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 March 31, 1994 Commission file number 0-15966
JMB INCOME PROPERTIES, LTD. - XI
(Exact name of registrant as specified in its charter)
Illinois 36-3254043
(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. . . . . . . . . . . . . .
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . .
PART II OTHER INFORMATION
Item 3. Defaults Upon Senior Securities . . . . . . . .
Item 5. Other Information . . . . . . . . . . . . . . .
Item 6. Exhibits and Reports on Form 8-K. . . . . . . .
<TABLE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
JMB INCOME PROPERTIES, LTD. - XI
(A LIMITED PARTNERSHIP)
BALANCE SHEETS
MARCH 31, 1994 AND DECEMBER 31, 1993
(UNAUDITED)
ASSETS
------
<CAPTION>
MARCH 31, DECEMBER 31,
1994 1993
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents (note 1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 258,957 267,127
Short-term investments (note 1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,715,193 23,681,340
Rents and other receivables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,686,550 1,690,050
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147,143 317,552
------------ ------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,807,843 25,956,069
------------ ------------
Investment properties, at cost (notes 2 and 3):
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,563,638 4,563,638
Building and improvements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59,683,591 53,218,947
------------ ------------
64,247,229 57,782,585
Less accumulated depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,124,733 17,673,020
------------ ------------
Total investment properties, net of accumulated depreciation . . . . . . . . . . . . . . . . 46,122,496 40,109,565
Investment in unconsolidated ventures, at equity (notes 1, 3 and 5). . . . . . . . . . . . . . . . . . 22,069,938 22,127,541
Deferred expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 196,295 198,627
------------ ------------
$ 88,196,572 88,391,802
============ ============
JMB INCOME PROPERTIES, LTD. - XI
(A LIMITED PARTNERSHIP)
BALANCE SHEETS - CONTINUED
LIABILITIES AND PARTNERS' CAPITAL ACCOUNTS (DEFICITS)
-----------------------------------------------------
MARCH 31, DECEMBER 31,
1994 1993
------------ ------------
Current liabilities:
Current portion of long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,847,575 9,837,354
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 331,231 255,474
Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 350,437 105,239
------------ ------------
Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,529,243 10,198,067
Tenant security deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61,304 61,304
Long-term debt, less current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,206,498 11,297,315
------------ ------------
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,797,045 21,556,686
Partners' capital accounts (deficits):
General partners:
Capital contributions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000 1,000
Cumulative net earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,237,274 5,233,888
Cumulative cash distributions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,631,429) (6,631,429)
------------ ------------
(1,393,155) (1,396,541)
------------ ------------
Limited partners (173,411 interests):
Capital contributions, net of offering costs . . . . . . . . . . . . . . . . . . . . . . . . . . . 156,493,238 156,493,238
Cumulative net earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,865,066 24,783,808
Cumulative cash distributions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (113,565,622) (113,045,389)
------------ ------------
67,792,682 68,231,657
------------ ------------
Total partners' capital accounts (deficits). . . . . . . . . . . . . . . . . . . . . . . . . 66,399,527 66,835,116
------------ ------------
Commitments and contingencies (notes 2, 3 and 4)
$ 88,196,572 88,391,802
============ ============
<FN>
See accompanying notes to financial statements.
</TABLE>
<TABLE>
JMB INCOME PROPERTIES, LTD. - XI
(A LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1994 AND 1993
(UNAUDITED)
<CAPTION>
1994 1993
----------- ----------
<S> <C> <C>
Income:
Rental income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,183,733 3,236,225
Interest income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204,593 344,427
----------- ----------
3,388,326 3,580,652
----------- ----------
Expenses:
Mortgage and other interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 593,437 602,896
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 451,713 398,308
Property operating expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,652,495 2,171,800
Professional services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158,043 120,926
Amortization of deferred expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,954 25,827
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99,928 51,613
----------- ----------
3,970,570 3,371,370
----------- ----------
Operating earnings (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (582,244) 209,282
Partnership's share of operations of unconsolidated ventures (note 1). . . . . . . . . . . . . . . . . 666,888 831,800
----------- ----------
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 84,644 1,041,082
=========== ==========
Net earnings per limited partnership interest (note 1) . . . . . . . . . . . . . . . . . . . $ .47 5.76
=========== ==========
Cash distributions per limited partnership interest. . . . . . . . . . . . . . . . . . . . . $ 3.00 3.00
=========== ==========
<FN>
See accompanying notes to financial statements.
