UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 0-10222
QUALIFIED PROPERTIES 80, L.P.
(formerly Hutton/GSH Qualified Properties 80)
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Exact name of registrant as specified in its charter
Virginia 13-3046808
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State or other jurisdiction of I.R.S. Employer Identification No.
incorporation or organization
3 World Financial Center, 29th Floor
New York, New York ATTN: Andre Anderson 10285
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Address of principal executive offices zip code
Registrant's telephone number, including area code: (212) 526-3237
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
-------------------------------------
Title of Class
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. X
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Documents Incorporated by Reference:
Portions of Prospectus of Registrant dated October 10, 1980 (included in
Amendment No. 2 to Registration Statement, No. 2-67908, of Registrant filed
October 10, 1980) are incorporated by reference into Part III.
Portions of Parts I, II, III and IV are incorporated by reference to the
Partnership's Annual Report to Unitholders for the year ended December 31,
1996 filed as an exhibit under Item 14.
PART I
Item 1. Business
(a) General Development of Business
Qualified Properties 80, L.P. (the "Registrant" or the "Partnership") (formerly
Hutton/GSH Qualified Properties 80, L.P.) is a Virginia limited partnership
formed on January 13, 1981, of which QP80 Real Estate Services Inc. ("QP80
Services"), formerly Hutton Real Estate Services, Inc. (See Item 10 "Certain
Matters Involving Affiliates of QP80 Services) and HS Advisors, Ltd. ("HS
Advisors"), are the general partners (the "General Partners"). The Partnership
was originally formed to acquire, operate and hold for investment the following
five commercial properties (the "Properties" or individually a "Property"):
Diamond Springs Warehouse Facility ("Diamond Springs"), a warehouse located in
Virginia Beach, Virginia; 959 Ridgeway Office Building, a two-story office
building located in Memphis, Tennessee; 889 Ridgelake Office Building, a
three-story office building located in Memphis, Tennessee; Swenson Business
Park - Building A, a one-story research and development facility located in San
Jose, California; and Stevens Creek Office Building, a class-A office property
located in San Jose, California. The Partnership does not plan to invest in
any additional properties.
Diamond Springs was sold on March 1, 1995 for a gross sales price, including
non-refundable extension fees, of $3,195,000 resulting in net proceeds to the
Partnership of $2,978,654, excluding the extension fees in the amount of
$70,000. Additional information regarding the sale is incorporated by
reference to Note 4 "Real Estate Investments" of the Notes to the Consolidated
Financial Statements contained in the Partnership's Annual Report to
Unitholders for the year ended December 31, 1996 filed as an exhibit under Item
14.
Additional information regarding the historical development of business is
incorporated by reference to Note 1 "Organization" and Note 4 "Real Estate
Investments" of the Notes to the Consolidated Financial Statements in the
Partnership's Annual Report to Unitholders for the year ended December 31, 1996
filed as an exhibit under Item 14.
(b) Financial Information About Industry Segment
The Partnership's sole business is the ownership and operation of the
Properties. All of the Partnership's revenues, operating profits or losses and
assets relate solely to such industry segment.
(c) Narrative Description of Business
The Partnership's principal investment objectives with respect to the
Properties (in no particular order of priority) are:
- - Capital appreciation;
- - Distributions of Net Cash From Operations attributable to rental
income;
- - Preservation and protection of capital and;
- - Equity build-up through principal reduction of mortgage loans, if any,
on the Properties.
Distributions of Net Cash From Operations will be the Partnership's objective
during its operational phase, while the preservation and appreciation of
capital will be the Partnership's long-term objectives. The attainment of the
Partnership's investment objectives will depend on many factors, including
successful management of the operations of the Properties. Future economic
conditions in the United States as a whole and, in particular, in Memphis,
Tennessee and San Jose, California, where the remaining Properties are located,
will also be important factors, especially with regard to the achievement of
capital appreciation.
The Partnership expects to market Swenson Business Park - Building A and
Stevens Creek Office Building for sale during 1997. No Property will be sold,
financed or refinanced by the Partnership without the agreement of both General
Partners. Proceeds from any future sale, financing or refinancing of the
Properties will not be reinvested but will be distributed to the Partners, so
that the Partnership will, in effect, be self-liquidating. As partial payment
for Properties sold, the Partnership may receive purchase money obligations
collateralized by mortgages or deeds of trust. In such cases, the amount of
such obligations will not be included in Net Proceeds From Sale or Refinancing
(distributable to the Partners) until and to the extent the obligations are
realized in cash, sold or otherwise liquidated.
Additional information is incorporated by reference to Note 1 "Organization"
and Note 4 "Real Estate Investments" of the Notes to the Consolidated Financial
Statements contained in the Partnership's Annual Report to Unitholders for the
year ended December 31, 1996 filed as an exhibit under Item 14.
(d) Competition
Incorporated by reference to the section entitled "Property Profiles &
Leasing Update" in the Partnership's Annual Report to Unitholders for the
year ended December 31, 1996 filed as an exhibit under Item 14.
(e) Employees
The Partnership has no employees.
Item 2. Properties
Description of Properties and material leases incorporated by reference to the
section entitled "Property Profiles & Leasing Update" and Note 4 "Real Estate
Investments" and Note 6 "Rental Income Under Operating Leases" of the Notes to
the Consolidated Financial Statements in the Partnership's Annual Report to
Unitholders for the year ended December 31, 1996, filed as an exhibit under
Item 14.
Item 3. Legal Proceedings
Neither the Partnership nor any of the Properties is subject to any material
pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
During the fourth quarter of the year ended December 31, 1996, no matter was
submitted to a vote of security holders through the solicitation of proxies or
otherwise.
PART II
Item 5. Market for Registrant's Limited Partnership Units and Related
Unitholder Matters
(a) Market Information - An established public market for Interests does not
exist and is not likely to develop.
(b) Holders - As of December 31, 1996, the number of holders of Units was
1,978.
(c) Distributions Cash distributions paid to the Limited Partners for the two
years ended December 31, 1996 incorporated by reference to the section
entitled "Message to Investors" in the Partnership's Annual Report to the
Unitholders for the year ended December 31, 1996 filed as an exhibit under
Item 14.
Item 6. Selected Financial Data
Incorporated by reference to the Partnership's Annual Report to Unitholders for
the year ended December 31, 1996, which is filed as an exhibit under Item 14.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
- -------------------------------
The Partnership had cash and cash equivalents totaling $383,531 at December 31,
1996 compared with $1,062,602 at December 31, 1995. The decrease primarily
reflects cash distributions, real estate additions and mortgage principal
payments exceeding net cash provided by operating activities. The cash and cash
equivalents balance includes funds held as a working capital reserve to fund
tenant improvements and leasing commissions, in addition to cash generated from
operations. In addition, the Partnership had a restricted cash balance of
$187,237 at December 31, 1996, which is made up of funds reserved for property
tax payments.
Diamond Springs was sold on March 1, 1995 for a gross sales price, plus non-
refundable extension fees, totaling $3,195,000 million. The gain on
disposition of the property totaled $1,870,743.
Prepaid expenses totaled $500,469 at December 31, 1996 compared with $456,924
at December 31, 1995. The increase is primarily attributable to the
capitalization of leasing commissions for Stevens Creek Office Building
partially offset by the amortization of leasing commissions.
Accounts payable and accrued expenses totaled $265,809 at December 31, 1996
compared with $185,215 at December 31, 1995. The increase is largely due to an
accrued leasing commission resulting from the renewal of a major lease at
Stevens Creek Office Building during 1996.
For the year ended December 31, 1996, the Partnership declared cash
distributions to the Limited Partners totaling $35.20 per unit, including the
fourth quarter cash distribution of $6.50 per Unit which was paid on February
11, 1997. The timing and amount of future distributions will depend on several
factors, including the adequacy of rental income generated by current leases
and Partnership cash flow. Additional information pertaining to cash
distributions is incorporated by reference to the section entitled "Message to
Investors" in the Partnership's Annual Report to Unitholders for the year ended
December 31, 1996 filed as an exhibit under Item 14.
In light of the stable high occupancy rates at Swenson Business Park - Building
A and Stevens Creek Office Building, and improved conditions in San Jose,
California where the two properties are located, the General Partners have
recently engaged brokers to assist in marketing both properties for sale. As a
result of the possible pending sales, the properties were reclassified on the
consolidated balance sheet as of December 31, 1996 as "Real estate assets held
for disposition." However, there can be no assurance that the General Partners
will be successful in selling either property during 1997.
