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 #0-12432
JMB INCOME PROPERTIES, LTD. - IX
(Exact name of registrant as specified in its charter)
Illinois 36-3126228
(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 . . . . 15
PART II OTHER INFORMATION
Item 3. Default Upon Senior Security. . . . . . . . 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. - IX
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
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) . . . . . . . . . . . . . $ 3,636,936 2,352,046
Short-term investments (note 1). . . . . . . . . . . . . . . 488,300 2,176,462
Interest, rents and other receivables. . . . . . . . . . . . 299,678 332,726
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . 25,033 15,351
------------ -----------
Total current assets. . . . . . . . . . . . . . . . . . 4,449,947 4,876,585
------------ -----------
Investment property, at cost:
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . 899,298 899,298
Buildings and improvements . . . . . . . . . . . . . . . . . 26,059,231 26,023,152
------------ -----------
26,958,529 26,922,450
Less accumulated depreciation. . . . . . . . . . . . . . . . 13,476,535 12,728,252
------------ -----------
Total investment property,
net of accumulated depreciation . . . . . . . . . . . 13,481,994 14,194,198
Investment in unconsolidated venture, at equity
(notes 1 and 3(a)) . . . . . . . . . . . . . . . . . . . . . -- 1,322,900
Deferred expenses. . . . . . . . . . . . . . . . . . . . . . . 759,567 759,525
Accrued rents receivable . . . . . . . . . . . . . . . . . . . 4,669,077 4,870,049
------------ -----------
$ 23,360,585 26,023,257
============ ===========
JMB INCOME PROPERTIES, LTD. - IX
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
CONSOLIDATED BALANCE SHEETS - CONTINUED
LIABILITIES AND PARTNERS' CAPITAL ACCOUNTS (DEFICITS)
-----------------------------------------------------
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------- -----------
Current liabilities:
Current portion of long-term debt. . . . . . . . . . . . . . $ 15,613,075 15,784,297
Accounts payable . . . . . . . . . . . . . . . . . . . . . . 167,097 367,067
Due to affiliates (note 5) . . . . . . . . . . . . . . . . . 474,278 446,983
Accrued interest . . . . . . . . . . . . . . . . . . . . . . 155,436 156,238
Accrued real estate taxes. . . . . . . . . . . . . . . . . . 70,276 --
------------ -----------
Total current liabilities . . . . . . . . . . . . . . . 16,480,162 16,754,585
Tenant security deposits . . . . . . . . . . . . . . . . . . . 66,981 83,614
------------ -----------
Commitments and contingencies (notes 1, 2, 3 and 5)
Total liabilities . . . . . . . . . . . . . . . . . . . 16,547,143 16,838,199
------------ -----------
Investment in unconsolidated venture, at equity
(notes 1 and 3(a)) . . . . . . . . . . . . . . . . . . . . . 6,049,537 --
Partners' capital accounts (deficits):
General partners:
Capital contributions . . . . . . . . . . . . . . . . . . 1,000 1,000
Cumulative net losses. . . . . . . . . . . . . . . . . . . (4,227,056) (3,890,210)
Cumulative cash distributions. . . . . . . . . . . . . . . (1,962,978) (1,962,978)
------------ -----------
(6,189,034) (5,852,188)
------------ -----------
Limited partners (77,132 interests):
Capital contributions, net of offering costs . . . . . . . 68,210,848 68,210,848
Cumulative net earnings. . . . . . . . . . . . . . . . . . 33,700,815 41,785,122
Cumulative cash distributions. . . . . . . . . . . . . . . (94,958,724) (94,958,724)
------------ -----------
6,952,939 15,037,246
------------ -----------
Total partners' capital accounts. . . . . . . . . . . . 763,905 9,185,058
------------ -----------
$ 23,360,585 26,023,257
============ ===========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
JMB INCOME PROPERTIES, LTD. - IX
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
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. . . . . . . . . . . . . . $ 767,400 845,316 2,400,675 2,517,183
Interest income. . . . . . . . . . . . . 58,573 51,011 178,869 125,692
----------- ---------- ---------- ----------
825,973 896,327 2,579,544 2,642,875
----------- ---------- ---------- ----------
Expenses:
Mortgage and other interest. . . . . . . 414,459 417,598 1,245,804 1,254,979