</TABLE>
<TABLE>
JMB INCOME PROPERTIES, LTD. - XI
(A LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1994 AND 1993
(UNAUDITED)
<CAPTION>
1994 1993
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 84,644 1,041,082
Items not requiring (providing) cash or cash equivalents:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 451,713 398,308
Amortization of deferred expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,954 25,827
Amortization of discounts on long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,419 32,196
Partnership's share of operations of unconsolidated ventures, net of distributions . . . . . . . . 57,603 (22,672)
Changes in:
Rents and other receivables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,500 400,363
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170,409 154,040
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75,757 218,865
Accrued interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 245,198 (821)
Tenant security deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (4,053)
------------ -----------
Net cash provided by operating activities. . . . . . . . . . . . . . . . . . . . . . . . . . 1,137,197 2,243,135
------------ -----------
Cash flows from investing activities:
Net sales and maturities of short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . 5,966,147 231,761
Additions to investment properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,464,644) (253,836)
Payment of deferred expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12,622) (6,337)
------------ -----------
Net cash used in investing activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . (511,119) (28,412)
------------ -----------
JMB INCOME PROPERTIES, LTD. - XI
(A LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS - CONTINUED
1994 1993
------------ -----------
Cash flows from financing activities:
Principal payments on long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (114,015) (103,720)
Distributions to limited partners. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (520,233) (520,233)
------------ -----------
Net cash used in financing activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . (634,248) (623,953)
------------ -----------
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . $ (8,170) 1,590,770
============ ===========
Supplemental disclosure of cash flow information:
Cash paid for mortgage and other interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 348,239 571,521
============ ===========
Non-cash investing and financing activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ -- --
============ ===========
<FN>
See accompanying notes to financial statements.
</TABLE>
JMB INCOME PROPERTIES, LTD. - XI
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1994 AND 1993
(UNAUDITED)
Readers of this quarterly report should refer to the Partnership's
audited financial statements for the fiscal year ended December 31, 1993 which
are included in the Partnership's 1993 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 equity method of accounting has been applied in the accompanying
financial statements with respect to the Partnership's interest in Royal
Executive Park II ("Royal Executive") and JMB/San Jose Associates ("San
Jose"). Accordingly, the accompanying financial statements do not include the
accounts of Royal Executive and San Jose.
The Partnership's records are maintained on the accrual basis of
accounting as adjusted for Federal income tax reporting purposes. The
accompanying 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"). Such
adjustments are not recorded on the records of the Partnership. The net
effect of these items is summarized as follows for the three months ended
March 31:
1994 1993
--------------------- ---------------------
GAAP BASIS TAX BASIS GAAP BASIS TAX BASIS
---------- --------- ---------- ---------
Net earnings (loss). . $84,644 (97,540) 1,041,082 550,850
Net earnings (loss)
per limited partner-
ship interest . . . . $ .47 (.54) 5.76 3.05
======= ========= ========= =======
The net earnings (loss) per limited partnership interest is based upon
the number of limited partnership interests outstanding at the end of each
period (173,411). Deficit capital accounts will result, through the duration
of the Partnership, in net gain for financial reporting and income tax
purposes.
Certain amounts in the 1993 financial statements have been reclassified
to conform to the 1994 presentation.
Statement of Financial Accounting Standards No. 95 requires the
Partnership to present a statement which classifies cash receipts and payments
according to whether they stem from operating, investing or financing
activities. The required information has been segregated and accumulated
according to the classifications specified in the pronouncement. Partnership
distributions from unconsolidated ventures 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 as cash equivalents with any
remaining amounts (generally with original maturities of one year or less)
reflected as short-term investments being held to maturity. None of the
Partnership's investments in U.S. Government obligations were classified as
cash equivalents at March 31, 1994 and December 31, 1993.
JMB INCOME PROPERTIES, LTD. - XI
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
In response to the uncertainties relating to the JMB/San Jose joint
venture's ability to recover the net carrying value of certain buildings with
the Park Center Plaza investment property through future operations or sale,
the JMB/San Jose Joint Venture recorded a provision for value impairment on
the 150 Almaden and 185 Park Avenue buildings and certain parking areas of
$15,549,935 at September 30, 1993 to reduce the net basis to the then
outstanding balance of the related non-recourse debt. This provision was in
addition to similar impairments to other portions of the complex taken in
earlier years and previously reported. Reference is made to note 3(b) for
further discussion of the current status of this investment property.