A discussion of leasing activity at all of the Partnership's properties is
incorporated by reference to the sections entitled "Message to Investors" and
"Property Profiles & Leasing Update" contained in the Partnership's Annual
Report to Unitholders for the year ended December 31, 1996 filed as an exhibit
under Item 14.
On March 15, 1996, based upon, among other things, the advice of legal counsel,
Skadden, Arps, Slate, Meagher & Flom, the General Partners adopted a resolution
that states, among other things, if a Change of Control (as defined below)
occurs, the General Partners may distribute the Partnership's cash balances not
required for its ordinary course of day-to-day operations. "Change of Control"
means any purchase or offer to purchase more than 10% of the Units that is not
approved in advance by the General Partners. In determining the amount of the
distribution, the General Partners may take into account all material factors.
In addition, the Partnership will not be obligated to make any distribution to
any partner and no partner will be entitled to receive any distribution until
the General Partners have declared the distribution and established a record
date and distribution date for the distribution.
Results of Operations
- ---------------------
1996 versus 1995
- ----------------
The Partnership's operations for the year ended December 31, 1996 resulted in
net income of $259,629 compared with $2,291,800 for the year ended December 31,
1995. The decrease is primarily attributable to the $1,870,743 gain recognized
in 1995 on the sale of Diamond Springs. Income before gain on sale of real
estate for the year ended December 31, 1996 was $259,629 compared to $421,057
for the year ended December 31, 1995. The decrease is due primarily to lower
interest and other income.
Rental income totaled $3,390,655 for the year ended December 31, 1996, compared
with $3,488,485 a year earlier. The decrease is primarily due to lower
occupancy at 959 Ridgeway Office Building and the sale of Diamond Springs.
Other income totaled $403,298 for the year ended December 31, 1996, compared
with $580,687 for the year ended December 31, 1995. The decrease is primarily
attributable to lower tenant reimbursable income at all of the Properties and
the sale of Diamond Springs Warehouse in 1995. Interest income decreased to
$19,441 for the year ended December 31, 1996 compared to $75,844 for the year
ended December 31, 1995, reflecting the Partnership's lower average cash
balances.
Property operating expenses totaled $1,706,859 for the year ended December 31,
1996, relatively unchanged from $1,651,942 for the year ended December 31,
1995. Depreciation and amortization decreased to $1,240,363 for the year ended
December 31, 1996 from $1,432,461 for the year ended December 31, 1995, largely
due to tenant improvements totaling $757,990 at Stevens Creek Office Building
becoming fully depreciated in 1995.
General and administrative expenses totaled $185,101 for the year ended
December 31, 1996 compared with $206,419 for the year ended December 31, 1995.
The decrease is primarily attributable to the payment in 1996 of 1995
distributions to the coventurers of Stevens Creek Boulevard Joint Venture.
As of December 31, 1996, lease levels at each of the Properties were as
follows: Swenson Business Park-Building A - 100%; 959 Ridgeway Office Building
- - 11%; Stevens Creek Office Building - 100% and 889 Ridgelake Office Building -
100%.
1995 versus 1994
- ----------------
The Partnership's operations resulted in net income of $2,291,800 for the year
ended December 31, 1995, compared with net income of $475,347 for the year
ended December 31, 1994. The increase was primarily attributable to the
$1,870,743 gain recognized on the sale of Diamond Springs.
Rental income totaled $3,488,485 for the year ended December 31, 1995, compared
with $3,736,211 a year earlier. The decrease was primarily due to the sale of
Diamond Springs, partially offset by higher rental income generated at 889
Ridgelake Office Building, Stevens Creek Office Building and Swenson Business
Park - Building A. Interest income increased to $75,844 for the year ended
December 31, 1995 compared to $52,955 for the year ended December 31, 1994,
reflecting higher interest rates earned on the Partnership's higher average
cash balances.
Property operating expenses totaled $1,651,942 for the year ended December 31,
1995, compared with $1,755,374 for the year ended December 31, 1994. The
decrease was primarily attributable to the acceleration of leasing commissions
in connection with the sale of Diamond Springs, lower repairs and maintenance
expenses at Stevens Creek Office Building and lower utility costs at Swenson
Business Park - Building A. Depreciation and amortization decreased to
$1,432,461 for the year ended December 31, 1995 from $1,536,864 for the year
ended December 31, 1994, largely reflecting the sale of Diamond Springs.
General and administrative expenses totaled $206,419 for the year ended
December 31, 1995 compared with $137,539 for the year ended December 31, 1994.
The increase was primarily attributable to the payment in 1995 of 1994
distributions to the coventurers of Stevens Creek Boulevard Joint Venture in
the amount of $63,379.
As of December 31, 1995, lease levels at each of the Properties were as
follows: Swenson Business Park-Building A - 100%; 959 Ridgeway Office Building
- - 100%; Stevens Creek Office Building - 100% and 889 Ridgelake Office Building
- - 98%.
Item 8. Financial Statements and Supplementary Data
Incorporated by reference to the Partnership's Annual Report to Unitholders for
the year ended December 31, 1996, which is filed as an exhibit under Item 14.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The General Partners of the Partnership are QP80 Real Estate Services Inc. ("RE
Services"), formerly Hutton Real Estate Services, Inc., an affiliate of Lehman
Brothers Inc. ("Lehman"), and HS Advisors, Ltd, an affiliate of Goodman Segar
Hogan, Inc. See the section captioned "Certain Matters Involving Affiliates of
RE Services" for a description of the sale of certain of Shearson Lehman
Brothers, Inc. ("Shearson") domestic retail and asset management businesses to
Smith Barney, Harris Upham & Co. Incorporated, which resulted in a change in
the Lehman General Partner's name. Brief descriptions of the business
experience of the directors and officers of the General Partners are provided
below. There is no family relationship among any of the persons currently
serving as directors or officers of the General Partners.
QP80 Real Estate Services Inc.
- ------------------------------
Certain officers and directors of the general partner are now serving (or in
the past have served) as officers or directors of entities which act as general
partners of a number of real estate limited partnerships which have sought
protection under the provisions of the Federal Bankruptcy Code. The
partnerships which have filed bankruptcy petitions own real estate which has
been adversely affected by the economic conditions in the markets in which that
real estate is located and, consequently, the partnerships sought the
protection of the bankruptcy laws to protect the partnerships' assets from loss
through foreclosure.
Name Office
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Kenneth L. Zakin Director and President
William Caulfield Vice President and Chief Financial Officer
Moshe Braver Vice President
Kenneth L. Zakin, 49, is a Senior Vice President of Lehman Brothers and has
held such title since November 1988. He is currently a senior manager in
Lehman Brothers' Diversified Asset Group and was formerly group head of the
Commercial Property Division of Shearson Lehman Brothers' Direct Investment
Management Group responsible for the management and restructuring of limited
partnerships owning commercial properties throughout the United States. From
January 1985 through November 1988, Mr. Zakin was a Vice President of Shearson
Lehman Brothers Inc. Mr. Zakin was a director of Lexington Corporate
Properties, Inc. from 1993 to 1996. He is a member of the Bar of the State of
New York and previously practiced as an attorney in New York City from 1973 to
1984 specializing in the financing, acquisition, disposition, and restructuring
of real estate transactions. Mr. Zakin is a member of the Real Estate Lender's
Association and is currently an associate member of the Urban Land Institute
and a member of the New York District Council Advisory Services Committee. He
received a Juris Doctor degree from St. John's University School of Law in 1973
and a B.A. degree from Syracuse University in 1969.
William Caulfield, 37, is a Vice President of Lehman Brothers and is
responsible for investment management of commercial real estate in the
Diversified Asset Group. Prior to the Shearson/E.F. Hutton merger in 1988, Mr.
Caulfield was a Senior Analyst with E.F. Hutton since October 1986 in E.F.
Hutton's Partnership Administration Group. Before joining E.F. Hutton, Mr.
Caulfield was a Business Systems Analyst at Eaton Corp. from 1985 to 1986.
Prior to Eaton Corp., he was an Assistant Treasurer with National Westminster
Bank USA. Mr. Caulfield holds a B.S. degree in Finance from St. John's
University and an M.B.A. from Long Island University - C.W. Post Campus.
Moshe Braver, 43, is currently a Managing Director of Lehman Brothers and has
held such position since October 1985. During this time, he has held positions
with the Business Analysis Group, International and Capital Markets
Administration and currently, with the Diversified Asset Group. Mr. Braver
joined Shearson Lehman Brothers in August 1983 as Senior Vice President. Prior
to joining Shearson, Mr. Braver was employed by the accounting firm of Coopers
& Lybrand from January 1975 through August 1983 as an Audit Manager. He
received a Bachelor of Business Administration degree from Bernard Baruch
College in January 1975 and is a Certified Public Accountant.
