SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K405/A
AMENDMENT NO. 1
Filed pursuant to Section 12, 13, or 15(d) of the
Securities Exchange Act of 1934
JMB INCOME PROPERTIES, LTD. - VII
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(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 the year ended December 31, 1997 on Form 10-K405 as set forth in
the pages attached hereto:
PART II
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations. Pages 11 through 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
GAILEN J. HULL
By: Gailen J. Hull
Senior Vice President
Dated: May 6, 1998
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
As a result of the public offering of Interests as described in Item
1, the Partnership had approximately $54,700,000 (after deducting selling
expenses and other offering costs) with which to make investments in
income-producing commercial and residential real property, to pay legal
fees and other costs (including acquisition fees) related to such
investments and for working capital reserves. A portion of such proceeds
was utilized to acquire the properties described in Item 1 above.
During 1996, 1997 and 1998, some of the Limited Partners in the
Partnership received from unaffiliated third parties unsolicited tender
offers to purchase up to 4.9% of the Interests in the Partnership at
amounts ranging from $70 to $200 per Interest. The Partnership recommended
against acceptance of these offers on the basis that, among other things,
the offer price was inadequate. Such offers have expired with the
exception of one which is currently scheduled to expire in April 1998. As
of the date of this report, the Partnership is aware that, in the
aggregate, 9.16% of the outstanding Interests have been purchased by such
unaffiliated third parties either pursuant to such tender offers or through
negotiated purchases. In addition, it is possible that other offers for
Interests may be made by unaffiliated third parties in the future,
although, there is no assurance that any other third party will commence an
offer for Interests, the terms of any such offer or whether any such offer,
if made, will be consummated, amended or withdrawn. The board of directors
of JMB Realty Corporation ("JMB"), the managing general partner of the
Partnership, has established a Special Committee (the "Special Committee")
consisting of certain directors of JMB to deal with all matters relating to
tender offers for Interests in the Partnership, including any and all
responses to such tender offers. The Special Committee has retained
independent counsel to advise it in connection with any potential tender
offers for Interests and has retained Lehman Brothers Inc. as financial
advisor to assist the Special Committee in evaluating and responding to any
additional potential tender offers for Interests.
At December 31, 1997, the Partnership and its consolidated venture had
cash and cash equivalents of approximately $10,765,000. Of this amount,
$3,569,500 and $1,115,054 was distributed to the limited and general
Partners, respectively, in February 1998 as proceeds on the redemption in
October 1997 of the Partnership's interest in the One Woodfield Lake
limited partnership. Such remaining funds are available for distributions
to partners and for working capital requirements including costs expected
to be incurred for capital additions and tenant improvements at Westdale
Mall. The Partnership and its consolidated venture has currently budgeted
in 1998 approximately $600,000 for tenant improvements and other capital
expenditures at Westdale Mall, as discussed below. The Partnership's share
of such items in 1998 is currently budgeted to be approximately $400,000.
Actual amounts expended may vary depending on a number of factors including
actual leasing activity, results of property operations, the extent of
unaffiliated venture partner compliance with its obligation to share in the
funding of such requirements as discussed below, liquidity considerations
and other market conditions over the course of the year. The sources of
capital (in addition to the cash and cash equivalents 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
remaining investment property and through the sale of such investment.
Reference is made to the Partnership's property specific discussions below.
The Partnership and its venture's mortgage obligations are all non-
recourse.
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ONE WOODFIELD LAKE
The Partnership had committed to a plan to sell its interest in the
property, and therefore, had classified the property as held for sale or
disposition as of December 31, 1996. On October 10, 1997, the Partnership
sold its interest to its unaffiliated venture partner. Reference is made
to the Notes for a further description of such transaction.
WESTDALE MALL
The mall continues to operate in a very competitive retail environment
which may adversely affect the operations of Westdale Mall due to various
circumstances. Montgomery Wards, which owns a store adjacent to Westdale
Mall, recently filed for bankruptcy, and it is unknown at this time whether
its store will continue to operate. Econofoods, which occupies 48,400
square feet of space on the periphery of the site, has announced it will
open a new, larger store in an open air center across the street from
Westdale Mall; therefore, the Partnership believes that tenant will likely
not renew its lease upon expiration in July 2000. The operator of the
cinema at Westdale Mall has also announced its intention to open a 12-
screen multiplex cinema in a nearby development. Furthermore, it is
expected that Westdale Mall will be subject to greater competition in the
future, particularly from a new shopping center that is scheduled to open
later this year approximately 20 miles from Westdale Mall. During 1997,
occupancy increased to 94%, 14% of which is leased to tenants on a month-
to-month basis. As leases 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
commission 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 Partnership is also evaluating
certain capital improvement projects and the competitive positioning of
this property in its market. The joint venture intends to allocate the
resources necessary for the manager of the mall to continue to attract new
tenants, subject to working capital sources and reserves. In addition, the
Partnership has committed to a plan to sell the property or its interest in
the property, and therefore, has classified the property as held for sale
or disposition as of December 31, 1996. The property has not been subject
to continued depreciation as of such date.