(2) INVESTMENT PROPERTIES
(a) General
The Partnership has acquired, either directly or through joint ventures,
two shopping centers and three office complexes. In June 1990, the
Partnership sold its interest in Genesee Valley Shopping Center. All of the
remaining properties were in operation at March 31, 1994.
(b) Bank of Delaware - office building
A major tenant in the building brought a lawsuit against the Partnership
which sought reimbursement from the Partnership for certain improvements made
by the tenant to its space in the building. The lawsuit was sent to
arbitration and was decided in 1990 in the tenant's favor. The Partnership
reimbursed the tenant approximately $722,000 in 1991 and $80,000 in 1992. The
tenant may be entitled to reimbursement for further amounts depending upon its
future remodeling programs.
In addition, a major tenant, E.I. duPont de Nemours ("duPont"),
comprising approximately 27% of the building, vacated their space upon
expiration of their lease in December 1993. The property has cumulatively
operated at a cash deficit due to the significant costs incurred in connection
with the re-leasing of vacant space and certain capital improvements. Due to
the competitive nature of this marketplace, the Partnership estimates the
costs associated with re-leasing any vacant space during the next few years,
including those costs to remove remaining asbestos in tenant space, will be
substantial. As a result of these leasing concerns, the Partnership has
commenced discussions with the building's first mortgage lender in order to
seek a loan modification. In connection with these discussions, effective
January 1994, the Partnership has suspended payment of debt service to the
lender. As a result, approximately $246,000 of interest has been accrued but
not paid as of March 31, 1994. If a suitable modification of the existing
loan cannot be arranged, the Partnership has decided not to voluntarily commit
any additional amounts to the property. In response to the foregoing, the
lender has recently commenced proceedings to acquire title to the property.
There can be no assurance the Partnership will be successful in these
discussions, and accordingly, the entire balance of the loan is reflected as a
current liability in the accompanying financial statements. Should the lender
proceed to realize upon its security and obtain title to the property, the
Partnership expects to recognize a gain for financial reporting purposes and a
loss for federal income tax purposes. Under the terms of a mortgage and
security agreement, the Partnership, in its capacity as mortgagor of the
building, agreed to indemnify the mortgage lender, under certain
circumstances, against damages, claims, liabilities and expenses incurred by
or asserted against the mortgage lender in relation to asbestos in the
building. Asbestos has been abated or encapsulated in approximately 62% of
the building's space. The Partnership does not believe that any remaining
asbestos in the building presents a hazard and does not believe that such
asbestos currently is required to be removed. The Partnership estimates that
the current cost of
JMB INCOME PROPERTIES, LTD. - XI
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
asbestos abatement that could be required under certain circumstances in a
portion of the building in the future is approximately $800,000. However, the
Partnership currently does not believe that it will likely be required to
incur (or to indemnify the mortgage lender against) any such cost, although
there is no assurance that the Partnership will not ultimately be required to
make such payment.
(c) Riverside Square Mall
The Partnership is proceeding with its plans to renovate and
remerchandise the center. In connection with the planned renovation, the
Partnership, in early 1994, signed 15-year operating covenant extensions with
both Saks and Bloomingdales, which own their own stores. In return for the
additional 15-year commitment to the center, the Partnership reimbursed Saks
for their recent store renovation in the amount of $6,100,000 and is obligated
to pay Bloomingdales $5,000,000 toward their store renovation. The
Partnership is also required to complete a renovation of the mall, with an
additional estimated cost of approximately $12,000,000. The Partnership is
pursuing financing for the planned mall renovation; however, there can be no
assurance that such financing will be obtained or that the renovation will be
completed as currently planned. The Partnership is still considering
expanding the mall at some point in the future as well. Furthermore, the
Partnership has commenced a $7,500,000 restoration of the parking deck. The
Partnership is continuing to attempt to lease the vacant space in the mall,
but the competitive nature of the surrounding retail area and the fact that
the mall is in need of a renovation have extended the time period required to
re-lease space in the mall as tenant leases expire and are not renewed. On
January 7, 1994, Conran's, a tenant occupying approximately 28,000 square feet
or 12% of the building, filed for protection pursuant to Chapter 11 bankruptcy
petition. Subsequent to the end of the quarter, the Partnership bought the
rights to the Conran's lease for $475,000 at the bankruptcy auction and is now
in control of the space. The Partnership is reviewing its possible
alternatives with respect to replacement tenants for the Conran's lease which
was originally scheduled to expire in January 2000.