HS Advisors, Ltd.
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HS Advisors, Ltd. is a California limited partnership formed on May 20, 1980,
the sole general partner of which is Hogan Stanton Investment, Inc. ("HS
Inc."), a wholly-owned subsidiary of Goodman Segar Hogan, Inc. The names and
ages of, as well as the positions held by, the directors and executive officers
of HS Inc. are as set forth below. There are no family relationships between
or among any officer and any other officer or director.
Name Office
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Mark P. Mikuta President
Donald T. Herrick, Jr. Vice President and Treasurer
Julie R. Adie Vice President and Secretary
Mark P. Mikuta, 42, is Senior Vice President of Goodman Segar Hogan, Inc. and
is Controller of Dominion Capital, Inc., a wholly-owned subsidiary of Dominion
Resources. Mr. Mikuta joined Dominion Resources in 1987. Prior to joining
Dominion Resources, he was an internal auditor with Virginia Commonwealth
University in Richmond, Virginia from 1980 - 1987 and an accountant with
Coopers & Lybrand from 1977 - 1980. Mr. Mikuta earned a bachelor of science
degree in accounting from the University of Richmond in 1977. He is a
Certified Public Accountant (CPA) and Certified Financial Planner (CFP) in the
state of Virginia and a member of the American Institute of Certified Public
Accountants.
Donald T. Herrick, Jr., 53, is President of Goodman Segar Hogan, Inc. He is
also President of Dominion Lands, Inc. and Vice President of Dominion Capital,
Inc., both of which are wholly-owned subsidiaries of Dominion Resources, Inc.
Mr. Herrick joined Dominion Resources in 1970. He earned a Bachelor of
Business Administration degree from the University of Michigan in 1965 and an
M.B.A. dministration from American University in 1969. Mr. Herrick has
completed all course work towards the M.A.I. designation.
Julie R. Adie, 42, is a Vice President of Goodman Segar Hogan, Inc. and Senior
Vice President of Goodman Segar Hogan Hoffler, L.P. ("GSHH"). She is
responsible for investment management of a commercial real estate portfolio for
the company's Asset Management Division. Prior to GSHH, Ms. Adie was an asset
manager with Aetna Real Estate Investors from 1986 to 1988. Ms. Adie practiced
as an attorney from 1978 through 1984 and is currently a member of the Virginia
Bar Association. She holds a B.A. degree from Duke University, a Juris Doctor
from the University of Virginia and an M.B.A. from Dartmouth College.
Certain Matters Involving Affiliates of QP80 Real Estate Services Inc.
- ----------------------------------------------------------------------
On July 31, 1993, Shearson sold certain of its domestic retail brokerage and
asset management businesses to Smith Barney, Harris Upham & Co. Incorporated
("Smith Barney"). Subsequent to the sale, Shearson changed its name to Lehman
Brothers Inc. The transaction did not affect the ownership of the
Partnership's General Partner. However, the assets acquired by Smith Barney
included the name "Hutton." Consequently, Hutton Real Estate Services, Inc., a
General Partner, changed its name to QP80 Real Estate Services Inc.
Additionally, effective August 3, 1995, the Partnership changed its name to
Qualified Properties 80, L.P., to delete any reference to "Hutton."
On August 1, 1993, GSH transferred all of its leasing, management and sales
operations to Goodman Segar Hogan Hoffler, L.P., a Virginia limited partnership
("GSHH"). On that date, the leasing, management and sales operations of a
portfolio of properties owned by the principals of Armada/Hoffler ("HK") were
also obtained by GSHH. The General Partner of GSHH is Goodman Segar Hogan
Hoffler, Inc., a Virginia corporation ("GSHH Inc."), which has a one percent
interest in GSHH. The stockholders of GSHH Inc. are GSH with a sixty-two
percent stock interest and H.K. Associates, L.P., an affiliate of HK, with a
thirty-eight percent stock interest. The remaining interests in GSHH are
limited partnership interests owned by GSH, HK and 23 employees of GSHH. The
transaction did not affect the ownership of the General Partners.
Item 11. Executive Compensation
Neither of the General Partners nor any of their directors and officers
received any compensation from the Partnership. See Item 13 "Certain
Relationships and Related Transactions" below with respect to a description of
certain transactions of the General Partners and their affiliates with the
Partnership.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) Security Ownership of Beneficial Owners
As of December 31, 1996, one party was known by the Partnership to be the
beneficial owner of more than five percent of the Units of the Partnership. The
owner, Liquidity Fund, owns a total of 3,746 units or 7.31% of the Units in ten
separate accounts. Liquidity Fund's address is 1900 Powell Street, Suite 730,
Emeryville, California 94608-1817.
(b) Security Ownership of Management
The General Partners own 200 Units (134 by RE Services and 66 by HS Advisors),
as required by the terms of the offering described in the Prospectus of
Partnership, dated October 10, 1980 (the "Prospectus") contained in Amendment
No. 2 to Registration Statement No. 2-67908 of Partnership, filed October 10,
1980.
(c) Changes in Control
None.
Item 13. Certain Relationships and Related Transactions
(a) Transactions with Management and Others.
Incorporated by reference to Note 7 "Transactions with Related Parties" of the
Notes to the Consolidated Financial Statements of the Partnership's Annual
Report to Unitholders for the year ended December 31, 1996 filed as an exhibit
under Item 14.
(b) Certain Business Relationships.
There have been no business transactions between any of the Directors and the
Partnership.
(c) Indebtedness of Management.
No management person is indebted in any amount to the Partnership.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)(1) Financial Statements:
Report of Independent Auditors (1)
Consolidated Balance Sheets - At December 31, 1996 and 1995 (1)
Consolidated Statements of Partners' Capital (Deficit) - For
the years ended December 31, 1996, 1995 and 1994 (1)
Consolidated Statements of Operations - For the years ended
December 31, 1996, 1995 and 1994 (1)
Consolidated Statements of Cash Flows - For the years ended
December 31, 1996, 1995 and 1994 (1)
Notes to the Consolidated Financial Statements (1)
(1) Incorporated by reference to the Partnership's Annual Report to
Unitholders for the year ended December 31, 1996, which is filed as an
exhibit under Item 14.
(a)(2) Financial Statement Schedules:
Schedule III - Real Estate and Accumulated Depreciation F-1
No other schedules are presented because the information is not applicable or
is included in the consolidated financial statements or notes thereto.
(a)(3) See Exhibit Index contained herein.
(b) Reports on Form 8-K filed in the fourth quarter of 1996:
None
(c) See Exhibit Index contained herein.
EXHIBIT INDEX
Exhibit No.
(4)(A) Certificate and Agreement of Limited Partnership (included as, and
incorporated by reference to, Exhibit A to the Prospectus of Registrant
dated October 10, 1980 (the "Prospectus"), contained in Amendment No. 2
to Registration Statement (the "1980 Registration Statement"), No.
2-67908, of Registrant filed October 10, 1980).
(B) Subscription Agreement and Signature Page (included as, and incorporated
by reference to, Exhibit B to the Prospectus).
(C) First Amendment to Certificate and Agreement of Limited Partnership of
the Registrant, dated February 23, 1981 (included as, and incorporated
by reference to, Exhibit 4(C) to the Registrant's Annual Report on Form
10-K filed March 31, 1982 (the "1981 Annual Report")).
(D) Third Amendment to Certificate and Agreement of Limited Partnership of
the Registrant, dated January 28, 1982 (included as, and incorporated by
reference to, Exhibit 4(D) to the 1981 Annual Report).
(10)(A) Purchase Agreement relating to Diamond Springs Warehouse Facility,
between Hutton Real Estate Services I, Inc. and CPI Associates VII, and
the exhibits thereto (included as, and incorporated by reference to,
Exhibit 12(C) to the 1980 Registration Statement).
(B) Permanent loan commitment, as amended, relating to Stevens Creek Office
Building, between Hutton Real Estate Services I, Inc. and CPI
Associates VII, and the exhibits thereto (included as, and incorporated
by reference to Exhibit 10 to the Registrant's Current Report (the
"1982 Current Report") on Form 8-K filed May 17, 1982, and incorporated
herein by reference).