The Gap, a retail store located in the mall, was provided with a
tenant allowance of $370,440 in consideration for the renewal of its lease.
The unaffiliated venture partner in the joint venture elected not to
contribute its share of this tenant allowance. The Partnership, in order
to retain this tenant, funded $277,830 of the $370,440 tenant allowance as
of December 31, 1997 and the remaining $92,610 in early 1998. The tenant
allowance contribution of $370,440, plus 15% simple interest per annum, has
been added to the Partnership's preferred position from any future sales
proceeds pursuant to the Westdale venture agreement.
GENERAL
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, business interests or goals that
are inconsistent with those of the Partnership.
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 elected to make semi-annual rather than quarterly distributions
of operating cash flow commencing with the 1996 distributions. The
Partnership has also sought loan modifications where appropriate. By
conserving working capital, the Partnership will be in a better position to
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meet the future needs of its remaining property since the availability of
satisfactory outside sources of capital may be limited given the
portfolio's current debt levels. Due to these factors, the Partnership has
held its remaining investment property longer than originally anticipated
in an effort to maximize the return to the Limited Partners. However,
after reviewing the remaining property and the marketplace in which it
operates, the General Partners of the Partnership expect to be able to
conduct an orderly liquidation of this remaining investment as quickly as
practicable. Therefore, the affairs of the Partnership are expected to be
wound up no later than December 31, 1999, barring unforeseen economic
developments.
RESULTS OF OPERATIONS
Significant fluctuations in the accompanying consolidated financial
statements not otherwise reported are primarily due to the redemption on
October 10, 1997 of the Partnership's interest in the One Woodfield Lake
Limited Partnership.
The increase in cash and cash equivalents at December 31, 1997 as
compared to December 31, 1996 was primarily due to the retention and
investment of proceeds from the October redemption of One Woodfield Lake,
as discussed above.
The increase in interest, rents and other receivables at December 31,
1997 as compared to December 31, 1996 is primarily due to the timing of
rental collections at the Westdale Mall.
The increase in venture partners' subordinated equity in venture at
December 31, 1997 as compared to December 31, 1996 is primarily due to no
additional depreciation expense being incurred on the Westdale Mall
investment property as a result of the property being classified as "held
for sale or disposition" in accordance with SFAS 121 on December 31, 1996,
and therefore, is not subject to continued depreciation as of that date.
In addition to Westdale Mall, One Woodfield Lake investment property was
also classified as "held for sale or disposition" on December 31, 1996.
Accordingly, the decreases in depreciation expense and venture partners'
share of venture's operations for the year ended December 31, 1997 as
compared to the year ended December 31, 1996 is primarily due to no further
depreciation expense being incurred on these properties.
The decrease in rental income and the related increase in venture
partner's share of ventures' loss for 1996 as compared to 1995 is primarily
due to the write off in 1996 of previously accrued rents receivable due to
the 1996 extension and modification of a major tenant lease at the One
Woodfield Lake investment property.
The increase in interest income for the year ended December 31, 1996
as compared to the year ended December 31, 1995 is primarily due to an
increase in the Partnership's average investment balance in U.S. Government
obligations and other investments in 1996 and to the higher yields received
in 1996 related to these investments held by the Partnership.
The increase in professional services for the year ended December 31,
1996 as compared to the year ended December 31, 1995 is primarily due to
expenses incurred in connection with tender offer matters, as discussed
above.
The gain on redemption of Partnership's interest in investment
property for the year ended December 31, 1997 is due to the sale of the
Partnership's interest in the One Woodfield Lake office building on
October 10, 1997.
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INFLATION
Due to the decrease in the level of inflation in recent years,
inflation generally has not had a material effect on rental income or
property operating expenses.
Inflation is not expected to significantly impact future operations
due to the expected liquidation of the Partnership by 1999. However, to
the extent that inflation in future periods would have an adverse impact on
property operating expenses, the effect would generally be offset by
amounts recovered from tenants as many of the long-term leases at the
Partnership's remaining property have escalation clauses covering increases
in the cost of operating and maintaining the property as well as real
estate taxes. Therefore, there should be little effect on operating
earnings if the property remains substantially occupied. In addition,
substantially all of the leases at the Partnership's remaining property
contain provisions which entitle the Partnership to participate in gross
receipts of tenants above fixed minimum amounts.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