Depreciation . . . . . . . . . . . . . . 249,427 244,273 748,283 727,803
Property operating expenses. . . . . . . 384,997 311,947 1,098,787 1,013,765
Professional services. . . . . . . . . . 5,295 2,099 59,895 79,298
Amortization of deferred expenses. . . . 37,456 21,246 112,372 61,900
General and administrative . . . . . . . 34,673 25,916 100,355 76,159
----------- ---------- ---------- ----------
1,126,307 1,023,079 3,365,496 3,213,904
----------- ---------- ---------- ----------
Operating loss. . . . . . . . . . 300,334 126,752 785,952 571,029
Partnership's share of loss
from operations of uncon-
solidated venture (notes 1
and 3(a)). . . . . . . . . . . . . . . . 7,320,225 262,577 7,635,201 711,237
----------- ---------- ---------- ----------
Net loss. . . . . . . . . . . . . $ 7,620,559 389,329 8,421,153 1,282,266
=========== ========== ========== ==========
Net loss per limited
partnership interest. . . . . . $ 94.85 4.85 104.81 15.96
=========== ========== ========== ==========
Cash distributions per
limited partnership
interest. . . . . . . . . . . . $ -- -- -- --
=========== ========== ========== ==========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
JMB INCOME PROPERTIES, LTD. - IX
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(8,421,153) (1,282,266)
Items not requiring (providing) cash or cash equivalents:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . 748,283 727,803
Amortization of deferred expenses. . . . . . . . . . . . . . . 112,372 61,900
Partnership's share of loss from operations
of unconsolidated venture. . . . . . . . . . . . . . . . . . 7,635,201 711,237
Changes in:
Interest, rents and other receivables. . . . . . . . . . . . . 33,048 28,906
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . (9,682) (8,744)
Accrued rents receivable . . . . . . . . . . . . . . . . . . . 200,972 167,360
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . (199,970) 13,659
Due to affiliates. . . . . . . . . . . . . . . . . . . . . . . 27,295 (14,086)
Accrued interest . . . . . . . . . . . . . . . . . . . . . . . (802) (721)
Accrued real estate taxes. . . . . . . . . . . . . . . . . . . 70,276 58,110
Unearned rents . . . . . . . . . . . . . . . . . . . . . . . . -- 138,665
Tenant security deposits . . . . . . . . . . . . . . . . . . . (16,633) --
----------- -----------
Net cash provided by operating activities. . . . . . . . 179,207 601,823
----------- -----------
Cash flows from investing activities:
Net sales and maturities of short-term investments . . . . . . . 1,688,162 557,344
Additions to investment property . . . . . . . . . . . . . . . . (36,079) (52,670)
Partnership's contributions to unconsolidated venture. . . . . . (262,764) (542,810)
Payment of deferred expenses . . . . . . . . . . . . . . . . . . (112,414) (14,775)
----------- -----------
Net cash provided by (used in)
investing activities . . . . . . . . . . . . . . . . . 1,276,905 (52,911)
----------- -----------
JMB INCOME PROPERTIES, LTD. - IX
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
1995 1994
----------- -----------
Cash flows from financing activities:
Principal payments on long-term debt . . . . . . . . . . . . . . (171,222) (162,515)
----------- -----------
Net cash used in financing activities. . . . . . . . . . (171,222) (162,515)
----------- -----------
Net increase in cash and
cash equivalents . . . . . . . . . . . . . . . . . . . 1,284,890 386,397
Cash and cash equivalents, beginning of year . . . . . . 2,352,046 230,415
----------- -----------
Cash and cash equivalents, end of period . . . . . . . . $ 3,636,936 616,812
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid for mortgage and other interest. . . . . . . . . . . . $ 1,246,606 1,255,700
Non-cash investing and financing activities. . . . . . . . . . . $ -- --
=========== ===========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
JMB INCOME PROPERTIES, LTD. - IX
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995 AND 1994
(UNAUDITED)
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 venture, Plaza/Seattle
Limited Partnership ("Plaza/Seattle"). The effect of all transactions
between the Partnership and the consolidated venture 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 T&C-JMB Partners ("T&C").
