1
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, 1998
-----------------
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, L.P.)
-------------------------------------------------
Exact name of registrant as specified in its charter
Virginia 13-3046808
-------- ----------
State or other jurisdiction of I.R.S. Employer
incorporation or organization Identification No.
3 World Financial Center, 29th Floor
New York, New York Attn.: Andre Anderson 10285
- -------------------------------------------- -----
Address of principal executive offices Zip code
Registrant's telephone number, including area code: (212) 526-3183
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
-----
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, 1998
filed as an exhibit under Item 14.
<PAGE>
2
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 ("959 Ridgeway"), a
two-story office building located in Memphis, Tennessee; 889 Ridgelake Office
Building ("889 Ridgelake"), a three-story office building located in Memphis,
Tennessee; Swenson Business Park - Building A ("Swenson A"), a one-story
research and development facility located in San Jose, California; and Stevens
Creek Office Building ("Stevens Creek"), a class-A office property located in
San Jose, California. The Partnership does not plan to invest in any additional
properties. Additional information regarding the historical development of
business is incorporated by reference to Note 1 of the Notes to the Consolidated
Financial Statements in the Partnership's Annual Report to Unitholders for the
year ended December 31, 1998 filed as an exhibit under Item 14.
As of December 31, 1998, three of the Properties had been sold. Diamond Springs
was sold on March 1, 1995 for net proceeds of $3.0 million; Swenson A was sold
on November 10, 1997 for net proceeds of $2.9 million; and Stevens Creek was
sold on February 2, 1998 for net proceeds of $15.2 million. Additional
information regarding these sales is incorporated by reference to Item 7 and
Note 4 of the Notes to the Consolidated Financial Statements contained in the
Partnership's Annual Report to Unitholders for the year ended December 31, 1998
filed as an exhibit under Item 14.
The Partnership has engaged real estate brokers to assist in selling the
Partnership's two remaining properties, 889 Ridgelake and 959 Ridgeway. It is
currently anticipated that the properties will be sold and the Partnership
liquidated in 1999, however, there can be no assurance that either property will
be sold within this time frame, or that the sales will result in a particular
price.
(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:
o Capital appreciation.
o Distributions of Net Cash From Operations attributable to rental income.
o Preservation and protection of capital.
o 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, where the remaining Properties are located, will also be important
factors, especially with regard to the achievement of capital appreciation.
<PAGE>
3
The Registrant expects to sell its remaining Properties during 1999, taking into
consideration such factors as market conditions, leasing conditions, net sales
proceeds to be realized, and the possible risks of continued ownership. 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.
(d) Competition
-----------
889 Ridgelake Office Building and 959 Ridgeway Office Building are subject to
competition from similar types of properties located in the same vicinity. The
business of owning and operating commercial office buildings in the area where
the Properties are located is highly competitive, and the Partnership competes
with a number of established companies, some of which have greater resources
than the Partnership. For a discussion of current commercial real estate market
conditions in the Memphis area, see the section entitled "Message to Investors"
in the Partnership's Annual Report to Unitholders for the year ended December
31, 1998 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 "Message to Investors" and Note 4 and Note 6 of the Notes to
the Consolidated Financial Statements in the Partnership's Annual Report to
Unitholders for the year ended December 31, 1998, 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, 1998, 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, 1998, the number of holders of Units was 1,844.
(c) Distributions Quarterly cash distributions from operations were suspended
commencing in the second quarter of 1997 in consideration of the
Partnership's marketing efforts and the need to fund several major capital
improvements at the Properties to better position them for sale. On April
7, 1998, the Partnership paid a special cash distribution totaling $261.45
per Unit to Limited Partners, representing the net proceeds from the sale
of Stevens Creek. Another special distribution of $50.00 per Unit was paid
on November 28, 1997, representing the net proceeds from the sale of
Swenson A. Following the sale of the Partnership's remaining Properties,
the General Partners will distribute the net proceeds together with the
Partnership's remaining cash reserves (after payment of or provision for,
the Partnership's liabilities and expenses), and dissolve the Partnership.
<PAGE>
4
The following distributions were paid to the Limited Partners for the two
years ended December 31, 1998 and December 31, 1997.
<TABLE>
<CAPTION>
Cash Distributions Per Limited Partnership Unit
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C>
1997 $ 4.00 $ 0.00 $ 0.00 $ 50.00 2 $ 54.00
1998 -- $261.45 1 $ -- $ -- $261.45
<FN>
1 Represents a return of capital resulting from the sale of the
Stevens Creek Property.
2 Represents a return of capital resulting from the sale of the
Swenson A Property.
</FN>
</TABLE>
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
For The Years Ended December 31,
(dollars in thousands except per Unit data)
1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total income $ 2,153 $ 3,503 $ 3,813 $ 4,145 $ 4,359
Gain on sale of real estate assets 7,830 1,337 -- 1,871 --
Income (loss) before gain on sale
of real estate (1,818) 357 260 421 475
Net income 6,012 1,693 260 2,292 475
Net income per Unit 116.06 32.89 4.57 44.08 8.99
Net cash from operations 325 955 1,392 1,417 1,916
Total assets 7,635 14,148 15,759 17,328 19,267
Mortgage note payable 3,833 3,931 4,019 4,098 4,170
Cash distributions per
Limited Partnership Unit $261.45 1 $ 54.00 2 $ 35.20 3 $ 77.50 4 $ 28.00
- -----------------------------------------------------------------------------------------------
<FN>
1 Represents a return of capital resulting from the sale of the Stevens Creek
Property.
2 Includes a $50 return of capital resulting from the sale of the Swenson A
Property.