(C) Purchase Agreement relating to UMIC Office Building, between UMIC
Securities Corporation and 959 Ridgeway Associates, Ltd., and the
exhibits thereto (included as, and incorporated by reference to,
Exhibit 10(C) to the 1982 Annual Report).
(D) Purchase Agreement relating to the Ridgeway Office Building, between
the Registrant and 889 Ridge Lake Boulevard Partnership, First
Amendment to Purchase Agreement, and the exhibits thereto (included as,
and incorporated by reference to, Exhibit 10 to the 1982 Current
Report).
(E) Funding Commitment relating to the Swenson Business Park - Building A,
between the Registrant and Carl N. Swenson Company, Inc., and the
exhibits thereto (included as, and incorporated by reference to,
Exhibit 10(E) to the Annual Report).
(13) Registrant's Annual Report to Unitholders for the year ended December
31, 1996.
(23) Consent of Independent Auditors.
(27) Financial Data Schedule.
(28) Portions of Prospectus of Registrant dated October 10, 1980 (included
as, and incorporated by reference to, Exhibit (28) to the Registrant's
Annual Report on Form 10-K filed March 30, 1988.)
Schedule III - Real Estate and Accumulated Depreciation
December 31, 1996
Real estate assets held for disposition:
----------------------------------------------------
Commercial
Property:
Consolidated 959 889 Swenson Stevens
Ventures: Ridgeway Ridgelake Business Park Creek Total
----------- ----------- ------------- ------------ -----
Location Memphis, TN Memphis, TN San Jose, CA San Jose, CA na
Construction date 1977 1980 1983 1981 na
Acquisition date (1) 02-01-82 04-06-84 06-01-87 na
Life on which
depreciation in
latest income
statement is
computed (2) 1-25 yrs 1-25 yrs 1-25 yrs 1-25 yrs na
Encumbrances $ - $4,018,893 $ - $ - $4,018,893
Initial cost to
Partnership:
Land 424,954 923,411 603,480 1,691,002 3,642,847
Buildings and
improvements 1,430,576 7,792,436 1,320,228 7,146,336 17,689,576
Costs capitalized
subsequent to acquisition:
Land, buildings
and improvements 603,828 1,767,351 542,430 2,327,879 5,241,488
Retirements (3) - (685,417) (58,293) (1,044,645) (1,788,355)
Gross amount at which
carried at close of period (4):
Land $424,954 $923,411 $603,480 $1,691,002 $3,642,847
Buildings and
improvements 2,034,404 8,874,370 1,804,365 8,429,570 21,142,709
$2,459,358 $9,797,781 $2,407,845 $10,120,572 $24,785,556
Accumulated
depreciation (5) $1,349,314 $4,992,147 $ 910,399 $ 3,283,008 $10,534,868
(1) Joint Venture interest acquired March 11, 1981. Minority partner's
interest acquired March 1, 1982. The Partnership is now sole owner of the
property.
(2) Tenant improvements are depreciated on a straight-line basis over lives of
the respective leases.
(3) Retirements are cumulative since acquisition.
(4) For Federal income tax purposes, the basis of land, buildings and
improvements is $25,264,881.
(5) For Federal income tax purposes, the amount of accumulated depreciation is
$17,527,213.
A reconciliation of the carrying amount of real estate and accumulated
depreciation for the years ended December 31, 1996, 1995, and 1994 follows:
1996 1995 1994
Real estate investments: ---------- ---------- ----------
Beginning of year $25,423,462 $27,255,047 $27,294,760
Additions 151,608 680,193 607,547
Retirements (789,514) (310,659) (647,260)
Dispositions - (2,201,119) -
End of year $24,785,556 $25,423,462 $27,255,047
Accumulated depreciation:
Beginning of year $10,186,201 $10,314,488 $ 9,555,114
Depreciation expense 1,138,181 1,275,580 1,406,634
Retirements (789,514 (310,659) (647,260)
Dispositions - (1,093,208) -
End of year $10,534,868 $10,186,201 $10,314,488
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
QUALIFIED PROPERTIES 80, L.P.
Date: March 24, 1997 BY: HS Advisors, Ltd.
General Partner
BY: Hogan Stanton Investments, Inc.
General Partner
BY: /s/Mark P. Mikuta
Name: Mark P. Mikuta
Title: President
Date: March 24, 1997 BY: QP80 Real Estate Services Inc.
General Partner
BY: /s/Kenneth L. Zakin
Name: Kenneth L. Zakin
Title: Director and President
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
Registrant in the capabilities and on the dates indicated.
QP80 REAL ESTATE SERVICES INC.
A General Partner
Date: March 24, 1997
BY: /s/Kenneth L. Zakin
Kenneth L. Zakin
Director and President
Date: March 24, 1997
BY: /s/William Caulfield
William Caulfield
Vice President and
Chief Financial Officer
Date: March 24, 1997
BY: /s/Moshe Braver
Moshe Braver
Vice President
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
Registrant in the capabilities and on the dates indicated.
HS ADVISORS, LTD.
A General Partner
Date: March 24, 1997
BY: /s/Mark P. Mikuta
Mark P. Mikuta
President of Hogan Stanton
Investment, Inc., as general
partner of HS Advisors, Ltd.
Date: March 24, 1997
BY: /s/Donald T. Herrick, Jr.
Donald T. Herrick, Jr.
Vice President and Treasurer of
Hogan Stanton Investment, Inc.,
as general partner of
HS Advisors, Ltd.
Date: March 24, 1997
BY: /s/Julie R. Adie
Julie R. Adie
Vice President and Secretary of
Hogan Stanton Investments, Inc.
as general partner of HS Advisors, Ltd.
Exhibit (13)
Qualified Properties 80, L.P.
1996 Annual Report to Unitholders
Qualified Properties 80, L.P.
Qualified Properties 80, L.P., is a limited partnership formed in 1981 to
acquire, operate and hold for investment commercial real estate. The
Partnership's properties are a commercial office building and a combined
office/research and development facility located in San Jose, California, and
two commercial office buildings located in Memphis, Tennessee. Provided below
is a comparison of lease levels at the properties as of December 31, 1996 and
1995.
Percentage Leased
Property Location 1996 1995
- -------- -------- ---- ----
Swenson Business Park - Building A San Jose, CA 100% 100%
Stevens Creek Office Building San Jose, CA 100% 100%
959 Ridgeway Office Building Memphis, TN 11% 100%
889 Ridgelake Office Building Memphis, TN 100% 98%
Administrative Inquiries Performance Inquiries/Form 10-Ks
Address Changes/Transfers First Data Investor Services Group
Service Data Corporation P.O. Box 1527
2424 South 130th Circle Boston, Massachusetts 02104-1527
Omaha, Nebraska 68144-2596 Attn: Financial Communications
800-223-3464 800-223-3464
Message to Investors
--------------------------
We are pleased to present the 1996 Annual Report for Qualified Properties 80,
L.P. (the "Partnership"). Included in this report is a review of national
market conditions, an update of Partnership operations, and financial
highlights for the year. Please refer to the Property Profiles & Leasing Update
section of this report for additional information regarding local market
conditions for each of the Partnership's properties, as well as their operating
performance and lease levels at December 31, 1996.
Overview
- --------
The commercial office market continued to recover throughout the year,
particularly in the suburban office sector. Suburban office vacancy rates
declined to approximately 11% at year-end 1996 versus approximately 15% a year
earlier. Overall, demand for office space continues to increase, bringing
about continually lower vacancy rates and, in many regions of the country,
enabling property owners to raise rental rates. Accordingly, the availability
of financing for investment in this sector has also improved. Conditions in
the markets where the Partnership's properties are located mirrored those in
the national market, and three of the Partnership's four properties were 100%
leased at year-end 1996.
In view of these ongoing improvements in the real estate and capital markets,
we believe that the current favorable market environment may present
opportunities to sell the Partnership's properties. As a result, the General
Partners have recently engaged brokers to assist in marketing for sale two of
the Partnership's four properties, Swenson Business Park - Building A and
Stevens Creek Office Building. However, there can be no assurance that the
Partnership's current marketing efforts will result in a sale of either
property.
Occupancy at 959 Ridgeway Office Building declined to 11% at December 31, 1996,
as three of the property's four tenants vacated their spaces during the year as
their leases expired. However, as previously noted, this property represents a
relatively small percentage of the Partnership's overall square footage, and as
such, it is not anticipated that this vacancy will materially affect the
Partnership's revenues. The General Partners are aggressively marketing the
property's vacant space.