Accordingly, the accompanying consolidated financial statements do not
include the accounts of T&C and T&C's venture, H&M Associates, Ltd. -
Houston ("Town & Country") (notes 3(a) and 6).
The Partnership's records are maintained on the accrual basis of
accounting as adjusted for Federal income tax reporting purposes. The
accompanying consolidated financial statements have been prepared from such
records after making appropriate adjustments to reflect the Partnership's
accounts in accordance with generally accepted accounting principles
("GAAP") and to consolidate the accounts of the venture 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 . . . .$8,421,153 1,990,968 1,282,266 1,868,041
Net loss
per limited
partnership
interest. . . .$ 104.81 24.78 15.96 23.25
========== ========= ========= =========
The net loss per limited partnership interest is based upon the number
of interests outstanding at the end of each period (77,132).
JMB INCOME PROPERTIES, LTD. - IX
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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 ($3,535,911 and $2,348,978 at September 30, 1995 and December 31,
1994, respectively) as cash equivalents with any remaining amounts
(generally with original maturities of three months or less) reflected as
short-term investments being held to maturity.
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 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 and Country Center is currently in default as more
fully described in note 3(a), the Partnership made, as a matter of prudent
accounting practice, a provision at September 30, 1995 for value impairment
of the Town and Country Center of $30,114,810 (of which the Partnership's
share is $6,917,372) as it is unlikely that the Partnership will be able to
recover the net carrying value of the property in excess of such
indebtedness 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. Although the Partnership has not fully completed 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
properties owned by the Partnership and its consolidated venture or by the
Partnership's unconsolidated venture. Such provision, including the
Partnership's share of the provision of its unconsolidated venture, is
currently estimated to total approximately $4,000,000 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 in a period
JMB INCOME PROPERTIES, LTD. - IX
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
in which an impairment is recorded, there would be no impact on cash flows.
Further, any such impairment loss would not be recognized for Federal
income tax purposes.
No provision for State or Federal income taxes has been made as the
liability for such taxes is that of the partners rather than the
Partnership.
(2) LONG-TERM DEBT MODIFICATION
The long-term mortgage note secured by the Blanchard Plaza office
building located in Seattle, Washington was modified effective with the
payment due December 1, 1988. Such modification, among other things
provided for debt service to be paid at reduced rates through the May 1,
1991 payment with the interest rate differential being added monthly to the
principal balance on the note. The mortgage note balance includes
cumulative deferred interest of $2,613,075 and $2,784,297 at September 30,
1995 and December 31, 1994, respectively. On April 1, 1992 and on each
April 1 thereafter, an additional principal payment is payable to the
extent of any annual net cash flow (as defined) for the immediately
preceding year. Based on the 1994 and 1993 annual cash flows, $79,589 and
$79,978 was paid in March 1995 and April 1994, respectively.
The long-term debt at the property is scheduled to mature December 1,
1995. Although an agreement in principle has been reached with the
existing lender to extend the mortgage loan for a one year period, there
can be no assurance that such extension will be consumated nor that the
joint venture will be able to further extend, refinance or obtain
alternative financing for all or substantially all of the mortgage loan
when the debt matures.
(3) VENTURE AGREEMENTS
The Partnership at September 30, 1995 is currently a party to two
operating joint venture agreements, which acquired one office building and
one regional shopping center. Under certain circumstances, either pursuant
to the venture agreements or due to the Partnership's obligations as a
general partner, the Partnership may be required to make additional cash
contributions to the ventures.
There are certain risks associated with the Partnership's investments
made through joint ventures including the possibility that the
Partnership's joint venture partners in an investment might become unable
or unwilling to fulfill their financial or other obligations, or that such
joint venture partners may have economic or business interests or goals
that are inconsistent with those of the Partnership.