3 Includes a special cash distribution of $9.20 per Unit paid on March 29, 1996.
4 Includes $54 in return of capital resulting from the sale of Diamond Springs
Warehouse.
</FN>
</TABLE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
- -------------------------------
On November 10, 1997 Swenson A was sold for net proceeds of $2,909,697 and
resulted in a gain on sale of $1,336,788, which is reflected in the
Partnership's statement of operations for the year ending December 31, 1997. On
February 2, 1998 Stevens Creek was sold for net proceeds of $15,223,030 and
resulted in a gain on sale of $7,829,940, which is reflected in the
Partnership's statement of operations for the year ended December 31, 1998.
The Partnership has engaged a real estate broker to assist in selling the
Partnership's two remaining properties, 889 Ridgelake and 959 Ridgeway.
Accordingly, the Partnership's real estate assets, deferred rent receivable and
prepaid leasing costs were reclassified on the consolidated balance sheets at
December 31, 1998 to "Real estate assets held for disposition," and the
Partnership suspended depreciation and amortization in accordance with Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." The Partnership
has executed a letter of intent with the joint venture partner to purchase both
properties, and is currently negotiating a purchase and sale agreement. It is
currently anticipated that the properties will be sold and the Partnership
liquidated in 1999, however, there can be no assurance that either property will
be sold within this time frame, or that the sales will result in a particular
price.
<PAGE>
5
The Partnership had cash and cash equivalents totaling $1,938,059 at December
31, 1998, compared to $1,023,370 at December 31, 1997. The increase is primarily
due to the receipt of net proceeds from the sale of Stevens Creek, which,
together with net cash flow from operating activities, exceeded cash
distributions and mortgage principal payments for the year ended December 31,
1998.
Restricted cash totaled $77,510 at December 31, 1998 compared with $50,567 at
December 31, 1997. The increase represents tax escrow payments associated with
leases at the 889 Ridgelake property, which exceeded tax payments.
Prepaid expenses totaled $10,225 at December 31, 1998, compared to $205,922 at
December 31, 1997. The decrease was primarily due to the sale of Stevens Creek
and the reclassification of the Partnership's real estate to "Real estate assets
held for disposition."
Accounts payable and accrued expenses totaled $269,259 at December 31, 1998,
compared with $220,073 at December 31, 1997. The increase is largely due to the
timing of payment of invoices for Partnership administrative services.
On April 7, 1998, the Partnership paid a special cash distribution to Limited
Partners from the net proceeds from the sale of Stevens Creek in the amount of
$261.45 per Unit to Unitholders of record as of April 1, 1998. Following the
sale of the Partnership's remaining Properties, the General Partners will
distribute the net proceeds together with the Partnership's remaining cash
reserves (after payment of or provision for, the Partnership's liabilities and
expenses), and dissolve the Partnership.
Market Risk
- -----------
The Partnership's principal market risk exposure is interest rate risk. The
Partnership's only long-term debt is the mortgage note secured by 889 Ridgelake
which bears interest at a fixed rate until its maturity date in 2014. As noted
above, the General Partners are currently marketing the Properties for sale, and
it is anticipated that a sale of 889 Ridgelake will be completed prior to the
loan's maturity date. Interest income from the Partnership's cash and cash
equivalents is subject to interest rate risk, since such funds consist of
short-term, highly liquid investments invested at short-term rates. Such risk is
not considered material to the Partnership's operations.
Year 2000 Initiatives
- ---------------------
The Year 2000 compliance issue concerns the ability of computerized information
systems to accurately calculate, store or use a date after 1999. This could
result in computer system failures or miscalculations causing disruptions of
operations. The Year 2000 issue affects almost all companies and organizations.
As noted above, the Partnership's remaining properties are currently being
marketed for sale, and it is anticipated that the properties will be sold and
the Partnership dissolved prior to December 31, 1999. In the event that the
Partnership is not liquidated prior to December 31, 1999, potential Year 2000
issues relate primarily to outside vendors which provide property management and
the Partnership's administrative services including accounting, tax preparation
and transfer agent services. Such services are reliant on computer systems,
software products and equipment which may or may not be Year 2000 compliant. It
is anticipated that the cost of vendor compliance with Year 2000 problems will
be borne primarily by vendors. Although it is not possible at present to give an
estimate of the cost of this work to the Partnership, the General Partner does
not expect such costs to have a material adverse impact on the Partnership's
long term results of operations.
Results of Operations
- ---------------------
1998 versus 1997
- ----------------
For the year ended December 31, 1998, the Partnership's operations resulted in
net income of $6,012,382, compared to net income of $1,693,288 in fiscal 1997.
Net income in fiscal 1998 includes a gain on sale of real estate in the amount
of $7,829,940 and a corresponding charge for minority interest allocation of
$1,887,366, resulting from the sale of Stevens Creek, while net income in fiscal
1997 includes a gain on sale of real estate in the amount of $1,336,788
resulting from the sale of Swenson A. Excluding these gains, Partnership
operations resulted in a loss before gain on sale of real estate of $1,817,558
in fiscal 1998 compared with income before gain on sale of real estate of
$356,500 in fiscal 1997. The decrease is mainly due to a reduction in rental and
other income, and an increase in general and administrative expense.
<PAGE>
6
Primarily as a result of the sale of Swenson A in November 1997 and Stevens
Creek in February 1998, the following income and expense categories decreased in
comparison to 1997: rental income, other income and property operating expenses.
Interest income totaled $234,732 for the year ended December 31, 1998, compared
to $19,046 in fiscal 1997, reflecting the Partnership's higher cash balances in
1998 as a result of the sale of Swenson A in November 1997 and Stevens Creek in
February 1998.