(3) VENTURE AGREEMENTS
(a) General
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.
(b) San Jose
The Partnership has acquired, through San Jose, an interest in an
existing office building complex in San Jose, California (Park Center
Financial Plaza) consisting of ten office buildings, a parking and retail
building (185 Park Avenue) and two parking garage structures.
The partners of San Jose are the Partnership and JMB Income Properties,
Ltd.-XII, another partnership sponsored by the Managing General Partner of the
Partnership ("JMB-XII"). The terms of San Jose's partnership agreement
generally provide that contributions, distributions, cash flow, sale or
refinancing proceeds and profits and losses will be distributed or allocated
to the Partnership and JMB-XII in their respective 50% ownership percentages.
JMB INCOME PROPERTIES, LTD. - XI
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
The venture partners notified the tenants in and invitees to the Park
Center Plaza complex that some of the buildings, particularly the 100-130 Park
Center Plaza Buildings and the garage below them, could pose a life safety
hazard under certain unusually intense earthquake conditions. While the
buildings and the garage were designed to comply with the applicable codes for
the period in which they were constructed, and there is no legal requirement
to upgrade the buildings for seismic purposes, the venture partners are
working with consultants to analyze ways in which such a potential life safety
hazard could be eliminated. In addition, tenants occupying approximately
110,000 square feet (approximately 26% of the building) of the Park Center
Plaza investment property have leases that expire in 1995, for which there can
be no assurance of renewals. However, since the costs of both re-leasing
space and any seismic program could be substantial, the Partnership has
commenced discussions with the appropriate lender for additional loan proceeds
to pay for all or a portion of these costs. The venture is also continuing to
discuss terms for a possible loan extension (which would likely include a
partial paydown of the outstanding principal balance) with the mortgage lender
on the 150 Almaden and 185 Park Avenue buildings and certain parking areas as
the mortgage loan secured by this portion of the complex matured October 1,
1993 and was only extended to December 1, 1993. However, the venture and the
lender have not been able to agree upon mutually acceptable terms for a
further loan extension and the lender has accelerated the loan. Should an
agreement not be reached and as the Partnership does not have its share of the
outstanding loan balance in its reserves in order to retire the loan, it is
possible that the lender would exercise its remedies and seek to acquire title
to this portion of the complex. Furthermore, should lender assistance be
required to fund significant costs at the 100-130 Park Center Plaza buildings
but not be obtained, the venture has decided not to commit any additional
significant amounts to this portion of the complex since the likelihood of
recovering such funds through increased capital appreciation is remote. The
result would be that the Partnership would no longer have an ownership
interest in this portion of the complex.
As a result, there is uncertainty about the ability to recover the net
carrying value of the property through future operations and sale and
accordingly, the JMB/San Jose joint venture has made a provision for value
impairment on the 150 Almaden and 185 Park Avenue buildings and certain
parking areas of $15,549,935. Such provision at September 30, 1993 was
recorded to reduce the net carrying value of these buildings to the then
outstanding balance of the related non-recourse financing. In the event the
lender on any portion of the complex exercised its remedies as discussed
above, the result would likely be that JMB/San Jose joint venture would no
longer have an ownership interest in such portion.
The property is managed by an affiliate of the General Partners of the
Partnership for a fee calculated as 3% of gross receipts.
(c) Royal Executive
Commencing January 1, 1989 and until certain rental achievement levels
are attained, the Partnership is entitled to a cumulative preferred annual
return equal to $2,430,000 per year. The next $2,439,732 of annual cash flow
is distributable to the joint venture partners, on a non-cumulative basis,
with any remaining cash flow distributable 49.9% to the Partnership and 50.1%
to the joint venture partners. Therefore, the Partnership's receipt of cash
distributions is subject to the actual operations of the property. The
Partnership is entitled to any deficiency in its preferred annual return plus
interest at 9% on a cumulative basis as an annual priority distribution from
future available cash flow. The cumulative deficiency in the preferred annual
return was approximately $4,937,000 and $4,956,000 at March 31, 1994 and
December 31, 1993, respectively.