(a) Town & Country Center
Over the past year, Town and Country 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, Town and Country
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. Accordingly, Town and Country worked extensively with an
architectural firm and marketing personnel to determine the most effective
JMB INCOME PROPERTIES, LTD. - IX
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
redevelopment plan to improve Town & Country. Focus group studies on the
area residents further supported this concept. A condition to undertaking
a redevelopment of Town and Country was to have been Town and Country'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, it
remained the Partnership's intent to hold Town & Country as a long-term
investment.
Town and Country 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 were now 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 Town and Country'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, Town and Country
decided in September 1995 not to commit any additional capital to pay
continued operating deficits of the property, including funding for debt
service payments, without obtaining a modification to the existing non-
recourse mortgage loan. Consequently, Town and Country 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. T&C 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 Town and Country that it
is in default and that the lender intends to realize upon its security for
the mortgage loan as soon as possible. Upon the lender's obtaining title
to the property, Town and Country, and consequently the Partnership, will
recognize a gain for Federal income tax reporting purposes with no
corresponding distributable proceeds.
As the non-recourse indebtedness secured by the Town and Country
Center is currently in default, the Partnership made, as a matter of
prudent accounting practice, a provision at September 30, 1995 for value
impairment of the Town and Country Center of $30,114,810 (of which the
Partnership's share is $6,917,372) as it is unlikely that the Partnership
will be able to recover the net carrying value of the property in excess of
such indebtedness through future operations or sale (note 1).
The terms of the T&C partnership agreement provide that all of T&C's
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.
JMB INCOME PROPERTIES, LTD. - IX
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Through September 30, 1995, the Partnership and its affiliated joint
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 Town & Country partnership agreement under negotiation.
However, there can be no assurance that such an amendment will be executed.
The Partnership's portion of these loans have been reflected as
contributions to unconsolidated venture in the accompanying consolidated
financial statements.
Town & Country joint venture also is obligated under a 12% promissory
note payable (with a balance of $991,689 and accrued interest of
approximately $565,000 as of September 30, 1995) 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 being made currently, 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 realizing upon
its security for the mortgage loan related to Town and 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 equal to a
percentage of gross income (as defined) from the property's operations not
to exceed 5% in the aggregate.
(b) Plaza/Seattle
The terms of the joint venture partnership agreement provide that the
joint venture partners will not be obligated to make any cash contributions
to the joint venture; however, the value of the joint venture partners'
contribution of their interest in the land to the joint venture has been
taken into account in determining the terms of the joint venture
partnership agreement. Distribution of annual cash flow (after debt
service) is to be made first to the Partnership as reimbursement for its
aggregate additional capital contributions; then the joint venture partners
are entitled to receive the next $90,000 per annum of annual cash flow; the
Partnership is entitled to receive the next $1,078,838 and any excess
annual cash flow will be distributable 92.3% to the Partnership and 7.7% to
the joint venture partners. Distributions of annual cash flow to the
Partnership and to the joint venture partners ceased in September 1987.
The Partnership has funded 100% of all subsequent deficits at the Blanchard
Plaza office building. Consequently, operating profits and losses are
allocated 100% to the Partnership.
The joint venture partnership agreement provides that the net
proceeds, if any, from any sale or refinancing of the property will be
allocated as follows: first to the Partnership as reimbursement for its
aggregate additional capital contributions; then the Partnership shall be
paid the outstanding balance of its $2,000,000 loan to the venture (such
loan has been eliminated in consolidated financial statements, see note 1)
plus any accrued interest thereon (monthly payments of interest only are
due and have been made at the rate of 10.88%); the joint venture partners
are entitled to receive the next $1,250,000 of such proceeds; the
Partnership is entitled to receive the next $15,225,000 and any remaining
proceeds will be distributable 92.3% to the Partnership and 7.7% to the
joint venture partners. The joint venture partnership agreement provides
JMB INCOME PROPERTIES, LTD. - IX
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
for gain or loss on the disposition of the property to be allocated to the
extent needed to equalize the capital accounts of the joint venture
partners, to the extent of any net proceeds distributed to the joint
venture partners and any remaining gain or loss 92.3% to the Partnership
and 7.7% to the joint venture partners.