Cash Distributions
- ------------------
The Partnership paid cash distributions from operations to Limited Partners
totaling $35.20 per Unit for the year ended December 31, 1996, including a
fourth quarter cash distribution of $6.50 per Unit that was either credited to
your brokerage account or sent directly to you on February 11, 1997. Since
inception, the Partnership has paid total cash distributions of $497.80 per
original $500 Unit, including $114 per Unit in return of capital payments which
have reduced the Unit size from $500 to $386. The timing and amount of future
cash distributions will be determined quarterly and will depend on the adequacy
of the Partnership's cash flow and cash reserve requirements. Additionally, in
the event that one or more of the Partnership's properties are sold, the
General Partners expect that the cash distributions will be reduced to reflect
the corresponding reduction in the Partnership's cash flow.
Cash Distributions Per Limited Partnership Unit
-----------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- -------
1995 $ 5.25 $59.25(1) $6.50 $6.50 $77.50
1996 $15.70(2) $ 6.50 $6.50 $6.50 $35.20
1 - Includes $54 in return of capital resulting from the sale of Diamond
Springs Warehouse.
2 - Includes a special cash distribution of $9.20 per Unit paid on March 29,
1996.
General Information
- -------------------
As you are probably aware, several third parties have commenced partial tender
offers to purchase units of the Partnership at prices which are substantially
below the Partnership's Net Asset Value. In response to these offers, we have
recommended that limited partners reject these offers because they do not
reflect the underlying value of the Partnership's assets. According to
published industry sources, most investors who hold units of limited
partnerships similar to the Partnership have rejected these types of tender
offers due to their inadequacy. Please be assured that if any additional
tender offers are made for your units, we will make every effort to provide you
with our position regarding those offers on a timely basis.
Summary
- -------
In the coming year, we intend to focus on marketing for sale Swenson Business
Park - Building A and Stevens Creek Office Building, and on leasing up the
vacant space at 959 Ridgeway Office Building. Additionally, we will focus on
renewing any leases which are scheduled to expire in the coming year so as to
further improve the properties' marketability and appeal. We will keep you
apprised of significant developments affecting your investment in future
reports.
Very truly yours,
QP80 Real Estate Services Inc. Hogan Stanton Investment, Inc.
General Partner General Partner of HS Advisors,
Ltd.
/s/Kenneth L. Zakin /s/Mark P. Mikuta
Kenneth L. Zakin Mark P. Mikuta
President President
March 24, 1997
Property Profiles & Leasing Update
----------------------------------
SAN JOSE PROPERTIES
Market Update - The continued expansion of the high-technology and
biotechnology industry contributed to the Silicon Valley's stable population
growth and low unemployment rate during the year, making the region one of the
strongest in the United States. The demand for space within the area's
research and development sector continued to increase throughout 1996, leading
to a decline in vacancy rates at year- end 1996 to approximately 3.1% from
approximately 4.9% one year earlier. The San Jose market, located within the
Silicon Valley, benefited from this increased demand as economic conditions in
the area remained very strong. Vacancy rates for research and development
space in San Jose fell to 3.2% as of the fourth quarter of 1996, from 4.8% for
the corresponding period in 1995. The area also experienced an increase in
rental rates throughout the year, which has contributed to significant
increases in the values of most properties. To capitalize on these strong
market conditions and stabilized operations at both of the San Jose properties,
we have commenced marketing both of the properties for sale. However, there
can be no assurance that the current marketing efforts will result in a sale of
the properties.
SWENSON BUSINESS PARK-BUILDING A San Jose, California
Swenson Building A is a 26,907 square foot research and development facility
situated within a 65-acre business park which is located just north of central
San Jose in California. The property provides an attractive location for many
high technology companies due to its easy access to the San Jose Airport and
Interstate 880.
Leasing Update - As of December 31, 1996, the property remained 100% leased to
two high-technology tenants. One tenant occupies 13,829 square feet or
approximately 52% of the property's leasable space pursuant to a lease
scheduled to expire in January 2003. The other tenant occupies the remaining
13,078 square feet or 48% of the property's leasable area pursuant to a lease
scheduled to expire in February 1998. Neither of the leases generated rental
revenues of 10% or more of the Partnership's 1996 consolidated rental income.
STEVENS CREEK OFFICE BUILDING San Jose, California
Located between Interstate 280, Lawrence Expressway and Stevens Creek Boulevard
in the Cupertino submarket of San Jose, Stevens Creek Office Building is a
84,916 square foot, class-A office building commonly referred to as the
"Triangle Building" due to its unique three-sided design. This location
provides the facility with high visibility and easy access to downtown San
Jose.
Leasing Update - During 1996, three tenants leasing a total of 11,452 square
feet, pursuant to leases scheduled to expire in February and December 1996,
renewed their leases for four, seven and three years, respectively. Another
tenant, leasing 20,069 square feet, who's lease was scheduled to expire in May
1997, also renewed its space for an additional five years. As a result, the
property remained 100% leased at year-end 1996. One tenant generated rental
income of $677,328 or approximately 20% of the Partnership's consolidated
rental revenues in 1996. No leases are scheduled to expire in 1997.
MEMPHIS PROPERTIES
Market Update - The metropolitan Memphis office market continued its gradual
recovery during 1996. The 1996 year-end vacancy rate declined to approximately
13%, compared with approximately 15% at year-end 1995. The East Memphis
submarket, which accounts for approximately 45% of the total office inventory
in metropolitan Memphis, also improved during 1996. As of year-end 1996, East
Memphis had a vacancy rate for office space of approximately 6%, compared with
approximately 8% at year-end 1995. Reflecting this trend, rental rates
continued to increase modestly during the year
959 RIDGEWAY OFFICE BUILDING Memphis, Tennessee
The 959 Ridgeway Office Building is a two-story brick and glass office building
containing 29,330 square feet of leasable area, and is situated in a
fourteen-building office park. The property is located in Ridgeway Center in
the East Memphis submarket of Memphis.
Leasing Update - At December 31, 1996 the property was 11% leased. As
previously reported, the leases with four tenants occupying 100% of the
property expired during 1996. One tenant, leasing 3,236 square feet or 11% of
the property's space, pursuant to a lease scheduled to expire on March 31,
1996, executed a five-year lease renewal. However, the other three tenants
vacated their spaces upon the expiration of their respective leases. The
General Partners are aggressively marketing the property's vacant space. As
this property constitutes a relatively small percentage of the Partnership's
overall square footage, it is not anticipated that these expirations will
materially affect the Partnership's revenues. In light of the property's large
amount of vacant space, the General Partners currently do not anticipate
marketing it for sale until its occupancy has substantially improved.
889 RIDGELAKE OFFICE BUILDING Memphis, Tennessee
Located in Ridgeway Center in close proximity to the 959 Ridgeway Office
Building, the 889 Ridgelake Office Building is a three- story office building
which contains 93,413 square feet of leasable area.
Leasing Update - During the year, one tenant expanded its space by an
additional 1,755 square feet to lease a total of 52,126 square feet. As a
result, the property was 100% leased at December 31, 1996 compared with 98% at
December 31, 1995. A tenant leasing 9,656 square feet, pursuant to a lease
originally scheduled to expire in February 1997, renewed its lease for two
years. None of the property's leases is scheduled to expire in 1997.
One tenant, which leases 52,126 square feet or approximately 56% of the
property's leasable space pursuant to a lease scheduled to expire in December
2000, generated rental income in 1996 totaling $717,713 or approximately 21% of
the Partnership's consolidated rental revenue.
Financial Highlights
--------------------
For The Years Ended December 31,
(dollars in thousands except per Unit data)
1996 1995 1994 1993 1992
Total income $ 3,813 $ 4,145 $ 4,359 $ 3,894 $ 3,419
Net income (loss) 260 2,292 475 (55) (122)
Net income (loss) per Unit 4.57 44.08 8.99 (1.04) (2.33)
Net cash from operations 1,392 1,417 1,916 1,485 990
Total assets 15,759 17,328 19,267 20,303 21,336
Mortgage note payable 4,019 4,098 4,170 4,235 4,293
Cash distributions per
Limited Partnership Unit $35.20(2) $77.50(1) $28.00 $22.00 $16.00
(1) Includes $54 in return of capital resulting from the sale of Diamond
Springs Warehouse.
(2) Includes a special cash distribution of $9.20 per Unit paid on March 29,
1996.
The above selected financial data should be read in conjunction with the
consolidated financial statements and related notes included in this report.
- - Total income and net cash from operations decreased primarily due to the
Partnership's lower rental income resulting from lower occupancy at 959
Ridgeway Office Building and the sale of Diamond Springs Warehouse, as well
as lower other income resulting from lower tenant reimbursable income at all
of the Partnership's properties.
