SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarter ended September 30, 1995 Commission File #0-10206
JMB INCOME PROPERTIES, LTD. - VIII
(Exact name of registrant as specified in its charter)
Illinois 36-3075978
(State of organization) (IRS Employer Identification No.)
900 N. Michigan Ave., Chicago, IL 60611
(Address of principal executive office)(Zip Code)
Registrant's telephone number, including area code 312/915-1987
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
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1. Financial Statements. . . . . . . . . . . . 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . 16
PART II OTHER INFORMATION
Item 3. Defaults Upon Senior Securities . . . . . . 19
Item 5. Other Information . . . . . . . . . . . . . 20
Item 6. Exhibits and Reports on Form 8-K. . . . . . 21
<TABLE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
JMB INCOME PROPERTIES, LTD. - VIII
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1995 AND DECEMBER 31, 1994
(UNAUDITED)
ASSETS
------
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents (note 1) . . . . . . . . . . . . . $ 19,305,883 10,989,920
Short-term investments (note 1). . . . . . . . . . . . . . . -- 2,203,001
Interest, rents and other receivables, net of allowance
for doubtful accounts of $485,652 in 1995 and
$337,680 in 1994 . . . . . . . . . . . . . . . . . . . . . 708,305 1,316,206
Notes receivable . . . . . . . . . . . . . . . . . . . . . . 16,427 16,427
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . 79,869 65,941
Escrow deposits. . . . . . . . . . . . . . . . . . . . . . . 706,286 1,024,845
------------ ------------
Total current assets . . . . . . . . . . . . . . . . 20,816,770 15,616,340
------------ ------------
Investment properties, at cost:
Land. . . . . . . . . . . . . . . . . . . . . . . . . . . 4,298,797 11,015,330
Buildings and improvements . . . . . . . . . . . . . . . . 56,499,553 94,475,512
------------ ------------
60,798,350 105,490,842
Less accumulated depreciation. . . . . . . . . . . . . . . 33,854,088 41,561,458
------------ ------------
Total investment properties,
net of accumulated depreciation. . . . . . . . . . 26,944,262 63,929,384
Venture partners' deficit in venture (note 2(c)) . . . . . . . -- 1,781,162
Investment in unconsolidated venture, at equity (note 1) . . . 96,905 96,905
Deferred expenses . . . . . . . . . . . . . . . . . . . . . . 154,397 488,332
Accrued rents receivable . . . . . . . . . . . . . . . . . . . 1,109,524 1,337,595
------------ ------------
$ 49,121,858 83,249,718
============ ============
JMB INCOME PROPERTIES, LTD. - VIII
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
CONSOLIDATED BALANCE SHEETS - CONTINUED
LIABILITIES AND PARTNERS' CAPITAL ACCOUNTS (DEFICITS)
----------------------------------------------------
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------- -----------
<S> <C> <C>
Current liabilities:
Current portion of long-term debt (note 2(b)). . . . . . . . $ 30,823,831 1,514,593
Accounts payable . . . . . . . . . . . . . . . . . . . . . . 270,960 488,574
Accrued interest . . . . . . . . . . . . . . . . . . . . . . 1,075,203 842,410
Accrued real estate taxes. . . . . . . . . . . . . . . . . . 801,540 1,302,118
------------ ------------
Total current liabilities. . . . . . . . . . . . . . . . 32,971,534 4,147,695
Tenant security deposits . . . . . . . . . . . . . . . . . . . 57,336 59,061
Note payable (note 2(c)) . . . . . . . . . . . . . . . . . . . -- 544,500
Other liabilities . . . . . . . . . . . . . . . . . . . . . . 1,041,764 1,041,764
Long-term debt, less current portion . . . . . . . . . . . . . -- 29,651,372
------------ ------------
Commitments and contingencies (notes 2 and 5)
Total liabilities. . . . . . . . . . . . . . . . . . . . 34,070,634 35,444,392
Venture partners' subordinated equity in ventures . . . . . . 6,978,131 23,337,553
Partners' capital accounts (deficits):
General partners:
Capital contributions. . . . . . . . . . . . . . . . . . . 1,000 1,000
Cumulative net losses. . . . . . . . . . . . . . . . . . . (4,278,283) (3,621,627)
Cumulative cash distributions. . . . . . . . . . . . . . . (2,827,305) (2,827,305)
------------ ------------
(7,104,588) (6,447,932)
------------ ------------
Limited partners (80,005 interests):
Capital contributions, net of offering costs . . . . . . . 72,119,757 72,119,757
Cumulative net earnings. . . . . . . . . . . . . . . . . . 19,243,156 34,981,180
Cumulative cash distributions. . . . . . . . . . . . . . . (76,185,232) (76,185,232)
------------ ------------
15,177,681 30,915,705
------------ ------------
Total partners' capital accounts . . . . . . . . . . . . 8,073,093 24,467,773
------------ ------------
$ 49,121,858 83,249,718
============ ============
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
JMB INCOME PROPERTIES, LTD. - VIII
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(UNAUDITED)
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
----------------------------------------------------
1995 1994 1995 1994
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Income:
Rental income. . . . . . . . . . . . . . $ 790,915 2,010,978 5,036,333 5,924,668
Interest income. . . . . . . . . . . . . 278,705 151,061 700,182 428,407
----------- ---------- ----------- ----------
1,069,620 2,162,039 5,736,515 6,353,075
----------- ---------- ----------- ----------
Expenses:
Mortgage and other interest. . . . . . . 859,638 870,840 2,787,324 2,665,477
Depreciation . . . . . . . . . . . . . . 668,568 787,277 2,168,306 2,343,374
Property operating expenses. . . . . . . 1,002,528 1,351,797 3,416,704 3,648,945
Professional services. . . . . . . . . . 862 15,199 62,992 68,206
Amortization of deferred expenses. . . . 27,877 45,273 91,235 129,818