An affiliate of the Managing General Partner had responsibility for
management and leasing of the Blanchard Plaza office building under a
management agreement which provided for a management fee equal to 4% of
gross income (as defined) from the property's operations. In December
1994, such affiliate sold substantially all of its assets and assigned its
interest in its management contracts, including the agreement for the
Blanchard Plaza office building, to an unaffiliated third party (note 5).
(4) PARTNERSHIP AGREEMENT
The Partnership Agreement provides that the General Partners shall
receive as a distribution from the sale of 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 second fiscal quarter of 1983.
Payment of the portion of sale and refinancing proceeds allocable to the
General Partners pursuant to the above is deferred until such time as the
Limited Partners have received cash distributions, of sale and refinancing
proceeds and of Partnership operations, in an amount equal to the Limited
Partners' initial capital investment in the Partnership plus a 10% annual
return on the Limited Partners' average capital investment. Approximately
$3,197,000 has been deferred by the General Partners pursuant to the
distribution levels described above.
(5) TRANSACTIONS WITH AFFILIATES
The Partnership's properties are managed by affiliates of the General
Partners or their assignees for fees computed as a percentage of certain
rents received by the properties. In December 1994, one of the affiliated
property managers sold substantially all of its assets and assigned its
interest in its management contracts to an unaffiliated third party. In
addition, certain of the management personnel of the property manager
became management personnel of the purchaser and its affiliates. The
successor to the affiliated property manager continues to act as the
property manager of the Blanchard Plaza office building after the sale on
the same terms as existed prior to the sale.
JMB INCOME PROPERTIES, LTD. - IX
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONCLUDED
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 . . . . . . $ -- 132,359 431,972
Insurance commissions. . . -- 5,111 --
Reimbursement (at cost) for
out-of-pocket expenses . 62,720 92,710 --
------- ------- -------
$62,720 230,180 431,972
======= ======= =======
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
investment properties. The amount of salaries and direct expenses
aggregated $52,128 for the nine months ended September 30, 1995 and
$163,343 for the year ended December 31, 1994, of which $42,306 were unpaid
as of September 30, 1995. Pursuant to the Partnership Agreement, the
amount of compensation paid to affiliates of the General Partners for
property management and leasing services is subject to certain limitations
and are currently being repaid in accordance with such limitations. All
amounts payable to the General Partners and their affiliates do not bear
interest and may be repaid in future periods.
The Managing General Partner of the Partnership has determined to use
independent third parties to perform certain administrative services
beginning in the fourth quarter of 1995. Use of such third parties is not
expected to have a material effect on the operations of the Partnership.
(6) UNCONSOLIDATED VENTURE - SUMMARY INFORMATION
The summary income statement information for the Town & Country
venture for the nine months ended September 30, 1995 and 1994 are as
follows:
1995 1994
----------- ---------
Total income . . . . . . . . . . . . .$ 4,671,991 4,772,090
=========== =========
Operating loss . . . . . . . . . . . .$33,371,650 3,130,903
=========== =========
Net loss to Partnership. . . . . . . .$ 7,635,201 711,237
=========== =========
(7) ADJUSTMENTS
In the opinion of the Managing General Partner, all adjustments
(consisting solely of normal recurring adjustments) necessary for a fair
presentation have been made to the accompanying figures as of September 30,
1995 and for the three and nine months ended September 30, 1995 and 1994.
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
All references to "Notes" are to Notes to Consolidated Financial
Statements contained in this report.