General and administrative expenses totaled $388,205 for the year ended December
31, 1998, compared with $253,729 in fiscal 1997. The increase is primarily
attributable to an increase in Partnership administrative servicing fees and
higher legal expenses associated with the sale of Stevens Creek.
As of December 31, 1998, lease levels at the remaining Properties were as
follows: 959 Ridgeway - 63%; and 889 Ridgelake - 100%.
1997 versus 1996
- ----------------
The Partnership's operations for the year ended December 31, 1997 resulted in
net income of $1,693,288 compared with $259,629 for the year ended December 31,
1996. The increase is primarily attributable to the $1,336,788 gain recognized
in 1997 on the sale of Swenson A. Income before gain on sale of real estate was
$356,500 for the year ended December 31, 1997. The increase is primarily due to
a decrease in depreciation expense, which was partially offset by higher
property operating and general and administrative expenses, and lower rental
income.
Rental income totaled $3,144,174 for the year ended December 31, 1997, compared
with $3,390,655 in 1996. The decrease is primarily due to lower occupancy at 959
Ridgeway and the sale of Swenson A. Other income totaled $339,357 for the year
ended December 31, 1997, compared with $403,298 for the year ended December 31,
1996. The decrease is primarily attributable to lower tenant reimbursable income
at 959 Ridgeway, in addition to reimbursements for capital improvements
completed at 889 Ridgelake.
Property operating expenses totaled $1,915,443 for the year ended December 31,
1997, compared to $1,706,859 for the year ended December 31, 1996. The increase
primarily reflects roof repairs, carpeting and other non-capitalizable
improvements performed at Stevens Creek in 1997. Depreciation and amortization
decreased to $563,501 for the year ended December 31, 1997 from $1,240,363 a
year earlier, largely due to the reclassification of Swenson A and Stevens Creek
as "Real estate assets held for disposition." Additionally, certain tenant
improvements at 959 Ridgeway and 889 Ridgelake became fully depreciated in 1997.
General and administrative expenses for the year ended December 31, 1997,
totaled $253,729 compared with $185,101 for the 1996 period. During 1997,
certain expenses incurred by QP80 Real Estate Services Inc. and its affiliates
in servicing the Partnership, which were voluntarily absorbed by affiliates of
QP80 Real Estate Services, Inc. in prior periods, were reimbursable to QP80 Real
Estate Services, Inc. and its affiliates. Higher legal expenses resulting from
the sale of Swenson A also contributed to the increase. Further details
regarding general and administrative expenses are incorporated herein by
reference to Note 7 "Transactions with Related Parties" of Notes to the
Consolidated Financial Statements contained in the Partnership's Annual Report
to Unitholders for the year ended December 31, 1997 filed as an exhibit under
Item 14.
As of December 31, 1997, lease levels at each of the Properties were as follows:
Stevens Creek - 92%; 959 Ridgeway - 63%; and 889 Ridgelake - 100%.
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
Incorporated by reference to the Partnership's Annual Report to Unitholders for
the year ended December 31, 1998, which is filed as an exhibit under Item 14.
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
None.
<PAGE>
7
PART III
Item 10. Directors and Executive Officers of the Registrant
The General Partners of the Partnership are QP80 Real Estate Services Inc.
("QP80 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 QP80 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
---- ------
Rocco F. Andriola Director
Michael T. Marron President and Chief Financial Officer
William T. McDermott Vice President
Rocco F. Andriola, 40, is a Managing Director of Lehman Brothers in its
Diversified Asset Group and has held such position since October 1996. Since
joining Lehman in 1986, Mr. Andriola has been involved in a wide range of
restructuring and asset management activities involving real estate and other
direct investment transactions. From June 1991 through September 1996, Mr.
Andriola held the position of Senior Vice President in Lehman's Diversified
Asset Group. From June 1989 through May 1991, Mr. Andriola held the position of
First Vice President in Lehman's Capital Preservation and Restructuring Group.
From 1986 to 1989, Mr. Andriola served as a Vice President in the Corporate
Transactions Group of Shearson Lehman Brothers' office of the general counsel.
Prior to joining Lehman, Mr. Andriola practiced corporate and securities law at
Donovan Leisure Newton & Irvine in New York. Mr. Andriola received a B.A. from
Fordham University, a J.D. from New York University School of Law, and an LL.M
in Corporate Law from New York University's Graduate School of Law.
Michael T. Marron, 35, is a Vice President of Lehman Brothers and has been a
member of the Diversified Asset Group since 1990 where he has actively managed
and restructured a diverse portfolio of syndicated limited partnerships. Prior
to joining Lehman Brothers, Mr. Marron was associated with Peat Marwick Mitchell
& Co. serving in both its audit and tax divisions from 1985 to 1989. Mr. Marron
received a B.S. degree from the State University of New York at Albany and an
M.B.A. degree from Columbia University and is a Certified Public Accountant.
William T. McDermott, 35, is a Vice President of Lehman Brothers and has been a
member of the Diversified Asset Group since 1998. Mr. McDermott joined Lehman
Brothers in 1993 and held various positions within the firm before joining the
Diversified Asset Group. Prior to joining Lehman Brothers, Mr. McDermott was a
financial analyst with Cantor Fitzgerald Inc. from 1991 - 1993 and was
associated with Arthur Andersen & Co. serving in both its audit and bankruptcy
consulting divisions from 1985 to 1991. Mr. McDermott received his B.B.A. degree
from the University of Notre Dame and is a Certified Public Accountant.
HS Advisors, Ltd.
