net effective rents to
the landlord from renewal tenants are much more favorable than lease terms
which can be negotiated with new tenants. However, the Partnership's
capital resources must also be preserved and allocated in such a manner as
to maximize the total value of the portfolio. As a result of the real
estate market conditions discussed above, the Partnership continues to
conserve its working capital. All expenditures are carefully analyzed and
certain capital projects are deferred when appropriate. In an effort to
reduce Partnership operating expenses, the Partnership is likely to make
semi-annual rather than quarterly distributions of operating cash flow
beginning in May 1996. By conserving working capital, the Partnership
will be in a better position to meet the future needs of its properties
since outside sources of capital may be limited. Due to these factors, the
Partnership has held certain of its investment properties longer than
originally anticipated in an effort to maximize the return to the Limited
Partners. After reviewing the remaining properties and their competitive
marketplace, the General Partners of the Partnership intend to liquidate
the remaining assets as quickly as practicable. Therefore, the affairs of
the Partnership are expected to be wound up no later than 1999 (sooner if
the properties are sold or disposed of in the nearer term), barring
unforeseen economic developments.
RESULTS OF OPERATIONS
The increase in cash and cash equivalents and the decrease in short-
term investments at September 30, 1995 as compared to December 31, 1994 is
primarily due to a decrease in the Partnership's investments in U.S.
Government obligations being classified as short-term investments at
September 30, 1995. Reference is made to Note 1.
The decrease in interest, rents and other receivables at September 30,
1995 as compared to December 31, 1994 is primarily due to the 1995 receipt
of certain 1994 escalations from tenants at the Westdale investment
property.
The increase in escrow deposits and accrued real estate taxes at
September 30, 1995 as compared to December 31, 1994 is primarily due to the
timing of payments of real estate taxes at the Partnership's investment
properties.
The increase in tenant security deposits at September 30, 1995 as
compared to December 31, 1994 is primarily due to increased occupancy in
1995 at the Westdale Mall investment property.
The increase in rental income for the three and nine months ended
September 30, 1995 as compared to the same periods in 1994 is primarily due
to the increase in occupancy in 1995 at the Westdale Mall investment
property.
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The increase in interest income for the three and nine months ended
September 30, 1995 as compared to the same periods in 1994 is primarily due
an increase in the Partnership's average investment balance and to the
higher yields received in 1995 related to investments in interest-bearing
U.S. Government obligations held by the Partnership.
The increase in venture partner's share of ventures' loss from
operations for the three months ended September 30, 1995 as compared to the
same period in 1994 is primarily due to increased repair and maintenance
expenses at the Westdale investment property.
The decrease in venture partners' share of ventures' loss from
operations for the nine months ended September 30, 1995 as compared to the
same period in 1994 is primarily due to increased rental income resulting
from the increase in occupancy at the Westdale investment property.