At September 30, 1995, the Partnership and its consolidated venture
had cash and cash equivalents of approximately $3,637,000. Such funds and
short-term investments of approximately $488,300 are available for capital
improvements, future distributions to partners, payment of certain
deferrals to affiliates of the General Partners and for working capital
requirements including operating deficits at the Blanchard Plaza office
building. As a result of certain limitations in the Partnership Agreement,
an affiliate of the General Partners of the Partnership is deferring
payment of certain management and leasing fees as more fully described in
Note 5. The Partnership and its consolidated venture have currently
budgeted in 1995 approximately $165,000 for tenant improvements and other
capital expenditures. The Partnership's share of such items and its share
of such similar items for its unconsolidated venture in 1995 is budgeted to
be approximately $205,000. The amounts and timing may vary depending on a
number of factors including actual leasing activity, results of operations,
liquidity considerations and other market conditions. Effective the second
quarter of 1993, the Partnership suspended its quarterly distribution so
that future cash requirements of the Partnership's properties may be met.
The source of capital for such items and for long-term future liquidity and
distributions is dependent on cash generated by the Partnership's Blanchard
Plaza Building investment property and through the sale of such investment.
In such regard, reference is made to the Partnership's properties -
specific discussions below and to Notes 2 and 3. The properties'
operations are not expected to generate any short-term liquidity as
described below. The Partnership's and its ventures' mortgage obligations
are all non-recourse. Therefore, the Partnership and its ventures are not
obligated to pay mortgage indebtedness unless the related property produces
sufficient net cash flow from operations or sale.
The Blanchard Plaza investment property currently operates at a small
deficit. This deficit results from the modification of the property's
mortgage note which provides for an annual cash flow payment to the lender
which reduces the principal balance of the loan as described in Note 2.
The Partnership expects to continue to utilize the remaining proceeds from
the sale of the Lynnhaven Mall to cover these operating deficits. The
mortgage note is scheduled to mature in December 1995. Although an
agreement in principle has been reached with the existing lender to extend
the mortgage loan for a one year period, there can be no assurance that
such extension will be consummated nor that the joint venture will be able
to further extend, refinance or obtain alternative financing for all or
substantially all of the mortgage loan when the debt matures. The Seattle
office market is showing significant improvement as vacancy rates continue
to decline. The current vacancy rate for the sub-market in which the
property operates is approximately 7%. Of the approximately 39,900 square
feet of leases (17% of the building's leasable square footage) originally
scheduled to expire in 1995, the Partnership has been successful in signing
new and renewing leases of approximately 24,550 square feet. In addition,
the Partnership signed new leases for another approximately 4,650 square
feet for space which had never been occupied. The Partnership is actively
pursuing the renewal or re-lease of the remaining space in the building and
in 1996 will pursue a sale of the entire property. In addition, the
Partnership amended the lease with the General Services Administration
("GSA") in 1994. In exchange for certain rent concessions, this amendment
eliminated the GSA's option to terminate the lease at any time after
October 1998. The GSA lease expires in October 2002.
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, Town and Country has prepared and been evaluating
a plan for an extensive renovation and re-merchandising of Town and Country
for the long-term stability and enhancement of Town and Country's occupancy
and revenue potential. In connection with the plan, Town and Country
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 and Country would be essential for them to lease space
at the property. Accordingly, Town and Country worked extensively with an
architectural firm and marketing personnel to determine the most effective
redevelopment plan to improve Town and Country. Focus group studies on the
area residents further supported this concept. A condition to undertaking
a redevelopment of Town and Country was to have been Town and Country'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 and Country was viable and
that it would be the best strategy to enhance value. Accordingly, it
remained the Partnership's intent to hold the Town and Country as a long-
term investment.
Town and Country 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 were now 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 and
Country's trade area, appear to be among the factors dissuading prospective
retail tenants from committing to lease space at Town and Country. In
addition, the projected return on the estimated cost was not expected to be
sufficient to warrant an investment of this magnitude.
Given Town and Country's current level of debt, the strong competition
that Town and Country faces, and the significant cost that would be
required to lease, renovate and re-merchandise the property, Town and
Country decided in September 1995 not to commit any additional capital to
pay continued operating deficits of the Property, including funding for
debt service payments, without obtaining a modification to the existing
non-recourse mortgage loan. Consequently, Town and Country 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. Town and Country 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
Town and Country that it is in default and that the lender intends to
realize upon its security for the mortgage loan as soon as possible. Upon
the lender's obtaining title to the property, Town and Country, and
consequently the Partnership will recognize a gain for Federal income tax
reporting purposes with no corresponding distributable proceeds.