- -----------------
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.
<PAGE>
8
Name Office
---- ------
Mark P. Mikuta President
Julie R. Adie Vice President, Treasurer and Secretary
Mark P. Mikuta, 45, is 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.
Julie R. Adie, 44, is a Vice President, Secretary and Treasurer 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. On September
28, 1998 GSH sold its general partner and limited partner interests in GSHH to
The St. Joe Company, an unaffiliated company. The transactions 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, 1998, 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, First Trust Company, L.P., owns a total of 3,932 units or 7.67% of the
Units in one account. First Trust's address is 1211 Sixth Avenue, 29th Floor,
New York, New York 10036.
<PAGE>
9
(b) Security Ownership of Management
--------------------------------
The General Partners own 200 Units (134 by QP80 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.
---------------------------------------
Commencing January 1, 1997, the Partnership began reimbursing certain
expenses incurred by QP80 Services and its affiliates in servicing the
Partnership to the extent permitted by the Partnership agreement. In prior
years, affiliates of QP80 Services had voluntarily absorbed these expenses.
Disclosure relating to amounts paid to the General Partners or their
affiliates during the past three years is incorporated herein by reference
to Note 7 "Transactions with Related Parties" of Notes to the Consolidated
Financial Statements contained in the Partnership's Annual Report to
Unitholders for the year ended December 31, 1998 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.
<PAGE>
10
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)(1) Financial Statements:
--------------------
Consolidated Balance Sheets -
At December 31, 1998 and 1997................................... (1)
Consolidated Statements of Partners' Capital (Deficit) -
For the years ended December 31, 1998, 1997 and 1996............ (1)
Consolidated Statements of Operations -
For the years ended December 31, 1998, 1997 and 1996............ (1)
Consolidated Statements of Cash Flows -
For the years ended December 31, 1998, 1997 and 1996............ (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, 1998, 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 1998:
No reports on Form 8-K were filed during the three months
ended December 31, 1998.
<PAGE>
11
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).
(13) Registrant's Annual Report to Unitholders for the year ended December
31, 1998.
(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.)
<PAGE>
12
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 30, 1999 BY: HS Advisors, Ltd.
General Partner
BY: Hogan Stanton, Inc.
General Partner
BY: /s/Mark P. Mikuta
-----------------
Name: Mark P. Mikuta
Title: President
Date: March 30, 1999 BY: QP80 Real Estate Services Inc.
General Partner
BY: /s/Michael T. Marron
--------------------
Name: Michael T. Marron
Title: President and Chief Financial Officer
<PAGE>
13
SIGNATURES
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 30, 1999
BY: /s/Rocco F. Andriola
--------------------
Name: Rocco F. Andriola
Title: Director
Date: March 30, 1999
BY: /s/Michael T. Marron
--------------------
Name: Michael T. Marron
Title: President and
Chief Financial Officer
Date: March 30, 1999 BY: /s/William T. McDermott
-----------------------
Name: William T. McDermott
Title: Vice President
<PAGE>
14
SIGNATURES
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 30, 1999
BY: /s/Mark P. Mikuta
-----------------
Name: Mark P. Mikuta
Title: President of Hogan Stanton
Investment, Inc., as general
partner of HS Advisors, Ltd.
Date: March 30, 1999
BY: /s/Julie R. Adie
----------------
Name: Julie R. Adie
Title: Vice President, Treasurer and Secretary of
Hogan Stanton Investment, Inc.,
as general partner of HS Advisors, Ltd.
Exhibit (13)
Qualified Properties 80, L.P.
1998 Annual Report to Unitholders
<PAGE>
- --------------------------------------------------------------------------------
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 two remaining properties, 889 Ridgelake Office
Building and 959 Ridgeway Office Building, are both located in
Memphis, Tennessee in close proximity to Interstate 240. The 889
Ridgelake Office Building is a multi-tenanted, three-story building,
containing 104,720 rentable square feet. The 959 Ridgeway Office
Building is a multi-tenanted, two-story building, containing 32,771
rentable square feet. Provided below is a comparison of lease levels
at the properties as of December 31, 1998 and 1997.
Percentage
Leased
Property Location 1998 1997
-------- -------- ---- ----
959 Ridgeway Office Building Memphis, TN 63% 63%
889 Ridgelake Office Building Memphis, TN 100% 100%
Contents
1 Message to Investors
3 Consolidated Financial Statements
6 Notes to the Consolidated Financial Statements
11 Report of Independent Auditors
12 Net Asset Valuation
<PAGE>
1
- --------------------------------------------------------------------------------
MESSAGE TO INVESTORS
- --------------------------------------------------------------------------------
We are pleased to present the 1998 Annual Report for Qualified Properties 80,
L.P. (the "Partnership"). Included in this report is an update on the operations
and marketing of the Partnership's remaining properties, 889 Ridgelake Office
Building and 959 Ridgeway Office Building. Also included are financial
highlights and the Partnership's audited financial statements for the year ended
December 31, 1998.
Marketing Update
As previously reported, we are actively marketing the Partnership's remaining
properties for sale and have engaged a real estate brokerage firm to assist in
our marketing efforts. We are pleased to report that the Partnership has
executed a letter of intent with the joint venture partner to purchase both
properties and is currently negotiating a purchase and sale agreement. While we
currently anticipate that the properties will be sold during the first half of
1999, there can be no assurance that the sales will occur within this time
frame. Once the properties are sold, we will distribute the net proceeds,
together with the Partnership's remaining cash reserves (after payment of, or
provision for, the Partnership's liabilities and expenses) and subsequently
dissolve the Partnership.