JMB INCOME PROPERTIES, LTD. - XI
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS - CONCLUDED
Operating profits of the joint venture, in general, will be allocated in
proportion to, and to the extent of, distributions and then based on relative
ownership percentages. Operating losses, in general, will be first allocated
to the joint venture partners to the extent of any additional contributions
made to fund operations. Remaining losses, if any, will be allocated based
upon relative ownership interests. Depreciation and amortization will be
allocated based upon the relative ownership interests.
(4) TRANSACTIONS WITH AFFILIATES
Fees, commissions and other expenses required to be paid by the Partner-
ship to the General Partners and their affiliates as of March 31, 1994 and for
the three months ended March 31, 1994 and 1993 are as follows:
Unpaid at
1994 1993 March 31, 1994
-------- -------- ---------------
Property management
and leasing fees. . . . . $65,989 84,788 --
Insurance commissions. . . -- 137 --
Reimbursement (at cost)
for out-of-pocket
expenses. . . . . . . . . 119 4,709 --
------- ------ ------
$66,108 89,634 --
======= ====== ======
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 the Partnership's investment proper-
ties. The amount of such salaries and direct expenses aggregated $14,378 and
$87,093 for the three months ended March 31, 1994 and the twelve months ended
December 31, 1993, respectively, of which $87,093 is unpaid as of March 31,
1994.
The General Partners have deferred receipt of certain of their
distributions of net cash flow of the Partnership. The amount of such
deferred distributions was approximately $1,150,000 as of March 31, 1994. The
amount is being deferred in accordance with the subordination requirements of
the Partnership Agreement. This amount or amounts currently payable do not
bear interest and may be paid in future periods.
(5) UNCONSOLIDATED VENTURES - SUMMARY INFORMATION
The summary income statement information for the JMB/San Jose Associates
Venture and Royal Executive Park II for the three months ended March 31, 1994
and 1993 is as follows:
1994 1993
---------- ---------
Total income . . . . . . . . . . . . $3,737,673 4,174,650
========== =========
Operating income . . . . . . . . . . $ 608,361 853,627
========== =========
Net earnings to the Partnership. . . $ 666,888 831,800
========== =========
(6) ADJUSTMENTS
In the opinion of the Managing General Partner, all adjustments (con-
sisting solely of normal recurring adjustments) necessary for a fair
presentation have been made to the accompanying figures as of March 31, 1994
and for the three months ended March 31, 1994 and 1993.
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 Financial Statements contained
in this report.
At March 31, 1994, the Partnership had cash and cash equivalents of
approximately $259,000. Such funds and short-term investments of
approximately $17,715,000 may be utilized for distributions to partners and
for working capital requirements including operating deficits, re-leasing
costs of vacant space and certain capital improvements currently being
incurred at the Riverside Square Mall. Additionally, funds may be utilized to
fund the Partnership's share of re-leasing costs and capital improvements at
certain portions of the Park Center Financial Plaza. The Partnership and its
consolidated ventures have currently budgeted in 1994 approximately $3,943,000
for tenant improvements and other capital expenditures. The Partnership's
share of such items for its unconsolidated ventures for 1994 is currently
budgeted to be approximately $933,000. Actual amounts expended in 1994 may
vary depending on a number of factors including actual leasing activity,
results of property operations, liquidity considerations and other market
conditions over the course of the year. The General Partners have been
deferring receipt of distributions in accordance with the subordination
requirement of the Partnership Agreement. The source of capital for such items
and for both short-term and long-term future liquidity and distributions is
expected to be through net cash generated by the Partnership's investment
properties and through the sale of such investments. 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 venture partners notified the tenants in and invitees to the Park
Center Plaza complex that some of the buildings, particularly the 100-130 Park
Center Plaza Buildings and the garage below them, could pose a life safety
hazard under certain unusually intense earthquake conditions. While the
buildings and the garage were designed to comply with the applicable codes for
the period in which they were constructed, and there is no legal requirement
to upgrade the buildings for seismic purposes, the venture partners are
working with consultants to analyze ways in which such a potential life safety
hazard could be eliminated. In addition, tenants occupying approximately
110,000 square feet (approximately 26% of the building) of the Park Center
Plaza investment property have leases that expire in 1995, for which there can
be no assurance of renewals. However, since the costs of both re-leasing
space and any seismic program could be substantial, the Partnership has
commenced discussions with the appropriate lender for additional loan proceeds
to pay for all or a portion of these costs.