As the non-recourse indebtedness secured by the Town and Country
Center is currently in default, the Partnership made, as a matter of
prudent accounting practice, a provision at September 30, 1995 for value
impairment of the Town and Country Center of $30,114,810 (of which the
Partnership's share is $6,917,372) as it is unlikely that the Partnership
will be able to recover the net carrying value of the property in excess of
such indebtedness through future operations or sale.
Through September 30, 1995, the Partnership and its affiliated joint
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 Town & Country partnership agreement under negotiation.
However, there can be no assurance that such an amendment will be executed.
The Partnership's portion of these loans have been reflected as
contributions to unconsolidated venture in the accompanying consolidated
financial statements.
The Town & Country joint venture also is obligated under a 12%
promissory note (with a balance of $991,689 and accrued interest of
approximately $565,000 as of September 30, 1995) 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 being made currently, 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 realizing
upon its security for the mortgage loan related to Town and Country (as
discussed above) it is doubtful that such extension will be executed.
There are certain risks associated with the Partnership's investments
made through joint ventures including the possibility that the
Partnership's joint venture partners in an investment might become unable
or unwilling to fulfill their financial or other obligations, or that such
joint venture partners may have economic or business interests or goals
that are inconsistent with those of the Partnership.
While the real estate markets are recuperating, highly competitive
market conditions continue to exist in most locations. The Partnership's
approach has been to aggressively and creatively manage the Partnership's
real estate assets to attract and retain tenants. Net effective rents to
the landlord from renewal tenants are generally more favorable than lease
terms which can be negotiated with new tenants. However, the Partnership's
capital resources must also be preserved and allocated in such a manner as
to maximize the total value of the portfolio. As a result of the real
estate market conditions discussed above, the Partnership continues to
conserve its working capital. All expenditures are carefully analyzed and
certain capital projects are deferred when appropriate. The Partnership
has also sought or is seeking additional loan modifications where
appropriate. As previously reported, the Partnership's properties are not
currently generating operating cash flow. Due to these factors, the
Partnership had previously reduced the regular quarterly distributions to
the partners and beginning the second quarter of 1993, has suspended such
distributions for an unknown period of time. By conserving working
capital, the Partnership will be in a better position to meet future needs
of its properties since outside sources of capital may be limited. As has
been reported previously, due to these factors, the Partnership held
certain of its investment properties longer than originally anticipated in
an effort to maximize the return to the Limited Partners. As indicated
above, the Partnership expects the lender to realize on its security in
Town and Country Center shortly. After reviewing Blanchard Plaza and its
competitive marketplace, the General Partners of the Partnership expect to
be able to liquidate this asset as quickly as practicable. Therefore, the
affairs of the Partnership are expected to be wound up no later than 1999
(sooner if the Blanchard Plaza property is sold or disposed of in the
nearer term), barring unforeseen economic developments.
RESULTS OF OPERATIONS
The increase in cash and cash equivalents and corresponding decrease
in short-term investments at September 30, 1995 as compared to December 31,
1994 is primarily due to approximately $3,536,000 of the Partnership's U.S.
Government obligations being classified as cash equivalents at September
30, 1995 whereas approximately $2,350,000 of such U.S. Government
obligations were classified as cash equivalents at December 31, 1994.
Reference is made to Note 1. The aggregate decrease in cash and cash
equivalents and short-term investments is primarily due to the
Partnership's continued funding of deficits incurred at the Town & Country
Center and Blanchard Plaza office building. Reference is made to Note
3(a).
The increase in prepaid expenses at September 30, 1995 as compared to
December 31, 1994 is due to the timing of the payment of insurance premiums
at the Blanchard Plaza office building.
The decrease in accounts payable at September 30, 1995 as compared to
December 31, 1994 is primarily due to the timing of payment of certain
deferred expenses, including re-leasing costs, related to the Blanchard
Plaza office building.
The increase in 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 at the Blanchard Plaza office building.