Leasing Update
889 Ridgelake Office Building - During 1998, one tenant vacated its space
totaling 2,215 square feet and we subsequently re-leased the space. We also
executed one lease renewal totaling 6,000 square feet. As a result, as of
year-end 1998, the property's occupancy was 100%, unchanged from a year earlier.
Two leases totaling 14,621 square feet are scheduled to expire during 1999,
representing 16.5% of the property's leasable area.
959 Ridgeway Office Building - There was no leasing activity at the property
during the year and the property's 63% occupancy rate remained unchanged from
year-end 1997. We continue to actively market the property's vacant space. There
are no scheduled lease expirations in 1999.
Memphis Market Update
The Memphis office market continued to perform well during 1998. In particular,
the East Memphis submarket where both properties are located, remains one of the
strongest areas for growth with a vacancy rate for the year ending December 31,
1998 of 6.3% compared to 7.2% in 1997. New construction has been strong in the
East Memphis submarket, with 417,000 square feet delivered in 1998. Demand has
kept pace with this new supply, and rental rates have risen.
Cash Distributions
On April 7, 1998, the Partnership paid a special cash distribution totaling
$261.45 per Unit to Limited Partners representing the net proceeds from the sale
of the Stevens Creek Office Building in February 1998. Since inception, the
Partnership has paid total cash distributions of $813.25 per original $500 Unit,
including $425.45 per Unit in return of capital payments which have reduced the
size of each Unit from $500 to $74.55.
Financial Highlights
Provided below is a review of Partnership operations for the year ended December
31st of the indicated years:
<TABLE>
<CAPTION>
1998 1997
--------------------------------------------------------------------
<S> <C> <C>
Total Income $2,153,130 $3,502,577
Property Operating Expenses 998,730 1,915,443
Net Income 6,012,382 1,693,288
Net Cash provided by Operating Activities 324,507 954,925
--------------------------------------------------------------------
</TABLE>
o Total income and property operating expenses decreased due to the sale of
Swenson Business Park - Building A and Stevens Creek Office Building in
November 1997 and February 1998, respectively.
<PAGE>
2
o The increase in net income is primarily attributable to the $7,829,940
gain on the sale of Stevens Creek Office Building.
o The decrease in net cash provided by operating activities is primarily
attributable to a decrease in total income as a result of the sale of two
properties.
General Information
We will keep you updated with respect to the potential sales of the
Partnership's remaining two properties. In the interim, questions regarding the
Partnership should be directed to your Financial Consultant or Partnership
Investor Services. All requests for a change of address or transfer should be
submitted in writing to the Partnership's administrative agent at P.O. Box 7090,
Troy, MI 48007-7090. Partnership Investor Services can be reached at (617)
342-4225, and the Partnership's administrative agent can be reached at (248)
637-7900.
Very truly yours,
QP80 Real Estate Services Inc. Hogan Stanton Investment, Inc.
General Partner General Partner of HS Advisors, Ltd.
Michael T. Marron Mark P. Mikuta
President President
March 30, 1999
<PAGE>
3
QUALIFIED PROPERTIES 80, L.P.
AND CONSOLIDATED VENTURES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
At December 31, At December 31,
1998 1997
- -------------------------------------------------------------------------------------
<S> <C> <C>
Assets Real estate, at cost:
Land $ -- $ 1,348,365
Buildings and improvements -- 10,562,735
-----------------------------
-- 11,911,100
Less accumulated depreciation -- (6,516,375)
-----------------------------
-- 5,394,725
Real estate assets held for disposition 5,605,771 7,359,706
Cash and cash equivalents 1,938,059 1,023,370
Restricted cash 77,510 50,567
Prepaid expenses, net of accumulated amortization
of $132,997 in 1997 10,225 205,922
Rent and other receivables 3,523 439
Deferred rent receivable -- 113,664
- -------------------------------------------------------------------------------------
Total Assets $ 7,635,088 $14,148,393
=====================================================================================
Liabilities and Partners' Capital (Deficit)
Liabilities:
Accounts payable and accrued expenses $ 269,259 $ 220,073
Due to affiliates 11,946 4,922
Security deposits payable -- 60,521
Mortgage note payable 3,832,621 3,930,621
-----------------------------
Total Liabilities 4,113,826 4,216,137
-----------------------------
Minority interest 1,120,945 13,865
Partners' Capital (Deficit):
General Partners (225,429) (156,069)
Limited Partners (51,234 units outstanding) 2,625,746 10,074,460
-----------------------------
Total Partners' Capital 2,400,317 9,918,391
- -------------------------------------------------------------------------------------
Total Liabilities and Partners' Capital $ 7,635,088 $14,148,393
=====================================================================================
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL (DEFICIT)
For the years ended December 31, 1998, 1997 and 1996
General Limited
Partners Partners Total
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
Net income 8,345 1,684,943 1,693,288
Distributions (30,058) (2,766,636) (2,796,694)
- -------------------------------------------------------------------------------------
Balance at December 31, 1997 (156,069) 10,074,460 9,918,391
Net income 65,945 5,946,437 6,012,382
Distributions (135,305) (13,395,151) (13,530,456)
- -------------------------------------------------------------------------------------
Balance at December 31, 1998 $(225,429) $ 2,625,746 $ 2,400,317
=====================================================================================
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
4
QUALIFIED PROPERTIES 80, L.P.