General and administrative . . . . . . . 52,977 23,969 141,049 81,233
Provision for value impairment
(note 1) . . . . . . . . . . . . . . . 30,114,810 335,561 30,114,810 335,561
----------- ---------- ----------- ----------
32,727,260 3,429,916 38,782,420 9,272,614
----------- ---------- ----------- ----------
Operating loss . . . . . . . . . 31,657,640 1,267,877 33,045,905 2,919,539
Venture partners' share of
ventures' operations . . . . . . . . . . (15,914,273) (572,162)(16,622,271) (1,570,239)
----------- ---------- ----------- ----------
Net operating loss . . . . . . . 15,743,367 695,715 16,423,634 1,349,300
Gain on sale of investment
property, net of venture
partners' share of
$1,790,356 (note 4). . . . . . -- -- (28,954) --
----------- ---------- ----------- ----------
Net loss . . . . . . . . . . . . $15,743,367 695,715 16,394,680 1,349,300
=========== ========== =========== ==========
JMB INCOME PROPERTIES, LTD. - VIII
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
CONSOLIDATED STATEMENTS OF OPERATIONS - CONTINUED
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
----------------------------------------------------
1995 1994 1995 1994
----------- ---------- ----------- ----------
Net loss per limited partnership
interest (note 1):
Net operating loss . . . . . . . . . . $ 188.91 8.35 197.07 16.19
Gain on sale of investment
property, net (note 4) . . . . . . . -- -- (0.36) --
----------- ---------- ----------- ----------
$ 188.91 8.35 196.71 16.19
=========== ========== =========== ==========
Cash distributions per limited
partnership interest . . . . . $ -- -- -- 115.00
=========== ========== =========== ==========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
JMB INCOME PROPERTIES, LTD. - VIII
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(UNAUDITED)
<CAPTION>
1995 1994
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . .$(16,394,680) (1,349,300)
Items not requiring (providing) cash or cash equivalents:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . 2,168,306 2,343,374
Amortization of deferred expenses. . . . . . . . . . . . . . . 91,235 129,818
Venture partners' share of ventures' operations. . . . . . . . (16,622,271) (1,570,239)
Total gain on sale of investment properties,
net of venture partners' share (note 4). . . . . . . . . . . (28,954) --
Provision for value impairment . . . . . . . . . . . . . . . . 30,114,810 335,561
Changes in:
Interest, rents and other receivables. . . . . . . . . . . . . 607,901 463,324
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . (13,928) (7,716)
Escrow deposits. . . . . . . . . . . . . . . . . . . . . . . . 318,559 276,150
Accrued rents receivable . . . . . . . . . . . . . . . . . . . 228,071 (161,272)
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . (217,614) 92,029
Accrued interest . . . . . . . . . . . . . . . . . . . . . . . 232,793 86,720
Accrued real estate taxes. . . . . . . . . . . . . . . . . . . (500,578) (247,648)
Tenant security deposits . . . . . . . . . . . . . . . . . . . (1,725) 1,050
------------ -----------
Net cash provided by (used in) operating activities . . (18,075) 391,851
------------ -----------
Cash flows from investing activities:
Net sales and maturities of short-term investments . . . . . . . 2,203,001 9,571,440
Additions to investment properties . . . . . . . . . . . . . . . (198,672) (401,234)
Payment of deferred expenses . . . . . . . . . . . . . . . . . . (10,584) (19,784)
Proceeds from sale of investment property,
net of selling expenses (note 4) . . . . . . . . . . . . . . . 6,973,269 --
------------ -----------
Net cash provided by investing activities. . . . . . . . 8,967,014 9,150,422
------------ -----------
JMB INCOME PROPERTIES, LTD. - VIII
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
1995 1994
------------ -----------
Cash flows from financing activities:
Principal payments on long-term debt . . . . . . . . . . . . . . (342,131) (346,163)
Notes payable. . . . . . . . . . . . . . . . . . . . . . . . . . (544,500) --
Venture partners' contributions to ventures. . . . . . . . . . . 262,764 542,810
Distributions to venture partners. . . . . . . . . . . . . . . . (9,109) --
Distributions to limited partners. . . . . . . . . . . . . . . . -- (9,200,574)
------------ -----------
Net cash used in financing activities. . . . . . . . . . (632,976) (9,003,927)
------------ -----------
Net increase in cash and cash equivalents. . . . . . . . 8,315,963 538,346
Cash and cash equivalents, beginning of year . . . . . . 10,989,920 328,805
------------ -----------
Cash and cash equivalents, end of period . . . . . . . .$ 19,305,883 867,151
============ ===========
Supplemental disclosure of cash flow information:
Cash paid for mortgage and other interest. . . . . . . . . . . .$ 2,554,531 2,578,757
============ ===========
Non-cash investing and financing activities:
Proceeds from sale of investment property,
net of selling expenses (note 4) . . . . . . . . . . . . . .$ 6,973,269 --
============ ===========
Purchase of venture partners' interest (note 2(c)):
Reduction in basis of investment property. . . . . . . . . .$ -- 287,144
Note payable . . . . . . . . . . . . . . . . . . . . . . . . -- 544,500
------------ -----------
Increase in venture partners' deficit in venture . . . .$ -- 831,644
============ ===========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
JMB INCOME PROPERTIES, LTD. - VIII
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995 AND 1994
Readers of this quarterly report should refer to the Partnership's
audited financial statements for the year ended December 31, 1994 which are
included in the Partnership's 1994 Annual Report, as certain footnote
disclosures which would substantially duplicate those contained in such
audited financial statements have been omitted from this report.