The Partnership is also continuing to discuss terms for a possible loan
extension (which would likely include a partial paydown of the outstanding
principal balance) with the mortgage lender on the 150 Almaden and 185 Park
Avenue buildings and certain parking areas as the mortgage loan secured by
this portion of the complex matured on October 1, 1993 and was only extended
to December 1, 1993. This mortgage loan is reflected as a current liability
in the accompanying JMB/San Jose financial statements. However, the
Partnership and the lender have not been able to agree upon mutually
acceptable terms for a further loan extension and the lender has accelerated
the loan. Should an agreement not be reached and as the Partnership does not
have its share of the outstanding loan balance in its reserves in order to
retire the loan, it is possible that the lender would exercise its remedies
and seek to acquire title to this portion of the complex. Furthermore, should
lender assistance be required to fund significant costs at the 100-130 Park
Center Plaza buildings but not be obtained, the Partnership has decided not to
commit any additional amounts to this portion of the complex since the
likelihood of recovering such funds through increased capital appreciation is
remote. The result would be that the Partnership would no longer have an
ownership interest in this portion of the complex.
As a result, there is uncertainty about the ability to recover the net
carrying value of the property through future operations and sale and
accordingly, the JMB/San Jose joint venture has made a provision for value
impairment on the 150 Almaden and 185 Park Avenue buildings and certain
parking areas of $15,549,935. Such provision at December 31, 1993 is recorded
to reduce the net carrying value of these buildings to the then outstanding
balance of the related non-recourse financing. The provision was in addition
to similar impairments to other portions of the complex taken in earlier years
and previously reported. In the event the lender on any portion of the
complex exercised its remedies as discussed above, the result would likely be
that JMB/San Jose joint venture would no longer have an ownership interest in
such portion. In addition, tenants occupying approximately 110,000 square
feet (approximately 26% of the buildings) of the Park Center Plaza investment
property have leases that expire in 1995, for which there can be no assurance
of renewals. See Note 3(b) for further discussion of this investment
property.
Riverside Square Mall has been experiencing decreasing sales levels as
well as increasing competition for new tenants since a competing regional
retail center expanded its operations in 1990. The Partnership is proceeding
with its plans to renovate and remerchandise the center. In connection with
the planned renovation, the Partnership, in early 1994, signed 15-year
operating covenant extensions with both Saks and Bloomingdales, which own
their own stores. In return for the additional 15-year commitment to the
center, the Partnership reimbursed Saks for their recent store renovation in
the amount of $6,100,000 and is obligated to pay Bloomingdales $5,000,000
toward their store renovation. The Partnership is also required to complete a
renovation of the mall, with an additional estimated cost of approximately
$12,000,000. The Partnership is pursuing financing for the planned mall
renovation; however, there can be no assurance that such financing will be
obtained or that the renovation will be completed as currently planned. The
Partnership is still considering expanding the mall at some point in the
future as well. Furthermore, the Partnership, as of the date of this report,
has commenced a $7,500,000 restoration of the parking deck. The Partnership
is continuing to attempt to lease the vacant space in the mall, but the
competitive nature of the surrounding retail area and the fact that the mall
is in need of a renovation have extended the time period required to re-lease
space in the mall as tenant leases expire and are not renewed. On January 7,
1994, Conran's, a tenant occupying approximately 28,000 square feet or 12% of
the building, filed for protection pursuant to Chapter 11 bankruptcy petition.
Subsequent to the end of the quarter, the Partnership bought the rights to the
Conran's lease for $475,000 through the bankruptcy auction and is in control
of the space. The Partnership is reviewing its possible alternatives with
respect to replacement tenants for the Conran's lease which was originally
scheduled to expire in January 2000.