AND CONSOLIDATED VENTURES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31,
1998 1997 1996
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income
Rental $ 1,867,782 $ 3,144,174 $ 3,390,655
Interest 234,732 19,046 19,441
Other 50,616 339,357 403,298
-------------------------------------------
Total Income 2,153,130 3,502,577 3,813,394
- -------------------------------------------------------------------------------------
Expenses
Property operating 998,730 1,915,443 1,706,859
Depreciation and amortization 285,572 563,501 1,240,363
Interest 410,815 419,922 426,578
General and administrative 388,205 253,729 185,101
-------------------------------------------
Total Expenses 2,083,322 3,152,595 3,558,901
- -------------------------------------------------------------------------------------
Income before minority interest and
gain on sale of real estate 69,808 349,982 254,493
Minority interest (1,887,366) 6,518 5,136
-------------------------------------------
Income (loss) before gain on sale
of real estate (1,817,558) 356,500 259,629
Gain on sale of real estate 7,829,940 1,336,788 --
- -------------------------------------------------------------------------------------
Net Income $ 6,012,382 $ 1,693,288 $ 259,629
=====================================================================================
Net Income Allocated:
To the General Partners $ 65,945 $ 8,345 $ 25,476
To the Limited Partners 5,946,437 1,684,943 234,153
- -------------------------------------------------------------------------------------
$ 6,012,382 $ 1,693,288 $ 259,629
=====================================================================================
Per limited partnership unit
(51,234 outstanding) $ 116.06 $ 32.89 $ 4.57
- -------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
5
QUALIFIED PROPERTIES 80, L.P.
AND CONSOLIDATED VENTURES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31,
1998 1997 1996
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income $ 6,012,382 $ 1,693,288 $ 259,629
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 259,261 520,953 1,138,181
Amortization 26,311 42,548 102,182
Gain on sale of real estate (7,829,940) (1,336,788) --
Minority interest in gain (loss) of
consolidated venture 1,887,366 (6,518) (5,136)
Increase (decrease) in cash arising
from changes in operating assets and
liabilities:
Restricted cash (26,943) 136,670 (71,716)
Prepaid expenses (7,313) (40,088) (145,727)
Rent and other receivables (3,084) 1,438 29,581
Deferred rent receivable 7,546 16,426 (11,655)
Accounts payable and accrued
expenses 52,418 (45,736) 80,594
Prepaid rent -- (15,212) 15,212
Due to affiliates 7,024 (4,289) 1,142
Security deposits payable (60,521) (7,767) --
--------------------------------------------
Net cash provided by operating
activities 324,507 954,925 1,392,287
- -------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Proceeds from sale of real estate 15,223,030 2,909,697 --
Additions to real estate (224,106) -- (151,608)
--------------------------------------------
Net cash provided by (used for)
investing activities 14,998,924 2,909,697 (151,608)
- -------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Cash distributions, including
distributions to minority investors (14,310,742) (3,136,511) (1,840,240)
Principal payments on mortgage
note payable (98,000) (88,272) (79,510)
--------------------------------------------
Net cash used for financing activities (14,408,742) (3,224,783) (1,919,750)
- -------------------------------------------------------------------------------------
Net increase (decrease) in cash
and cash equivalents 914,689 639,839 (679,071)
Cash and cash equivalents,
beginning of year 1,023,370 383,531 1,062,602
--------------------------------------------
Cash and cash equivalents,
end of year $ 1,938,059 $ 1,023,370 $ 383,531
=====================================================================================
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for interest $ 410,815 $ 419,922 $ 426,578
- -------------------------------------------------------------------------------------
Supplemental Disclosure of Non-Cash Investing Activities:
Write off of fully depreciated
tenant improvements $ -- $ 424,549 $ 789,514
- -------------------------------------------------------------------------------------
Due to the sale of Swenson Business Park - Building A, deferred rent receivable and
prepaid leasing in the amounts of $40,141, and $35,322 were reflected in the
calculation of gain on sale for year ended 1997.
In connection with the General Partners' intent to sell the properties, real estate
held for investment, deferred rent receivable and prepaid leasing commissions in the
amounts of $5,310,647, $106,118, and $189,006, respectively, were reclassified to
"Real estate assets held for disposition" in 1998. In 1996, a similar transfer was
made in connection with the General Partners' intent to sell Swenson Business Park -
Building A and Stevens Creek Office Building.
- -------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
6
QUALIFIED PROPERTIES 80, L.P.
AND CONSOLIDATED VENTURES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
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 General Partners expect to liquidate the Partnership in 1999.
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. On September 28, 1998, GSH sold its general partner
and limited partner interests in GSHH to The St. Joe Company, an unaffiliated
company. The transactions did not affect the ownership of the General Partners.
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 - Building A") 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 Business Park - Building A and
Stevens Creek Office Building real estate assets were reclassified as held for
disposition and were no longer depreciated. During the third quarter of 1998,
959 Ridgeway Office Building and 889 Ridgelake Office Building real estate
assets were reclassified as held for disposition and were no longer depreciated.
<PAGE>
7
QUALIFIED PROPERTIES 80, L.P.
AND CONSOLIDATED VENTURES
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. During 1998, leasing commissions were
reclassified as real estate assets held for disposition and were no longer
amortized.
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. During 1998, deferred rent receivable was reclassified as real
estate assets held for disposition and was no longer amortized.
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 judgment 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.
<PAGE>
8
QUALIFIED PROPERTIES 80, L.P.
AND CONSOLIDATED VENTURES
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, provided, however, that the deficit balance of the
General Partners' capital account does not exceed the amount they are required
to contribute upon dissolution of the Partnership, as discussed below. 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. In 1998,
income was allocated to the General Partners such that their deficit did not
increase beyond their obligations required by the Partnership Agreement,
discussed below.
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
As of December 31, 1998, real estate investments consist of two commercial
office buildings acquired, directly or indirectly, by the Partnership. Purchase
price amounts exclude acquisition fees and other closing costs.