(1) BASIS OF ACCOUNTING
The accompanying consolidated financial statements include the
accounts of the Partnership and its consolidated ventures, Carillon
Partners, Ltd. ("Carillon") and Carillon's venture, Carillon Associates,
Ltd. ("Associates") (sold in May 1995, note 4) and T & C - JMB Partners ("T
& C") and T & C's venture, H & M Associates Ltd. - Houston ("Town and
Country"). The effect of all transactions between the Partnership and the
consolidated ventures has been eliminated in the consolidated financial
statements. The equity method of accounting has been applied in the
accompanying consolidated financial statements with respect to the
Partnership's venture interest in Properties Partners. Accordingly, the
accompanying consolidated financial statements do not include the accounts
of Properties Partners.
The Partnership records are maintained on the accrual basis of
accounting as adjusted for Federal income tax reporting purposes. The
accompanying consolidated financial statements have been prepared from such
records after making appropriate adjustments to present the Partnership's
accounts in accordance with generally accepted accounting principles
("GAAP") and to consolidate the accounts of the ventures as described
above. Such adjustments are not recorded on the records of the
Partnership. The net effect of these items is summarized as follows for
the nine months ended September 30:
1995 1994
----------------------- --------------------
GAAP BASIS TAX BASIS GAAP BASIS TAX BASIS
---------- --------- ---------- ---------
Net loss . . . .$16,394,680 696,844 1,349,300 955,893
Net loss
per limited
partnership
interest. . . .$ 196.71 8.71 16.19 11.47
=========== ========= ========= ========
The net loss per limited partnership interest is based upon the number
of limited partnership interests outstanding at the end of each period
(80,005). Deficit capital accounts will result, through the duration of
the Partnership, in net gain for financial reporting and income tax
purposes.
Partnership distributions from its unconsolidated venture are
considered cash flow from operating activities only to the extent of the
Partnership's cumulative share of net earnings. The Partnership records
amounts held in U.S. Government obligations at cost, which approximates
market. For the purposes of these statements, the Partnership's policy is
to consider all such amounts held with original maturities of three months
or less ($19,174,923 and $10,918,719 at September 30, 1995 and December 31,
1994, respectively) as cash equivalents with any remaining amounts
(generally with maturities of one year or less) reflected as short-term
investments being held to maturity.
JMB INCOME PROPERTIES, LTD. - VIII
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
During March 1995, Statement of Financial Accounting Standards No. 121
("SFAS 121") "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" was issued. SFAS 121, when effective,
will require that the Partnership record an impairment loss on its long-
lived asset to be held and used (primarily its consolidated investments in
land, buildings and improvements) whenever its carrying value cannot be
fully recovered through estimated undiscounted future cash flows from
operations and sale. The amount of the impairment loss to be recognized
would be the difference between the long-lived asset's carrying value and
the asset's estimated fair value. Any long-lived assets identified "to be
disposed of" would no longer be depreciated but adjustments for impairment
loss would be made in each period as necessary to report these assets at
the lower of historical cost and fair value less costs to sell. In certain
situations, such estimated fair value could be less than the existing non-
recourse debt which is secured by the property.
The amount of any impairment loss recognized by the Partnership under
its current accounting policy has been limited to the excess, if any, of
the property's carrying value over the outstanding balance of the
property's non-recourse indebtedness. As the non-recourse indebtedness
secured by the Town & Country Center is currently in default as more fully
described in note 2(b), the Partnership made, as a matter of prudent
accounting practice, a provision at September 30, 1995 for value impairment
of the Town & Country Center of $30,114,810 (of which the Partnership's
share is $15,087,520) as it is unlikely that the Partnership will be able
to recover the net carrying value of the property through future operations
or sale. An impairment loss under SFAS 121 would be determined without
regard to the nature or the balance of such non-recourse indebtedness.
Upon the disposition of a property for which an impairment loss has been
recognized under SFAS 121, the Partnership would recognize, at a minimum, a
net gain for financial reporting purposes to the extent of any excess of
the then outstanding balance of the property's non-recourse indebtedness
over the then carrying value of the property, including the effect of any
reduction for impairment loss under SFAS 121.
The Partnership expects to adopt SFAS 121 no later than the first
quarter of 1996. As indicated in note 2(b) below, the Partnership will
likely own no operating properties at the time SFAS 121 would otherwise be
adopted. Although the Partnership has not finalized its assessment of the
full impact of adopting SFAS 121, it is likely that an additional provision
for value impairment would be required for the property owned by the
Partnership and its consolidated ventures. Such provision is currently
estimated to total approximately $17,300,000 in the first period of
implementation of SFAS 121. In addition, upon the disposition of an
impaired property, the Partnership would generally recognize more net gain
for financial reporting purposes under SFAS 121 than it would have under
the Partnership's current impairment policy, without regard to the amount,
if any, of cash proceeds received by the Partnership in connection with the
disposition. Although implementation of this new accounting statement
could significantly impact the Partnership's reported earnings, there would
be no impact on cash flows. Further, any such impairment loss would not be
recognized for Federal income tax purposes.