- - The decrease in net income in 1996 is primarily attributable to the
recognition of the $1,870,743 gain on the sale of Diamond Springs Warehouse
in 1995.
Consolidated Balance Sheets
At December 31, At December 31,
1996 1995
Assets
Real estate, at cost:
Land $ 1,348,365 $ 3,642,847
Buildings and improvements 10,908,774 21,780,615
12,257,139 25,423,462
Less accumulated depreciation (6,341,461) (10,186,201)
5,915,678 15,237,261
Real estate assets held for disposition 8,335,010 -
Cash and cash equivalents 383,531 1,062,602
Restricted cash 187,237 115,521
Prepaid expenses, net of accumulated amortization
of $279,881 in 1996 and $409,161 in 1995 500,469 456,924
Rent and other receivables 1,877 31,458
Deferred rent receivable 435,608 423,953
Total Assets $15,759,410 $17,327,719
Liabilities and Partners' Capital (Deficit)
Liabilities:
Accounts payable and accrued expenses $ 265,809 $ 185,215
Prepaid rent 15,212 -
Due to affiliates 9,211 8,069
Security deposits payable 68,288 68,288
Distribution payable 339,817 339,817
Mortgage note payable 4,018,893 4,098,403
Total Liabilities 4,717,230 4,699,792
Minority interest 20,383 25,519
Partners' Capital (Deficit):
General Partners (134,356) (123,029)
Limited Partners (51,234 units outstanding) 11,156,153 12,725,437
Total Partners' Capital 11,021,797 12,602,408
Total Liabilities and Partners' Capital $15,759,410 $17,327,719
Consolidated Statement of Partners' Capital (Deficit)
For the years ended December 31, 1996, 1995 and 1994
General Limited
Partners Partners Total
-------- ---------- ----------
Balance at December 31, 1993 $ (89,428) $15,411,534 $15,322,106
Net income 14,874 460,473 475,347
Distributions (29,276) (1,434,417) (1,463,693)
-------- ---------- ----------
Balance at December 31, 1994 (103,830) 14,437,590 14,333,760
Net income 33,317 2,258,483 2,291,800
Distributions (52,516) (3,970,636) (4,023,152)
-------- ---------- ----------
Balance at December 31, 1995 (123,029) 12,725,437 12,602,408
Net income 25,476 234,153 259,629
Distributions (36,803) (1,803,437) (1,840,240)
-------- ---------- ----------
Balance at December 31, 1996 $(134,356) $11,156,153 $11,021,797
======== ========== ==========
Consolidated Statements of Operations
For the years ended December 31, 1996 1995 1994
Income
- ----------- --------- --------- ---------
Rental $3,390,655 $3,488,485 $3,736,211
Other 403,298 580,687 569,373
Interest 19,441 75,844 52,955
Total Income 3,813,394 4,145,016 4,358,539
Expenses
Property operating 1,706,859 1,651,942 1,755,374
Depreciation and amortization 1,240,363 1,432,461 1,536,864
Interest 426,578 434,471 441,580
Bad debt - - 13,507
General and administrative 185,101 206,419 137,539
Total Expenses 3,558,901 3,725,293 3,884,864
Income before minority interest and
gain on sale of real estate 254,493 419,723 473,675
Minority interest 5,136 1,334 1,672
Income before gain on sale of real estate 259,629 421,057 475,347
Gain on sale of real estate - 1,870,743 -
Net Income $ 259,629 $2,291,800 $ 475,347
Net Income Allocated:
To the General Partners $ 25,476 $ 33,317 $ 14,874
To the Limited Partners 234,153 2,258,483 460,473
$ 259,629 $2,291,800 $ 475,347
Per limited partnership unit
(51,234 outstanding) $4.57 $44.08 $8.99
Consolidated Statements of Cash Flows
For the years ended December 31, 1996 1995 1994
Cash Flows From Operating Activities:
Net income $ 259,629 $2,291,800 $ 475,347
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,138,181 1,275,580 1,406,634
Amortization 102,182 156,881 130,230
Gain on sale of real estate - (1,870,743) -
Minority interest in loss of
consolidated venture (5,136) (1,334) (1,672)
Increase (decrease) in cash arising from changes
in operating assets and liabilities:
Restricted cash (71,716) (24,631) (37,728)
Prepaid expenses (145,727) (279,685) (72,498)
Rent and other receivables 29,581 70,431 68
Deferred rent receivable (11,655) (92,592) (3,451)
Accounts payable and accrued expenses 80,594 (85,368) 24,534
Prepaid rent 15,212 - -
Due to affiliates 1,142 4,869 (3,397)
Security deposits payable - (28,192) (2,474)
Net cash provided by operating activities 1,392,287 1,417,016 1,915,593
Cash Flows From Investing Activities:
Proceeds from sale of real estate - 2,978,654 -
Additions to real estate (151,608) (680,193) (607,547)
Net cash provided by (used for)
investing activities (151,608) 2,298,461 (607,547)
Cash Flows From Financing Activities:
Cash distributions (1,840,240) (4,049,292) (1,463,693)
Principal payments on mortgage note payable (79,510) (71,593) (64,508)
Net cash used for financing activities (1,919,750) (4,120,885) (1,528,201)
Net decrease in cash and cash equivalents (679,071) (405,408) (220,155)
Cash and cash equivalents,
beginning of year 1,062,602 1,468,010 1,688,165
Cash and cash equivalents, end of year $ 383,531 $1,062,602 $1,468,010
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for interest $ 426,578 $ 434,471 $ 441,580
Supplemental Disclosure of Non-Cash Investing Activities:
Write off of fully depreciated
tenant improvements $ 789,514 $ 310,659 $ 647,260
Notes to the Consolidated Financial Statements
December 31, 1996, 1995 and 1994
1. Organization
Qualified Properties 80, L.P. (the "Partnership") was organized as a Limited
Partnership under the laws of the Commonwealth of Virginia pursuant to a
Certificate and Agreement of Limited Partnership dated and filed January 13,
1981 (the "Partnership Agreement"). The Partnership was formed for the purpose
of investing in and operating certain types of commercial real estate. The
General Partners of the Partnership are QP80 Real Estate Services Inc. ("QP80
Services"), which is an affiliate of Lehman Brothers Inc. (see below) and HS
Advisors, Ltd. ("HS Advisors"), which is an affiliate of Goodman Segar Hogan,
Inc. ("GSH"). The Partnership will continue until December 31, 2010, unless
sooner terminated in accordance with the terms of the Partnership Agreement.
On July 31, 1993, Shearson Lehman Brothers Inc. sold certain of its domestic
retail brokerage and asset management businesses to Smith Barney, Harris Upham
& Co. Incorporated ("Smith Barney"). Subsequent to the sale, Shearson Lehman
Brothers Inc. changed its name to Lehman Brothers Inc. The transaction did not
affect the ownership of the General Partners. However, the assets acquired by
Smith Barney included the name "Hutton." Consequently, effective October 22,
1993, Hutton Real Estate Services, Inc., a general partner, changed its name to
QP80 Real Estate Services Inc., and effective August 3, 1995, Hutton/GSH
Qualified Properties 80, L.P. changed its name to Qualified Properties 80, L.P.
to delete any reference to "Hutton."
On the 1st day of August, 1993, GSH transferred all of its leasing, management
and sales operations to Goodman Segar Hogan Hoffler, L.P., a Virginia limited
partnership ("GSHH"). On that date, the leasing, management and sales
operations of a portfolio of properties owned by the principals of
Armada/Hoffler ("HK") were also obtained by GSHH. The General Partner of GSHH
is Goodman Segar Hogan Hoffler, Inc., a Virginia corporation ("GSHH Inc."),
which has a one percent interest in GSHH. The stockholders of GSHH Inc. are
GSH with a sixty-two percent stock interest and H.K. Associates, L.P., an
affiliate of HK, with a thirty-eight percent stock interest. The remaining
ninety-nine percent interests in GSHH are limited partnership interests owned
fifty percent by GSH and forty-nine percent by HK. The transaction did not
affect the ownership of the General Partners.
On March 15, 1996, based upon, among other things, the advice of legal counsel,
Skadden, Arps, Slate, Meagher & Flom, the General Partners adopted a resolution
that states, among other things, if a Change of Control (as defined below)
occurs, the General Partners may distribute the Partnership's cash balances not
required for its ordinary course day-to-day operations. "Change of Control"
means any purchase or offer to purchase more than 10% of the Units that is not
approved in advance by the General Partners. In determining the amount of the
distribution, the General Partners may take into account all material factors.