<TABLE>
<CAPTION>
Square Date Purchase
Property Name Feet Location Acquired Ownership Price
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
- -------------------------------------------------------------------------------
</TABLE>
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.
On November 10, 1997, the Partnership closed on the sale of Swenson Business
Park Building A. The property was sold for net proceeds of $2.9 million, to an
unaffiliated third party. The transaction resulted in a gain on sale of
approximately $1.3 million, which is reflected in the Partnership's statement of
operations for the year ended December 31, 1997. For the year ended December 31,
1997, Swenson Business Park Building A had income from operations totaling
approximately $61,000.
<PAGE>
9
QUALIFIED PROPERTIES 80, L.P.
AND CONSOLIDATED VENTURES
On February 2, 1998, the Partnership closed on the sale of Stevens Creek Office
Building. The property was sold for net proceeds of $15,223,030 to 5300 Stevens
Creek Boulevard Inc. (the "Buyer"), a Delaware Corporation unaffiliated with the
Partnership. The transaction resulted in a gain on sale of $7,829,940, which is
reflected in the Partnership's statement of operations for the year ended
December 31, 1998. The property was reclassified on the Consolidated Balance
Sheet as "Real estate assets held for disposition" during 1996. For the year
ended December 31, 1997, Stevens Creek Office Building had income from
operations totaling approximately $857,000.
The Joint Venture agreement for 5300 Stevens Creek Boulevard, which owned 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.
The Partnership has engaged a real estate broker to assist in selling the
Partnership's two remaining properties, 889 Ridgelake Office Building and 959
Ridgeway Office Building. Accordingly, the Partnership's real estate assets,
deferred rent receivable and prepaid leasing costs were reclassified on the
consolidated balance sheets at December 31, 1998 to "Real estate assets held for
disposition," and the Partnership suspended depreciation and amortization in
accordance with Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of." It is currently anticipated that the properties will be sold and the
Partnership liquidated in 1999, however, there can be no assurance that either
property will be sold within this time frame, or that the sales will result in a
particular price.
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:
<TABLE>
<CAPTION>
Year Amount
----------------------------------------
<S> <C>
1999 $ 108,800
2000 120,790
2001 134,102
2002 148,880
2003 165,287
Thereafter 3,154,762
----------------------------------------
Total $3,832,621
==========
</TABLE>
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.
<PAGE>
10
QUALIFIED PROPERTIES 80, L.P.
AND CONSOLIDATED VENTURES
6. Rental Income Under Operating Leases
Future minimum rental income to be received on noncancellable operating leases,
as of December 31, 1998 is as follows:
<TABLE>
<CAPTION>
Year Amount
----------------------------------------
<S> <C>
1999 $1,535,380
2000 1,476,199
2001 658,337
2002 392,309
2003 97,407
----------------------------------------
Total $4,159,632
==========
</TABLE>
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 889 Ridgelake and one tenant at 959 Ridgeway generated rental
revenue in excess of 10% of the Partnership's 1998 consolidated rental revenues.
The rental income from these tenants totaled $720,362, $300,998 and $206,550 or
39%, 16% and 11%, respectively, of the Partnership's consolidated rental
revenue. The leases are scheduled to expire on December 31, 2000, March 31, 2002
and March 31, 2003 and as of December 31, 1998, the tenants are current in their
rental payments. Rental income derived from one of the above tenants in 1997 and
1996 was $723,980 and $717,713, or 23% and 21%, respectively, of the
Partnership's consolidated rental revenues for each year.
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 general and administrative expense during the years ended December 31, 1998,
1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Reimbursement of out-of-pocket expenses $ 246 $ 1,425 $ 2,757
Property management fees 34,596 28,715 37,979
- --------------------------------------------------------------------------------
$34,842 $30,140 $40,736
===============================
</TABLE>
At December 31, 1998 and 1997, $11,946 and $4,922 were payable to the General
Partners, respectively.
8. Reconciliation of Net Income to Taxable Income
Net income reported on the financial statements exceeded taxable income by
$449,200 for the year ended December 31, 1998. Taxable income exceeded net
income reported in the financial statements by $821,656 and $263,337 for the
years ended December 31, 1997 and 1996, 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.
<PAGE>
11
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
General and Limited Partners
Qualified Properties 80, L.P.
and Consolidated Ventures
We have audited the accompanying consolidated balance sheets of Qualified
Properties 80, L.P. and Consolidated Ventures as of December 31, 1998 and 1997,
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, 1998. 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Qualified
Properties 80, L.P. and Consolidated Ventures at December 31, 1998 and 1997, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
New York, New York
February 5, 1999
<PAGE>
12
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
NET ASSET VALUATION
- -------------------------------------------------------------------------------------
Comparison of Acquisition Costs to Estimated Value and Determination of
Net Asset Value Per $74.55 Unit at December 31, 1998 (Unaudited)
Date of Acquisition 1998 Estimated
Property Acquisition Cost (1) Value (2)
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
959 Ridgeway 03-11-81 $1,815,517 $ 1,825,000
889 Ridgelake(3) 02-01-82 3,802,102 3,942,379
---------- -----------
$5,617,619 5,767,379
==========
Cash and cash equivalents 1,938,059
Restricted cash 77,510
Rent and other receivables 3,523
Prepaid expenses 10,225
----------
7,796,696
Less:
Total liabilities - net of mortgage note payable (281,205)
Minority interest (1,120,945)
-----------
Partnership Net Asset Value(4) $ 6,394,546
===========
Net Asset Value Allocated:
Limited Partners $ 6,330,601
General Partners 63,945
-----------
$ 6,394,546
===========
Net Asset Value Per Unit
(51,234 units outstanding) $123.56
- -------------------------------------------------------------------------------------
<FN>
(1) Purchase price plus General Partners' acquisition fees.