(2) VENTURE AGREEMENTS
(a) General
The Partnership at September 30, 1995 is a party to one operating
joint venture agreement. Under certain circumstances, either pursuant to
the venture agreement or due to the Partnership's obligations as a general
partner, the Partnership may be required to make additional cash
contributions to the venture.
JMB INCOME PROPERTIES, LTD. - VIII
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The Partnership acquired, through the above venture, one shopping
mall. The venture property has been financed under a long-term debt
arrangement.
There are certain risks associated with the Partnership's investment
made through the joint venture including the possibility that the
Partnership's joint venture partners in an investment might become unable
or unwilling to fulfill their financial or other obligations, or that such
joint venture partners may have economic or business interest or goals that
are inconsistent with those of the Partnership.
(b) Town & Country
Over the past year, T&C has prepared and been evaluating a plan for an
extensive renovation and re-merchandising of Town & Country for the long-
term stability and enhancement of Town & Country's occupancy and revenue
potential. In connection with the plan, T&C approached a number of
national and regional tenants to lease space at the property. In
discussions with these tenants, a majority of them indicated that, in
addition to significant tenant leasing incentives, a major renovation of
Town & Country would be essential for them to lease space at the property.
Focus group studies on the area residents further supported this concept.
Accordingly, T&C worked extensively with an architectural firm and
marketing personnel to determine the most effective redevelopment plan to
improve Town & Country. A condition to undertaking a redevelopment of Town
& Country was to have been T&C's obtaining extensions of the agreements for
the department stores to continue operating their stores at the property.
The Partnership believed that the renovation and re-merchandising of Town &
Country was viable and that it would be the best strategy to enhance value.
Accordingly, during this process, it remained the Partnership's intent to
hold Town & Country as a long-term investment.
T&C completed its evaluation of an extensive redevelopment of the
center in early September 1995. The total cost for such a redevelopment,
including obtaining tenant leases for the mall space and extensions of the
department store operating agreements, was estimated to be in excess of $25
million. However, many of the retail tenants considered integral to a
successful re-merchandising of the property upon completion of a renovation
had now become unwilling to take further space in the Houston market even
if given significant tenant leasing incentives. The continued sluggishness
in the Houston economy in recovering from the previous recession, as well
as the intense competition in Town & Country's trade area, appear to be
among the factors dissuading prospective retail tenants from committing to
lease space at Town & Country. In addition, the projected return on the
estimated cost was not expected to be sufficient to warrant an investment
of this magnitude.
Given T&C's current level of debt, the strong competition that Town &
Country faces, and the significant cost that would be required to lease,
renovate and re-merchandise the property, T&C decided in September 1995 not
to commit any additional capital to pay continued operating deficits of the
property, including funding for debt service payments, unless it could
obtain a modification to the existing non-recourse mortgage loan.
Consequently, T&C remitted to the lender only the amount of cash flow from
property operations after expenses rather than the full debt service
payment required for the month of September 1995 and approached the lender
to discuss the possibility of a modification to the existing loan to
eliminate, or reduce significantly, future operating deficits. However,
the lender was unwilling to modify the loan. On September 13, 1995, the
lender notified T&C that it is in default and that the lender intends to
JMB INCOME PROPERTIES, LTD. - VIII
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
realize upon its security for the mortgage loan as soon as possible.
Accordingly, the mortgage loan secured by Town & Country is classified as a
current liability at September 30, 1995 in the accompanying consolidated
financial statements. Upon the lender's obtaining title to the property,
T&C, and consequently the Partnership, will recognize a gain for Federal
income tax reporting purposes with no corresponding distributable proceeds.
Town and Country is the remaining investment property of the Partnership.
If the lender realizes upon its security and takes title to the property,
the Partnership intends to wind up its affairs and liquidate. The
Partnership would then distribute its remaining cash after payment of
expenses and liabilities. It is possible that the lender may obtain title
to the property in 1995, in which case the Partnership will attempt to wind
up its affairs by year-end, although there is no assurance that the
Partnership would be able to do so.
The terms of the T&C partnership agreement provide that all of T&C
share of Town & Country's annual cash flow, net proceeds from sale or
refinancing, profits and losses and tax items are allocated between the
Partnership and its affiliated venture partner based upon the ratio of
capital contributions made by each partner (68.57% and 31.43%
respectively). The T&C partnership was allocated 73.07% of Town &
Country's operating profits and losses in 1994 and for the nine months
ended September 30, 1995.
Through September 30, 1995 the Partnership and its affiliated venture
partner have made interest-bearing loans aggregating $4,740,437 to the T&C
venture to fund operating deficits at the property pursuant to an amendment
to the Partnership Agreement under negotiation. However, because these
loans are non-recourse and due to the expectation of the lender realizing
upon its security for the mortgage loan related to Town & Country (as
discussed above) it is doubtful that such an amendment will be finalized or
that such amounts will be repaid. These loans and related interest have
been eliminated in the consolidated financial statements.
Town & Country also is obligated under a 12% promissory note payable
($991,689 outstanding as of September 30, 1995 and December 31, 1994) to an
affiliate of the developer which matured June 30, 1993. The Partnership
and its affiliated venture partner have reached an agreement in principle
with the developer to extend the original due date of the promissory note.