At the Bank of Delaware Building, a major tenant, E.I. duPont de Nemours
("duPont"), comprising approximately 27% of the building, vacated their space
upon expiration of their lease in December 1993. The property has
cumulatively operated at a cash deficit due to the significant costs incurred
in connection with the re-leasing of vacant space and certain capital
improvements. Due to the competitive nature of this marketplace, the
Partnership estimates the costs associated with re-leasing any vacant space
during the next few years, including those costs to remove remaining asbestos,
will be substantial. As a result of these leasing concerns, the Partnership
has commenced discussions with the building's first mortgage lender in order
to seek a loan modification. In connection with these discussions, effective
January 1994, the Partnership has suspended payment of debt service to the
lender. As a result, approximately $246,000 of interest has been accrued but
not paid as of March 31, 1994. If a suitable modification of the existing
loan cannot be arranged, the Partnership has decided not to voluntarily commit
any additional amounts to the property. In response to the foregoing, the
lender has recently commenced proceedings to acquire title to the property.
There can be no assurance the Partnership will be successful in these
discussions, and accordingly, the entire balance of the loan is reflected as a
current liability in the accompanying financial statements. Should the lender
proceed to realize upon its security and obtain title to the property, the
Partnership expects to recognize a gain for financial reporting purposes and a
loss for federal income tax purposes. Under the terms of a mortgage and
security agreement, the Partnership, in its capacity as mortgagor of the
building, agreed to indemnify the mortgage lender, under certain
circumstances, against damages, claims, liabilities and expenses incurred by
or asserted against the mortgage lender in relation to asbestos in the
building. Asbestos has been abated or encapsulated in approximately 62% of
the building's space. The Partnership does not believe that any remaining
asbestos in the building presents a hazard and does not believe that such
asbestos currently is required to be removed. The Partnership estimates that
the current cost of asbestos abatement that could be required under certain
circumstances in a portion of the building in the future is approximately
$800,000. However, the Partnership currently does not believe that it will
likely be required to incur (or to indemnify the mortgage lender against) any
such cost, although there is no assurance that the Partnership will not
ultimately be required to make such payment.
JWP, Inc. began occupying approximately 72,000 square feet of space
(approximately 27% of the property) at Royal Executive Park II in August 1992.
As a result of the JWP, Inc. lease, the Partnership has received its preferred
level of return for 1993 and in addition, recovered a portion of the
cumulative shortfall in this return since 1989. The Partnership expects to
receive its preferred level of return for 1994 in addition to a partial
recovery of its cumulative shortfall in this return since 1989. However, in
early 1994, JWP filed for protection pursuant to a Chapter 11 bankruptcy
petition. At this time, it is uncertain what effect this will have on the
operations of the complex. As previously reported, JWP has been current in
its rental obligations pursuant to its lease which is not scheduled to expire
until May 2002. However, JWP has subleased approximately 60,000 square feet
of its space and is actively attempting to sublease a significant portion of
their remaining space. The manager continues an aggressive marketing program
to lease the remaining vacant space but the competitive nature of the market
continues to extend the time period required to lease space to initial
tenants.
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.
Though the economy has recently shown signs of improvement and financing
is generally becoming more available for certain types of higher-quality
properties in healthy markets, real estate lenders are typically requiring a
lower loan-to-value ratio for mortgage financing than in the past. This has
made it difficult for owners to refinance real estate assets at their current
debt levels unless the value of the underlying property has appreciated
significantly. As a consequence, and due to the weakness of some of the local
real estate markets in which the Partnership's properties operate, the
Partnership is taking steps to preserve its working capital.
RESULTS OF OPERATIONS
The decrease in short-term investments and increase in building and
improvements as of March 31, 1994 as compared to December 31, 1993 and related
depreciation for the three months ended March 31, 1994 as compared to the
three months ended March 31, 1993 is primarily due to improvements to Saks
Fifth Avenue, a major tenant's space and renovation work of $6,400,000 at
Riverside Square Mall.
The decrease in prepaid expenses as of March 31, 1994 as compared to
December 1993 is primarily due to the 1994 amortization of approximately
$100,000 of the December 31, 1993 prepaid real estate tax balance at the Bank
of Delaware property, and the amortization of approximately $55,000 of the
December 31, 1993 prepaid insurance balance at the Riverside Square Mall
property.
The increase in accrued interest at March 31, 1994 as compared to
December 31, 1993 is primarily due to the suspension of debt service payments
at the Bank of Delaware property. Reference is made to Note 2(b).