The decrease in tenant security deposits at September 30, 1995 as
compared to December 31, 1994 is due to the refund of security deposits to
certain tenants and the replacement of such tenants with tenants under
leases which do not require security deposits at the Blanchard Plaza office
building in 1995.
The aggregate decrease in investment in unconsolidated venture, at
equity at September 30, 1995 as compared to December 31, 1994 and the
related increase in Partnership's share of loss from operations of
unconsolidated venture 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 provision for value impairment recorded in 1995
related to the Town and Country Center investment property (Notes 1 and
3(a)).
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 higher effective yields being earned on U.S.
Government obligations held by the Partnership during 1995.
The increase 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 1995 amortization
of lease commissions previously deferred at the Blanchard Plaza office
building in December 1994.
The increases 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 are attributable primarily to an increase
in reimbursable costs to affiliates of the General Partners in 1995 and the
recognition of certain additional prior year reimbursable costs to such
affiliates. Reference is made to note 5.
PART II. OTHER INFORMATION
ITEM 3. DEFAULT UPON SENIOR SECURITY
Reference is made to Notes 1 and 3(a) 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 a discussion of the default under the
mortgage loan secured by the Town and Country Center, which discussions are
hereby incorporated herein by reference.<PAGE>
<TABLE>
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
OCCUPANCY
The following is a listing of approximate physical occupancy levels 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. Town and Country Center
Houston, Texas . . 73% 74% 76% 74% 65% 63% 63%
2. Blanchard Plaza Building
Seattle, Washington 96% 96% 91%(a) 93%(a) 96% 95% 91%
- --------------------
<FN>
(a) The percentage represents physical occupancy. Transamerica (5,557 square feet or 3% of the building)
vacated its space prior to its lease expiration of January 31, 1995 but continued to pay rent pursuant to its
lease obligation until such expiration.
</TABLE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
4-A. Modification documents relating to the long-term
mortgage note secured by the Blanchard Plaza Building in Seattle,
Washington are hereby incorporated by reference to the Partnership's report
on Form 10-K (File No. 0-12432) for December 31, 1992 dated March 19, 1993.
4-B. 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. 2-73991) dated
April 14, 1982.
10-A. Acquisition documents relating to the purchase by the
Partnership of an interest in the Blanchard Plaza Building in Seattle,
Washington are hereby incorporated by reference to the Partnership's report
on Form 8-K (File No. 0-12432) dated July 29, 1983.
10-B. 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. 2-73991)
dated April 14, 1982.
10-C. Management Agreement between H&M Associates and JMB
Retail Properties Co., successor of JMB Properties Company, for management
services of the Town & Country Center in Houston, Texas dated April 1, 1991
is hereby incorporated by reference to the Partnership's report on Form 10-
Q (File No. 0-12432) for June 30, 1994 dated August 12, 1994.
27. Financial Data Schedule
(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. 0-12432)
for September 13, 1995 (describing the default on the mortgage loan for
Town and Country Mall in Houston, Texas) was filed. This report was dated
November 2, 1995.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JMB INCOME PROPERTIES, LTD.-IX
BY: JMB Realty Corporation
(Managing General Partner)
By: GAILEN J. HULL
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> 0000355472
<NAME> JMB INCOME PROPERTIES, LTD.-IX
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1995
<CASH> 3,636,936
<SECURITIES> 488,300
<RECEIVABLES> 324,711
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,449,947
<PP&E> 26,958,529
<DEPRECIATION> 13,476,535
<TOTAL-ASSETS> 23,360,585
<CURRENT-LIABILITIES> 16,480,162
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 763,905
<TOTAL-LIABILITY-AND-EQUITY> 23,360,585
<SALES> 2,400,675
<TOTAL-REVENUES> 2,579,544
<CGS> 0
<TOTAL-COSTS> 1,959,442
<OTHER-EXPENSES> 160,250
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,245,804
<INCOME-PRETAX> (785,952)
<INCOME-TAX> 0
<INCOME-CONTINUING> 7,635,201
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,421,153
<EPS-PRIMARY> 104.81
<EPS-DILUTED> 104.81
</TABLE>