(2) This represents the Partnership's share of the December 31, 1998 estimated
values for 959 Ridgeway and 889 Ridgelake which were determined by the
General Partners, with the assistance of the broker engaged to market the
properties. The Partnership's share of the December 31, 1998 estimated value
takes into account the allocation provisions of the joint venture agreement
governing the distribution of sales proceeds for 889 Ridgelake.
(3) The Acquisition Cost and Partnership's share of the December 31, 1998
estimated values are net of the outstanding mortgage loan balances at the
time of acquisition and at December 31, 1998, respectively.
(4) The Net Asset Value assumes a hypothetical sale on December 31, 1998 of the
Partnership's properties at their estimated values and the distribution of
the net proceeds to Limited Partners 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.
</FN>
</TABLE>
Limited Partners should note that properties' values are estimated and the
actual values realizable upon sale may be significantly different. The estimated
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 estimated
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.
<PAGE>
F-1
QUALIFIED PROPERTIES 80, L.P.
AND CONSOLIDATED VENTURES
Schedule III - Real Estate and Accumulated Depreciation
December 31, 1998
<TABLE>
<CAPTION>
Commercial Property Held for Disposition: 959 889
Consolidated Ventures: Ridgeway Ridgelake Total
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Location Memphis, TN Memphis, TN na
Construction date 1977 1980 na
Acquisition date (1) 02-01-82 na
Life on which depreciation in latest
income statement is computed(2) 1 - 25 years 1 - 25 years na
Encumbrances $ -- $ 3,832,621 $ 3,832,621
-------------------------------------------
Initial cost to Partnership:
Land 424,954 923,411 1,348,365
Buildings and improvements 1,430,576 7,792,436 9,223,012
Costs capitalized subsequent to
acquisition:
Buildings and improvements 763,126 1,783,236 2,546,362
Deferred Rent Receivable -- 106,118 106,118
Prepaid Leasing Costs, net 81,019 107,987 189,006
Retirements(3) (346,039) (685,417) (1,031,456)
Gross amount at which carried
at close of period(4):
Land $ 424,954 $ 923,411 $ 1,348,365
Buildings and improvements 1,847,663 8,890,255 10,737,918
Deferred Rent Receivable -- 106,118 106,118
Prepaid Leasing Costs, net 81,019 107,987 189,006
-------------------------------------------
$ 2,353,636 $10,027,771 $12,381,407
-------------------------------------------
Accumulated depreciation(5) $ 1,121,839 $ 5,653,797 $ 6,775,636
- -------------------------------------------------------------------------------------
<FN>
(1) The Partnership acquired its Joint Venture interest on March 11, 1981 and
subsequently acquired the minority partner's interest on March 1, 1982. The
Partnership is now the sole owner of the property.
(2) Tenant improvements were depreciated on a straight-line basis over the 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 $12,820,003.
(5) For Federal income tax purposes, the amount of accumulated depreciation is
$9,466,278.
</FN>
</TABLE>
A reconciliation of the carrying amount of real estate and accumulated
depreciation for the years ended December 31, 1998, 1997 and 1996 follows:
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Real estate investments:
Beginning of year $ 22,475,305 $25,383,159 $25,423,462
Additions 224,106 -- 151,608
Deferred Rent Receivable 106,118 -- 305,518
Prepaid Leasing Costs 189,006 -- 292,085
Retirements -- (424,548) (789,514)
Dispositions (10,613,128) (2,483,306) --
--------------------------------------------
End of year $ 12,381,407 $22,475,305 $25,383,159
--------------------------------------------
Accumulated depreciation:
Beginning of year $ 9,720,874 $10,534,868 $10,186,201
Depreciation expense 259,261 520,953 1,138,181
Retirements -- (424,548) (789,514)
Dispositions (3,204,499) (910,399) --
--------------------------------------------
End of year $ 6,775,636 $ 9,720,874 $10,534,868
- -------------------------------------------------------------------------------------
</TABLE>
<PAGE>
F-2
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
February 5, 1999, included in the 1998 Annual Report 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 therein.
ERNST & YOUNG LLP
New York, New York
February 5, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-END> Dec-31-1998
<CASH> 1,938,059
<SECURITIES> 000
<RECEIVABLES> 3,523
<ALLOWANCES> 000
<INVENTORY> 000
<CURRENT-ASSETS> 10,225
<PP&E> 12,381,407
<DEPRECIATION> (6,775,636)
<TOTAL-ASSETS> 7,635,088
<CURRENT-LIABILITIES> 269,259
<BONDS> 3,832,621
000
000
<COMMON> 000
<OTHER-SE> 2,400,317
<TOTAL-LIABILITY-AND-EQUITY> 7,635,088
<SALES> 1,867,782
<TOTAL-REVENUES> 2,153,130
<CGS> 000
<TOTAL-COSTS> 000
<OTHER-EXPENSES> 1,672,507
<LOSS-PROVISION> 000
<INTEREST-EXPENSE> 410,815
<INCOME-PRETAX> (1,817,558)
<INCOME-TAX> 000
<INCOME-CONTINUING> (1,817,558)
<DISCONTINUED> 000
<EXTRAORDINARY> 7,829,940
<CHANGES> 000
<NET-INCOME> 6,012,382
<EPS-PRIMARY> 116.06
<EPS-DILUTED> 116.06
</TABLE>