The decrease in rental income for the three months ended March 31, 1994
as compared to the three months ended March 31, 1993 is primarily due to lower
average occupancy at the Bank of Delaware building partially offset by an
increase in recoverable expenses at Riverside Square Mall.
The decrease in interest income for the three months ended March 31, 1994
as compared to the three months ended March 31, 1993 is primarily due to a
lower average invested balance in U.S. Government obligations primarily due to
the expenditures for capital improvements as discussed above.
The increase in property operating expenses for the three months ended
March 31, 1994 as compared to the three months ended March 31, 1993 is
primarily due to an increase of approximately $153,000 of snow removal costs
and an increase in provision for doubtful accounts of approximately $198,000
at the Riverside Square Mall property.
The Partnership's share of operations of unconsolidated ventures
decreased for the three months ended March 31, 1994 as compared to the three
months ended March 31, 1993 primarily due to increased snow removal costs
which are partially recoverable from the tenants, and a reduction in the
amounts recoverable related to the utility expenses at Royal Executive Park II
property.
<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>
1993 1994
------------------------------- ------------------------------
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. Park Center Financial Plaza
San Jose, California . . . . . . . . . 89% 88% 84% 84% 83%
2. Riverside Square Mall
Hackensack, New Jersey . . . . . . . . 83% 83% 80% 81% 80%
3. Bank of Delaware Building
Wilmington, Delaware . . . . . . . . . 92% 90% 90% 61% 61%
4. Royal Executive Park II
Rye Brook, New York. . . . . . . . . .
92% 92% 93% 92% 92%
PART II. OTHER INFORMATION
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Effective January 1994, the Partnership has suspended payment of debt
service on the $9.5 million mortgage on the Bank of Delaware property. As a
reslult, approximately $246,000 of interest has been accrued but not paid.
Equitable Life Assurance Society has recently commenced proceedings to acquire
title to the property. Reference is made to Note 2(b) and to the Liquidity
and Capital resources contained in the Management's Discussion and Analysis of
Financial Condition section of this Report for a discussion of the mortgage
loan and the Partnership's efforts to obtain a modification.
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits.
4-A. Mortgage loan agreement between the Partnership and
Teachers Insurance and Annuity Association dated October 19, 1983 relating to
Riverside Square are hereby incorporated by reference to the Partnership's
Prospectus on Form S-11 (File No. 2-90503) dated July 11, 1984.
4-B. Mortgage loan agreement between the Partnership and
Equitable Real Estate Investment Management, Inc. dated February 28, 1989
relating to the Bank of Delaware is hereby incorporated herein by reference to
Exhibit 4-B to the Partnership's report for December 31, 1992 on Form 10-K
(File No. 0-15966) dated March 19, 1993.
4-C. Mortgage loan agreement between San Jose and
Connecticut General Life Insurance Co. dated June 20, 1985 relating to Park
Center Plaza are hereby incorporated by reference to the Partnership's report
on Form 8-K (File No. 0-15966) dated June 20, 1985.
10-A. Acquisition documents relating to the purchase by
the Partnership of Riverside Square in Hackensack, New Jersey are hereby
incorporated by reference to the Partnership's Prospectus on Form S-11 (File
No. 2-90503) dated July 11, 1984.
10-B. Acquisition documents relating to the purchase by
the Partnership of the Bank of Delaware Office Building in Wilmington,
Delaware are hereby incorporated by reference to the Partnership's report on
Form 8-K (File No. 0-15966) dated December 27, 1984.
10-C. Acquisition documents including the venture
agreement relating to the purchase by the Partnership of Park Center Plaza in
San Jose, California are hereby incorporated by reference to the Partnership's
report on Form 8-K (File No. 0-15966) dated June 20, 1985.
10-D. Sale documents and exhibits thereto relating to the
Partnership's sale of the Genesee Valley Shopping Center in Flint, Michigan
are hereby incorporated by reference to the Partnership's report on Form 8-K
(File No. 0-15966) dated June 29, 1990.
--------------
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 Commissions upon request.
(b) No reports on Form 8-K were required or filed since the
beginning of the last quarter of the period covered by this report.
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. - XI
BY: JMB Realty Corporation
(Managing General Partner)
By: GAILEN J. HULL
Gailen J. Hull, Senior Vice President
Date:May 11, 1994
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:May 11, 1994
</TABLE>