In addition, the Partnership will not be obligated to make any distribution to
any partner and no partner will be entitled to receive any distribution until
the General Partners have declared the distribution and established a record
date and distribution date for the distribution.
2. Significant Accounting Policies
Consolidation - The consolidated financial statements include the accounts of
the Partnership and its ventures, 889 Ridge Lake Boulevard Partnership, Alpha
Building Associates Joint Venture ("Swenson Business Park") and 5300 Stevens
Creek Boulevard Joint Venture. Intercompany accounts and transactions between
the Partnership and the ventures are eliminated in consolidation.
Real Estate Investments - Real estate investments, which consist of commercial
buildings, are recorded at cost less accumulated depreciation. Cost includes
the initial purchase price of the property plus closing costs, acquisition and
legal fees, other miscellaneous acquisition costs and capital improvements.
Depreciation - is computed using the straight-line method based upon the
estimated useful lives of the respective depreciable properties with the
exception of tenant improvements which are depreciated over the terms of the
respective leases.
Real Estate Assets Held for Disposition - Real estate assets held for
disposition are carried at the lower of carrying value or fair market value
less costs to sell. During the fourth quarter of 1996, Swenson Building Park -
Building A and Stevens Creek Office Building real estate assets were
reclassified as held for disposition and are no longer depreciated. No
adjustments to carrying value resulted from the reclassification.
Leases - Leases are accounted for as operating leases. Leasing commissions are
amortized over the term of the respective leases and are included in prepaid
expenses, net of accumulated amortization.
Deferred rent receivable - Deferred rent receivable consists of rental income
which is recognized on a straight-line basis over the term of the respective
leases but will not be received until later periods as a result of rental
concessions.
Accounting for Impairment - In March 1995, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 121 "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of" ("FAS 121"), 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. FAS 121 also addresses the accounting
for long-lived assets that are expected to be disposed of. The Partnership
adopted FAS 121 during the fourth fiscal quarter of 1995.
Fair Value of Financial Instruments Statement of Financial Accounting Standards
No. 107, "Disclosures about Fair Value of Financial Instruments" ("FAS 107"),
requires that the Partnership disclose the estimated fair values of its
financial instruments. Fair values generally represent estimates of amounts at
which a financial instrument could be exchanged between willing parties in a
current transaction other than in forced liquidation.
Fair value estimates are subjective and are dependent on a number of
significant assumptions based on management's judgement regarding future
expected loss experience, current economic conditions, risk characteristics of
various financial instruments, and other factors. In addition, FAS 107 allows
a wide range of valuation techniques, therefore, comparisons between entities,
however similar, may be difficult.
Cash and Cash Equivalents - Cash and cash equivalents consist of short-term
highly liquid investments which have maturities of three months or less from
the date of purchase. The carrying value approximates fair value because of
the short maturity of these instruments.
Restricted Cash - Restricted cash primarily represents cash held in connection
with future real estate tax payments.
Income Taxes - No provision for income taxes has been made in the consolidated
financial statements of the Partnership since such taxes are the responsibility
of the individual partners rather than of the Partnership.
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 reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications - Certain prior year amounts have been reclassified in order
to conform to the current year's presentation.
3. Partnership Agreement
The Partnership Agreement provides that the net cash from operations, as
defined, for each fiscal year will be distributed on a quarterly basis 98% to
the Limited Partners and 2% to the General Partners until each Limited Partner
has received an 8% annual return. Remaining net cash from operations, if any,
will be distributed to the General Partners until they have received 10% of the
aggregate net cash from operations distributed to all partners. Thereafter,
any net cash from operations will be distributed 90% to the Limited Partners
and 10% to the General Partners. Net proceeds from sales or refinancings shall
be distributed 99% to the Limited Partners and 1% to the General Partners until
each Limited Partner has received an amount equal to his adjusted capital
investment, as defined, and a 9% cumulative annual return thereon, reduced by
any net cash from operations actually distributed to such Limited Partner. The
balance of net proceeds will be distributed 85% to the Limited Partners and 15%
to the General Partners.
Losses for any fiscal year shall be allocated 98% to the Limited Partners and
2% to the General Partners. Income for any fiscal year and all gain from sales
will be allocated to the General Partners in an amount equal to the net cash
from operations distributed or distributable to the General Partners for such
year, less 1% of the amount of net cash from operations that exceeds taxable
income for such year, if any, and the balance shall be allocated to the Limited
Partners, in accordance with their unit ownership. If net cash from operations
is not distributed or distributable to the General Partners, any income of the
Partnership for such year will be allocated 99% to the Limited Partners and 1%
to the General Partners.
Upon the dissolution of the Partnership, the General Partners shall contribute
to the capital of the Partnership, an amount not to exceed 1% of the total
capital contributions made by all the Partners less any prior capital
contributions made by the General Partners, in order to restore the negative
capital accounts of the General Partners. In no event shall the General
Partners be obligated to contribute an amount in excess of any negative balance
in their respective capital accounts.
4. Real Estate Investments
Real estate investments consist of four commercial office buildings acquired,
directly or indirectly, by the Partnership. The purchase price amounts exclude
acquisition fees and other closing costs.
Square Date Purchase
Property Name Feet Location Acquired Ownership Price
- ------------- ------ -------- -------- --------- --------
959 Ridgeway 29,170 Memphis, 3/11/81 Fee $1,707,125
Office Building Tennessee Simple
889 Ridgelake 94,823 Memphis, 2/01/82 General $8,062,500
Office Building Tennessee Partnership
Swenson Business 26,907 San Jose, 4/06/84 Joint $2,250,000
Park - Building A California Venture
Stevens Creek 84,916 San Jose, 6/01/87 Joint $8,500,000
Office Building California Venture
Diamond Springs Warehouse was sold on March 1, 1995 for a sale price, plus
non-refundable extension fees, totaling $3.195 million. Of the $3.195 million,
$70,000 related to escrowed deposits applied to extension fees as a result of
the multiple extensions granted by the Partnership during sale negotiations.
During the fourth quarter of 1994, $60,000 of such deposits were recognized as
other income and the remaining $10,000 was recognized as other income in the
first quarter of 1995. The gain on disposition of the property totaled
$1,870,743.
The General Partner is currently marketing Swenson Business Park - Building A
and Stevens Creek Office Building for sale and expects that a sale will be
completed during the second half of 1997. Accordingly, the properties have
been reclassified on the Consolidated Balance Sheet as "Real estate assets held
for disposition". For the year ended December 31, 1996 Swenson Business Park
- - Building A had a loss from operations totaling approximately $9,700. For the
year ended December 31, 1996, Stevens Creek Office Building had income from
operations totaling approximately $573,000.
The partnership agreement for 889 Ridgelake Boulevard Partnership provides that
all losses, income, net cash from operations and net proceeds from a sale or
refinancing will be allocated 95% to the Partnership and 5% to the coventurer.
The Joint Venture agreement for Swenson Business Park substantially provides
that:
i. Net cash from operations will be distributed 100% to the Partnership until
it has received an annual, noncumulative 12% return on its adjusted
capital value, as defined. Any remaining net cash from operations will be
distributed 50% to the Partnership and 50% to the coventurer.
ii. Net proceeds from a sale or refinancing of the property will be
distributed 100% to the Partnership until it has received 120% of its
capital value, as defined. Any remaining net proceeds will be distributed
60% to the Partnership and 40% to the coventurer.
iii. Losses will be allocated 100% to the Partnership. Income will be
allocated in substantially the same manner as net cash from operations.
The Joint Venture agreement for 5300 Stevens Creek Boulevard, which owns the
Stevens Creek Office Building, substantially provides that:
i. Net cash from operations will first be distributed 100% to the Partnership
until it has received an annual, noncumulative 10 3/8% return on its
capital contribution, as defined. Secondly, net cash from operations will
be distributed to the coventurers until they have received an annual
amount of $207,500. Any remaining net cash from operations will be
distributed 50% to the Partnership and 50% to the coventurers.
ii. Net proceeds from a sale or refinancing will be distributed 100% to the
Partnership until it has received 120.8% of its capital contribution and a
cumulative return of 10 3/8% on its capital contribution as reduced by any
prior distributions. The next $2,000,000 of net proceeds will be
distributed to the coventurers. Any remaining net proceeds will be
distributed 50% to the Partnership and 50% to the coventurers.
iii. Depreciation will be allocated 40% to the Partnership and 60% to the
coventurers. Income will be allocated in substantially the same manner as
net cash from operations. Losses will be allocated 50% to the Partnership
and 50% to the coventurers.