Although no interest payments are currently being made, the venture
continues to accrue interest on the note at the original contract rate. As
of the date of this report, the specific terms of this agreement have not
been finalized. However, because this loan is non-recourse and due to the
expectation of the lender realizing upon its security for the mortgage loan
related to Town & Country (as discussed above) it is doubtful that such
extension will be executed.
An affiliate of the Managing General Partner of the Partnership has
responsibility for management and leasing of the Town & Country Center
under a management agreement which provides for a management fee based on a
percentage of gross income (as defined) from the property's operations not
to exceed 5% in aggregate.
(c) Carillon
In September 1980, the Partnership acquired an interest in the
Carillon Shopping Village in Houston, Texas through the Associates venture
between Carillon as general partner and an affiliate of the seller as
limited partner. Carillon was a limited partnership consisting of the
JMB INCOME PROPERTIES, LTD. - VIII
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Partnership as general partner and a third party, which was not affiliated
with the seller, the Partnership or its General Partners, as limited
partner. On March 28, 1994, the Partnership and the Managing General
Partner of the Partnership purchased the third party's 10% limited
partnership interest in Carillon. The purchase price consisted of non-
interest bearing promissory notes in the amounts of $544,500 from the
Partnership and $5,500 from the Managing General Partner. The notes were
due the earlier of the sale date of the property or January 31, 1996.
Also, if a binding sale agreement was consummated before January 31, 1996,
the third party would receive 10% of any net sale proceeds in excess of
$5,500,000. As a result of this transaction, the Partnership and Managing
General Partner had 99.9% and .1% interests in Carillon, respectively. The
portion of the third party's capital balance, in Carillon, purchased by the
Partnership exceeded the Partnership's promissory note by $287,144 for
financial reporting purposes. This difference was accounted for as a
reduction to the basis of the investment property. Correspondingly,
venture partners' deficit in venture, in the accompanying financial
statement, was increased by $831,644. The Partnership sold the Carillon
Shopping Village to an unaffiliated third party in May 1995 (note 4).
The Associates' partnership agreement provided that Carillon would be
entitled to receive, on cumulative basis, distributions of annual cash flow
equal to 9% of outstanding capital contributions; any remaining annual cash
flow would be distributable 60% to Carillon and 40% to the affiliate of the
seller. All operating profits or losses have been allocated 100% to
Carillon.
Net proceeds from the sale under the Associates partnership agreement
were distributed entirely to Carillon as Carillon was to receive, first,
any deficiencies in its cumulative annual preferred return then, an amount
of proceeds up to the sum of $3,972,500 plus 118% of the additional
contributions.
(3) PARTNERSHIP AGREEMENT
The Partnership Agreement provides that the General Partners shall
receive as a distribution from the sale of a real property by the
Partnership 3% of the selling price, and that the remaining proceeds (net
after expenses and retained working capital) be distributed 85% to the
Limited Partners and 15% to the General Partners. However, the Limited
Partners shall receive 100% of such net sale proceeds until the Limited
Partners (i) have received cash distributions of sale or refinancing
proceeds in an amount equal to the Limited Partners' aggregate initial
capital investment in the Partnership and (ii) have received cumulative
cash distributions from the Partnership's operations which, when combined
with sale or refinancing proceeds previously distributed, equal a 6% annual
return on the Limited Partners' average capital investment for each year
(their initial capital investment as reduced by sale or refinancing
proceeds previously distributed) commencing with the third fiscal quarter
of 1981. Approximately $3,086,000 has been deferred by the General
Partners pursuant to the distribution levels described above. The
Partnership does not anticipate paying the General Partner any such
deferrals.
(4) SALE OF INVESTMENT PROPERTY
On May 18, 1995, the Partnership sold the Carillon Shopping Village to
an unaffiliated third party. The sale price was $7,400,000 (before selling
JMB INCOME PROPERTIES, LTD. - VIII
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
costs) and was paid in cash at closing. As a result of the sale, the
Partnership has recognized in 1995 a gain of $28,954 for financial
reporting purposes, net of the venture partners' share of $1,790,356, and
expects to recognize a gain of approximately $822,000 in 1995 for Federal
income tax purposes.
Pursuant to the March 1994 purchase agreement with the former third
party limited partner of Carillon (note 2(c)), the non-interest bearing
promissory notes held by the former third party in the amounts of $544,500
and $5,500 from the Partnership and the Managing General Partner,
respectively, were paid as of the sale date. Additionally, based on net
sale proceeds of $6,973,269, the former third party limited partner of
Carillon received $145,854 and $1,473 from the Partnership and the Managing
General Partner, respectively.
(5) TRANSACTIONS WITH AFFILIATES
Fees, commissions and other expenses required to be paid by the
Partnership to the General Partners and their affiliates as of September
30, 1995 and for the nine months ended September 30, 1995 and 1994 are as
follows:
Unpaid at
September 30,
1995 1994 1995
-------- ------- -------------
Property management and
leasing fees . . . . . . $141,703 164,442 15,806
Insurance commissions. . . 18,595 24,826 --
Reimbursement (at cost)
for out-of-pocket
expenses . . . . . . . . 2,291 4,817 7
-------- ------- ------
$162,589 194,085 15,813
======== ======= ======
The Managing General Partner and its affiliates are entitled to
reimbursement for salaries and direct expenses of officers and employees of
the Managing General Partner and its affiliates relating to the
administration of the Partnership and the operation of Partnership's
investment properties. For fiscal 1994 and for the nine months ended
September 30, 1995, such costs were $84,985 and $79,041, respectively, all
of which have been paid as of September 30, 1995.
The Managing General Partner of the Partnership has determined to use
independent third parties to perform certain of these administrative
services beginning in the fourth quarter of 1995. Use of such third
parties is not expected to have a material effect on the operations of the
Partnership.
Pursuant to the Partnership Agreement, the amount of compensation paid
to affiliates of the General Partners for property management and leasing
services is subject to certain limitations and is currently being paid in
accordance with such limitations. All amounts deferred for property
management and leasing services of $15,806 or currently payable to the
General Partners and their affiliates do not bear interest and are expected
to be paid in future periods.
JMB INCOME PROPERTIES, LTD. - VIII
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONCLUDED
(6) ADJUSTMENTS
In the opinion of the Managing General Partner, all adjustments
(consisting solely of normal recurring adjustments) necessary for a fair
presentation (assuming the Partnership continues as a going concern, see
note 2(b)) have been made to the accompanying figures as of September 30,
1995 and for the three and nine months ended September 30, 1995 and 1994.
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
All references to "Notes" are to Notes to Consolidated Financial
Statements contained in this report. There is substantial doubt about the
Partnership's ability to continue as a going concern (see discussion below
and in Note 2(b)).
At September 30, 1995, the Partnership and its consolidated ventures
had cash and cash equivalents of approximately $19,306,000, which includes
proceeds from the sale of the Carillon Shopping Village. Such funds at
September 30, 1995 are available for distributions to partners and for
working capital requirements. As a result of certain limitations in the
Partnership Agreement, an affiliate of the General Partners of the
Partnership is deferring payment of certain leasing fees as more fully
described in Note 5. The Partnership's and Town & Country's mortgage
obligation is non-recourse. Therefore, the Partnership and its Ventures
are not obligated to pay mortgage indebtedness unless the related property
produces sufficient net cash flow from operations or sale.
Carillon Shopping Village
The Partnership sold the Carillon Shopping Village in May 1995 to an
unaffiliated third party. The sale price was $7,400,000 (before selling
costs) and was paid in cash at closing. Pursuant to the March 1994
purchase agreement with the former third party limited partner of Carillon
(Note 2(c)), the non-interest bearing promissory notes held by the former
third party in the amounts of $544,500 and $5,500 from the Partnership and
the Managing General Partner, respectively, were paid as of the sale date.
Additionally, based on net sale proceeds of $6,971,561, the former third
party limited partner of Carillon received $145,685 and $1,472 from the
Partnership and the Managing General Partner, respectively.
Town & Country Center
The Town & Country Center faces strong competition from, among others,
the Town and Country Village, a multi-building retail project encompassing
over sixty acres contiguous to the Town & Country Center. Town and Country
Village is undergoing a redevelopment and is currently approximately 80%
pre-leased. Although not all tenants at this project will compete directly
with the mall tenants at the Property, a number of tenants that in the past
have occupied space in enclosed regional malls have recently signed leases
for free-standing space in Town and Country Village, and these stores are
now scheduled to open in 1996.
Over the past year, T&C has prepared and been evaluating a plan for an
extensive renovation and re-merchandising of Town & Country for the long-
term stability and enhancement of the property's occupancy and revenue
potential. In connection with the plan, T&C approached a number of
national and regional tenants to lease space at the property. In
discussions with these tenants, a majority of them indicated that, in
addition to significant tenant leasing incentives, a major renovation of
Town & Country would be essential for them to lease space at the property.
Focus group studies on the area residents further supported this concept.
Accordingly, the Partnership worked extensively with an architectural firm
and marketing personnel to determine the most effective redevelopment plan
to improve Town & Country. A condition to undertaking a redevelopment of
Town & Country was to have been T&C's obtaining extensions of the
agreements for the department stores to continue operating their stores at
the property. The Partnership believed that the renovation and re-
merchandising of Town & Country was viable and that it would be the best
strategy to enhance value. Accordingly, during this process, it remained
the Partnership's intent to hold the property as a long-term investment.
T&C completed its evaluation of an extensive redevelopment of the
center in early September 1995. The total cost for such a redevelopment,
including obtaining tenant leases for the mall space and extensions of the
department store operating agreements, was estimated to be in excess of $25
million. However, many of the retail tenants considered integral to a
successful re-merchandising of Town & Country upon completion of a
renovation had now become unwilling to take further space in the Houston
market even if given significant tenant leasing incentives. The continued
sluggishness in the Houston economy in recovering from the previous
recession, as well as the intense competition in the property's trade area,
appear to be among the factors dissuading prospective retail tenants from
committing to lease space at the property. In addition, the projected
return on the estimated cost was not expected to be sufficient to warrant
an investment of this magnitude.