5. Mortgage Note Payable
The mortgage note payable is collateralized by a first deed of trust on the 889
Ridgelake Office Building and is payable in monthly installments of $42,174
including interest at 10-1/2% through 2014. Annual maturities of the mortgage
note principal over the next five years are:
Year Amount
---- ---------
1997 $ 88,272
1998 98,000
1999 108,800
2000 120,790
2001 134,102
Thereafter 3,468,929
Total $4,018,893
Based on the borrowing rates currently available to the Partnership for
mortgage loans with similar terms and average maturities, the fair value of
long-term debt approximates carrying value.
6. Rental Income Under Operating Leases
Future minimum rental income to be received on noncancellable operating leases,
as of December 31, 1996 is as follows:
Year Amount
---- ---------
1997 $ 3,060,601
1998 2,815,370
1999 2,602,230
2000 2,548,886
2001 1,397,136
Thereafter 216,907
Total $12,641,130
Generally, leases are for periods of 3 to 6 years and allow for increases in
certain property operating expenses to be passed on to the tenants.
Two tenants at two of the Partnership's properties generated rental revenue in
excess of 10% of the Partnership's 1996, 1995 and 1994 consolidated rental
revenues. The rental income derived from these leases in 1996 was $717,713 and
$677,328, respectively, or 21% and 20% of the Partnership's consolidated rental
income. The rental income derived from these leases in 1995 was $711,374 and
$677,328, respectively, or 20% and 19% of the Partnership's consolidated rental
income. In 1994, rental income from these leases was $702,202 and $669,500,
respectively, or 19% and 18% of the Partnership's 1994 consolidated rental
income. The leases are scheduled to expire on December 31, 2000 and July 31,
2001, respectively. As of December 31, 1996, both tenants are current in their
rent payments.
7. Transactions with Related Parties
The following is a summary of reimbursable amounts for out-of- pocket expenses
and property management fees earned by the General Partners which are recorded
in property operating and general and administrative expense during the years
ended December 31, 1996, 1995 and 1994:
1996 1995 1994
Reimbursement of out-of-pocket expenses $ 2,757 $ 3,487 $ 3,582
Property management fees 37,979 34,875 36,539
$40,736 $38,362 $40,121
At December 31, 1996 and 1995, $6,920 and $7,145 were payable to the General
Partners, respectively.
8. Reconciliation of Net Income to Taxable Income
Taxable income exceeded net income reported in the financial statements by
$263,337, $970,710, and $190,076 for the years ended December 31, 1996, 1995
and 1994, respectively. These variances are due to approximately $550,000 of
rental concessions granted in 1988 and differences in the tax basis versus the
financial statement basis of the buildings and improvements and different
methods of recognizing depreciation expense. The Partnership uses accelerated
methods for recognizing depreciation for tax purposes and the straight-line
method for financial statement purposes. In addition, rental income is
recognized when received or receivable for tax purposes and on a straight-line
basis for financial statement purposes.
Report of Independent Auditors
------------------------------
General and Limited Partners
Qualified Properties 80, L.P.
and Consolidated Ventures
We have audited the consolidated balance sheets of Qualified Properties 80,
L.P. and Consolidated Ventures as of December 31, 1996 and 1995, and the
related consolidated statements of operations, partners' capital (deficit) and
cash flows for each of the three years in the period ended December 31, 1996.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these 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 audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Qualified Properties 80, L.P. and Consolidated Ventures as of December 31, 1996
and 1995, and the consolidated results of their operations and their cash flows
for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Boston, Massachusetts
January 23, 1997
Comparison of Acquisition Costs to Appraised Value and
Determination of
Net Asset Value Per $386 Unit at December 31, 1996 (Unaudited)
-------------------------------------------------------------
Date of Acquisition 1996 Appraised
Property Acquisition Cost (1) Value (2)
959 Ridgeway 03-11-81 $ 1,815,517 $ 1,800,000
Stevens Creek 04-14-82 8,907,693 10,900,000
889 Ridgelake (3) 02-01-82 3,802,102 4,181,107
Swenson Business Park - Building A 04-06-84 2,180,000 2,500,000
$16,705,312 $19,381,107
Cash and cash equivalents 383,531
Restricted cash 187,237
Rent and other receivables 1,877
Prepaid expenses 46,528
20,000,280
Less:
Total liabilities - net of mortgage note payable (698,337)
Partnership Net Asset Value (4) $19,301,943
Net Asset Value Allocated:
Limited Partners $19,108,924
General Partners 193,019
$19,301,943
Net Asset Value Per Unit
(51,234 units outstanding) $372.97
(1) Purchase price plus General Partners' acquisition fees.
(2) This represents the Partnership's share of the December 31, 1996 Appraised
Values which were determined by an independent property appraisal firm.
The Partnership's share of the December 31, 1996 Appraised Value takes
into account the allocation provisions of the joint venture agreements
governing the distribution of sales proceeds for 889 Ridgelake, Swenson
Business Park - Building A, and Stevens Creek.
(3) The Acquisition Cost and Partnership's share of the December 31, 1996
Appraised Values are net of the outstanding mortgage loan balances at the
time of acquisition and at December 31, 1996, respectively.
(4) Based on the 1996 Appraised Values of the Properties by an independent
appraiser and the remaining assets and liabilities of the Partnership at
December 31, 1996, the actual Net Asset Value of each unit is $372.97. The
Net Asset Value represents the amount each Limited Partner would receive
if the Properties were sold at their current appraised values and net
proceeds were distributed in the liquidation of the Partnership. Real
Estate brokerage commissions and other costs associated with selling the
Partnership's properties are not determinable at this time and as such are
not included in the calculation. Since the Partnership would incur these
expenses in the sale of its Properties cash available for the distribution
to the Partners would be less than the Net Asset Value. The current
market value of the Units may differ substantially from their Net Asset
Value.
Limited Partners should note that appraisals are only estimates of current
value and actual values realizable upon sale may be significantly different. A
significant factor in establishing an appraised value is the actual selling
price for properties which the appraiser believes are comparable. In addition,
the appraised value does not reflect the actual costs which would be incurred
in selling the properties. As a result of these factors and the illiquid
nature of an investment in Units of the Partnership, the variation between the
appraised value of the Partnership's properties and the price at which Units of
the Partnership could be sold may be significant. Fiduciaries of Limited
Partners which are subject to ERISA or other provisions of law requiring
valuations of Units should consider all relevant factors, including, but not
limited to Net Asset Value per Unit, in determining the fair market value of
the investment in the Partnership for such purposes.
----------
EXHIBIT 23
----------
Consent of Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Qualified Properties 80, L.P. of our report dated January 23, 1997, included
in the 1996 Annual Report to Shareholders of Qualified Properties 80, L.P. and
Consolidated Ventures.
Our audit also included the financial statement schedule of Qualified
Properties 80, L.P. and Consolidated Ventures listed in Item 14(a). This
schedule is the responsibility of the Partnership's management. Our
responsibility is to express an opinion based on our audits. In our opinion,
the financial statement schedule referred to above, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth herein.
ERNST & YOUNG LLP
Boston, Massachusetts
January 23, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-END> Dec-31-1996
<CASH> 383,531
<SECURITIES> 000
<RECEIVABLES> 1,877
<ALLOWANCES> 000
<INVENTORY> 000
<CURRENT-ASSETS> 8,335,010
<PP&E> 12,257,139
<DEPRECIATION> (6,341,461)
<TOTAL-ASSETS> 15,759,410
<CURRENT-LIABILITIES> 262,971
<BONDS> 4,018,893
<COMMON> 000
000
000
<OTHER-SE> 11,021,797
<TOTAL-LIABILITY-AND-EQUITY> 15,759,410
<SALES> 3,390,655
<TOTAL-REVENUES> 3,813,394
<CGS> 000
<TOTAL-COSTS> 1,706,859
<OTHER-EXPENSES> 1,425,464
<LOSS-PROVISION> 000
<INTEREST-EXPENSE> 426,578
<INCOME-PRETAX> 259,629
<INCOME-TAX> 000
<INCOME-CONTINUING> 259,629
<DISCONTINUED> 000
<EXTRAORDINARY> 000
<CHANGES> 000
<NET-INCOME> 259,629
<EPS-PRIMARY> 4.57
<EPS-DILUTED> 4.57
</TABLE>