Given Town & Country's current level of debt, the strong competition
that the property faces, and the significant cost that would be required to
lease, renovate and re-merchandise the property, T&C decided in September
1995 not to commit any additional capital to pay continued operating
deficits of the property, including funding for debt service payments,
unless it could obtain a modification to the existing non-recourse mortgage
loan. Consequently, T&C remitted to the lender only the amount of cash
flow from property operations after expenses rather than the full debt
service payment required for the month of September 1995 and approached the
lender to discuss the possibility of a modification to the existing loan to
eliminate, or reduce significantly, future operating deficits. However,
the lender was unwilling to modify the loan. On September 13, 1995, the
lender notified the Partnership that it is in default and that the lender
intends to realize upon its security for the mortgage loan as soon as
possible. As of September 30, 1995 the amount of principal and interest
payments in arrears is approximately $468,000. The mortgage note has been
classified at September 30, 1995 as a current liability in the accompanying
consolidated financial statements. Upon the lender's obtaining title to
Town & Country, the Partnership will recognize a gain for Federal income
tax reporting purposes with no corresponding distributable proceeds. Due
to the uncertainty of the Partnership's ability to recover the net carrying
value of the Town & Country Center, the Partnership made, as a matter of
prudent accounting practice, a provision at September 30, 1995 for value
impairment of Town & Country of $30,114,810 (of which the Partnership's
share is $15,087,520) for financial reporting purposes as of September 30,
1995. Such provision reduced the net carrying value of the investment
property to the then outstanding balance of the related non-recourse
mortgage note.
Town & Country also is obligated under a 12% promissory note payable
to an affiliate of the developer which matured June 30, 1993. The
Partnership and the affiliated joint venture partner have reached an
agreement in principle with the developer to extend the original due date
of the promissory note. Although no interest payments are currently being
made, the venture continues to accrue interest on the note at the original
contract rate. As of the date of this report, the specific terms of this
agreement have not been finalized. However, due to the expectation of the
lender obtaining title to Town & Country (as discussed above) it is
doubtful that such extension will be executed. Accordingly, the balance of
the promissory note of approximately $991,000 and the balance of the
related accrued interest payable of approximately $565,000 and $476,000
have been classified as current liabilities in the accompanying
consolidated financial statements at September 30, 1995 and December 31,
1994, respectively.
Town and Country is the remaining investment property of the
Partnership. If the lender realizes upon its security and takes title to
the property, the Partnership intends to wind up its affairs and liquidate.
The Partnership would then distribute its remaining cash after payment of
expenses and liabilities. Based upon the applicable provisions of the
Partnership Agreement, the current and expected operations of the
Partnership and the disposition of the property without any proceeds from
such disposition, it is currently expected that a final liquidating
distribution in excess of $200 per Limited Partnership Interest will be
made in connection with the liquidation and termination of the Partnership.
However, this is an estimate only, and the final liquidating distribution
to the Limited Partners, which will depend upon, among other things,
amounts needed to pay or provide for the Partnership's remaining expenses
and liabilities, may vary from such estimate. It is possible that the
lender may obtain title to the property in 1995, in which case the
Partnership will attempt to wind up its affairs by year-end, although there
is no assurance that the Partnership would be able to do so. Nevertheless,
given current expectations, it is not expected that the Limited Partners
will receive sufficient distributions to fully realize the return of their
original investment.
RESULTS OF OPERATIONS
The increase in cash and cash equivalents at September 30, 1995 as
compared to December 31, 1994 is primarily due to the Partnership's
retention of the proceeds from the sale of the Carillon Shopping Village in
May 1995 (Note 4).
The decrease in short-term investments at September 30, 1995 as
compared to December 31, 1994 is primarily due to all of the Partnership's
investments in U.S. Government obligations being classified as cash
equivalents at September 30, 1995 and the majority, but not all, of the
Partnership's investments in U.S. Government obligations being classified
as cash equivalents at December 31, 1994. (Note 1).
The decrease in interest, rents and other receivables at September 30,
1995 as compared to December 31, 1994 is primarily due to the timing of the
receipt of rents at the Town & Country Center.
The decreases in escrow deposits and accrued real estate taxes at
September 30, 1995 as compared to December 31, 1994 is primarily due to the
timing of real estate tax payments from escrow at the Town & Country
Center.
The decreases in investment properties, deferred expenses and venture
partners' subordinated equity in ventures at September 30, 1995 as compared
to December 31, 1994 are primarily due to the Partnership recording a
$30,114,810 provision for value impairment to reduce the net carrying value
of the Town & Country Center (Note 2(b)). The decreases in investment
properties and deferred expenses are also due to the Partnership's sale of
the Carillon Shopping Village in May 1995 (Note 4).
The decreases in venture partners' deficit in venture and accrued
rents receivable at September 30, 1995 as compared to December 31, 1994 are
primarily due to the Partnership's sale of the Carillon Shopping Village in
May 1995 (Note 4).
The increase in current portion of long-term debt and corresponding
decrease in long-term debt, less current portion at September 30, 1995 as
compared to December 31, 1994 is primarily due to the reclassification of
the mortgage note at the Town and Country Center (Note 2(b)).
The increase in accrued interest at September 30, 1995 as compared to
December 31, 1994 is primarily due to Town & Country's obligation under its
promissory note payable and the Partnership ceasing debt service payments
on the mortgage loan secured by Town & Country in September 1995. (Note
2(b)).
The decrease in note payable at September 30, 1995 as compared to
December 31, 1994 and the increase in mortgage and other interest for the
nine months ended September 30, 1995 as compared to the nine months ended
September 30, 1994 is due to the Partnership's sale of the Carillon
Shopping Village in May 1995 and the corresponding promissory note and
contingent interest payment (Note 2(c)).
The decreases in rental income, depreciation and property operating
expenses and the gain on sale of interest in investment property for the
three and nine months ended September 30, 1995 as compared to the three and
nine months ended September 30, 1994 is primarily due to the Partnership's
sale of the Carillon Shopping Village in May 1995 (Note 4).
The increase in interest income for the three and nine months ended
September 30, 1995 as compared to the three and nine months ended September
30, 1994 is primarily due to the investment of Carillon sale proceeds
received in May 1995 and the increase in the rate of interest earned in
1995 on U.S. Government obligations.
The decrease in amortization of deferred expenses for the three and
nine months ended September 30, 1995 as compared to the three and nine
months ended September 30, 1994 is primarily due to the decrease in
amortization of various assets at the Town & Country Center in 1995.
The increase in general and administrative expenses for the three and
nine months ended September 30, 1995 as compared to the three and nine
months ended September 30, 1994 is primarily due to an increase in and the
recognition of certain additional prior year reimbursable costs in 1995.
The changes in venture partners' share of ventures' operations and
provision for value impairment for the three and nine months ended
September 30, 1995 as compared to the three and nine months ended September
30, 1994 are primarily due to the Partnership recording a $30,114,810
provision for value impairment (of which the venture partners' shares total
$15,027,290) to reduce the net carrying value of the Town & Country Center
(Note 2(b)). The change in venture partners' share of ventures' operations
is also due to the Partnership's sale of the Carillon Shopping Village in
May 1995 (Note 4).
PART II. OTHER INFORMATION
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Reference is made to Note 2(b) of the Notes to Consolidated Financial
Statements and to the Liquidity and Capital Resources section of
Management's Discussion and Analysis of Financial Condition and Results of
Operations filed with this report for discussions of default under the
mortgage loan secured by the Town & Country Center, which discussions are
hereby incorporated herein by reference.
<TABLE>
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
OCCUPANCY
The following is a listing of approximate occupancy levels by quarter for the Partnership's investment properties.
<CAPTION>
1994 1995
--------------------------------------------------------------
At At At At At At At At
3/31 6/30 9/30 12/31 3/31 6/30 9/30 12/31
---- ---- ---- ----- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1. Carillon Shopping Village
Houston, Texas . . . . . . . . . . . . . . . . . 69% 66% 66% 66% 66% N/A N/A
2. Town & Country Center
Houston, Texas . . . . . . . . . . . . . . . . . 73% 74% 76% 74% 65% 63% 65%
- - -------------
<FN>
An "N/A" indicates that the property was not owned by the Partnership at the end of the quarter.
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
4. Long-term mortgage note documents relating to the mortgage note
secured by the Town & Country Center in Houston, Texas are hereby
incorporated by reference to Post - Effective Amendment No. 4 to the
Partnership's Registration Statement on Form S-11 (File No. 2-69116) dated
April 14, 1992.
10-A. Acquisition documents relating to the purchase by the
Partnership of an interest in the Town & Country Center in Houston, Texas
are hereby incorporated by reference to Post - Effective Amendment No. 4 to
the Partnership's Registration Statement on Form S-11 (File No. 2-69116)
dated April 14, 1992.
10-B. Partnership interest purchase documents and exhibits thereto
relating to the purchase of the unaffiliated third party's interest in the
Carillon Shopping Village in Houston, Texas are hereby incorporated by
reference to the Partnership's Report on Form 8-K (File No. 0-10206) for
May 18, 1995 dated June 1, 1995.
27. Financial Data Schedule
- - --------------------
Although certain additional long-term debt instruments of the
Registrant have been excluded from Exhibit 4 above, pursuant to Rule
601(b)(4)(iii), the Registrant commits to provide copies of such agreements
to the Securities and Exchange Commission upon request.
(b) The following report on Form 8-K was filed since the beginning
of the last quarter of the period covered by this report.
The Partnership's Report on Form 8-K (File No. 0-10206) for
September 13, 1995 (describing the default on the mortgage loan for Town
and Country Center in Houston, Texas) was filed. This report was dated
November 1, 1995.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
JMB INCOME PROPERTIES, LTD. - VIII
BY: JMB Realty Corporation
(Managing General Partner)
GAILEN J. HULL
By: Gailen J. Hull, Senior Vice President
Date:November 9, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following person in the capacity
and on the date indicated.
GAILEN J. HULL
Gailen J. Hull
Principal Accounting Officer
Date:November 9, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S FORM 10-Q FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
INCLUDED IN SUCH REPORT.
</LEGEND>
<CIK> 0000319192
<NAME> JMB INCOME PROPERTIES, LTD. - VIII
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 19,305,883
<SECURITIES> 0
<RECEIVABLES> 1,510,887
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 20,816,770
<PP&E> 60,798,350
<DEPRECIATION> 33,854,088
<TOTAL-ASSETS> 49,121,858
<CURRENT-LIABILITIES> 32,971,534
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 8,073,093
<TOTAL-LIABILITY-AND-EQUITY> 49,121,858
<SALES> 5,036,333
<TOTAL-REVENUES> 5,736,515
<CGS> 0
<TOTAL-COSTS> 5,676,245
<OTHER-EXPENSES> 30,318,851
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,787,324
<INCOME-PRETAX> (33,045,905)
<INCOME-TAX> 0
<INCOME-CONTINUING> (16,423,634)
<DISCONTINUED> 28,954
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (16,394,680)
<EPS-PRIMARY> (196.71)
<EPS-DILUTED> (196.71)
</TABLE>
