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 June 30, 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. . . . . . . . . . . . . . 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . 14
PART II OTHER INFORMATION
Item 3. Defaults Upon Senior Securities . . . . . . . . 18
Item 5. Other Information . . . . . . . . . . . . . . . 19
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . 20
<TABLE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
JMB INCOME PROPERTIES, LTD. - XI
(A LIMITED PARTNERSHIP)
BALANCE SHEETS
JUNE 30, 1994 AND DECEMBER 31, 1993
(UNAUDITED)
ASSETS
------
<CAPTION>
JUNE 30, DECEMBER 31,
1994 1993
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents (note 1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 318,999 267,127
Short-term investments (note 1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,436,098 23,681,340
Rents and other receivables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,753,592 1,690,050
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 317,552
Escrow deposits (note 2(c)). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 800,865 --
------------ ------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,309,554 25,956,069
------------ ------------
Investment properties, at cost (notes 2 and 3):
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,563,638 4,563,638
Building and improvements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61,078,269 53,218,947
------------ ------------
65,641,907 57,782,585
Less accumulated depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,580,913 17,673,020
------------ ------------
Total investment properties, net of accumulated depreciation . . . . . . . . . . . 47,060,994 40,109,565
Investment in unconsolidated ventures, at equity (notes 1, 3 and 5). . . . . . . . . . . . . 21,990,785 22,127,541
Deferred expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 411,630 198,627
------------ ------------
$ 88,772,963 88,391,802
============ ============
JMB INCOME PROPERTIES, LTD. - XI
(A LIMITED PARTNERSHIP)
BALANCE SHEETS - CONTINUED
LIABILITIES AND PARTNERS' CAPITAL ACCOUNTS (DEFICITS)
-----------------------------------------------------
JUNE 30, DECEMBER 31,
1994 1993
------------ ------------
Current liabilities:
Current portion of long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,858,109 9,837,354
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 302,226 255,474
Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 596,225 105,239
------------ ------------
Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,756,560 10,198,067
Tenant security deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56,304 61,304
Long-term debt, less current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,112,926 11,297,315
------------ ------------
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,925,790 21,556,686
Partners' capital accounts (deficits):
General partners:
Capital contributions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000 1,000
Cumulative net earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,275,989 5,233,888
Cumulative cash distributions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,631,429) (6,631,429)
------------ ------------
(1,354,440) (1,396,541)
------------ ------------
Limited partners (173,411 interests):
Capital contributions, net of offering costs . . . . . . . . . . . . . . . . . . . . . . 156,493,238 156,493,238
Cumulative net earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,794,230 24,783,808
Cumulative cash distributions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (114,085,855) (113,045,389)
------------ ------------
68,201,613 68,231,657
------------ ------------
Total partners' capital accounts (deficits). . . . . . . . . . . . . . . . . . . . 66,847,173 66,835,116
------------ ------------
Commitments and contingencies (notes 2, 3 and 4)
$ 88,772,963 88,391,802
============ ============
<FN>
See accompanying notes to financial statements.
</TABLE>
<TABLE>
JMB INCOME PROPERTIES, LTD. - XI
(A LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1994 AND 1993
(UNAUDITED)
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------------------------------
1994 1993 1994 1993
------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
Income:
Rental income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,351,386 2,942,022 6,535,119 6,178,247
Interest income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158,189 195,995 362,782 493,422
----------- ---------- ---------- ----------
3,509,575 3,138,017 6,897,901 6,671,669
----------- ---------- ---------- ----------
Expenses:
Mortgage and other interest. . . . . . . . . . . . . . . . . . . . . . . . 591,585 631,251 1,185,022 1,234,147
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 456,180 398,982 907,893 797,290
Property operating expenses. . . . . . . . . . . . . . . . . . . . . . . . 1,968,444 1,968,949 4,620,939 4,140,749
Professional services. . . . . . . . . . . . . . . . . . . . . . . . . . . 97,616 96,500 255,659 217,426
Amortization of deferred expenses. . . . . . . . . . . . . . . . . . . . . 15,012 25,943 29,966 51,770
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . 37,668 44,900 137,596 96,513
----------- ---------- ---------- ----------
3,166,505 3,166,525 7,137,075 6,537,895
----------- ---------- ---------- ----------
Operating earnings (loss). . . . . . . . . . . . . . . . . . . . . 343,070 (28,508) (239,174) 133,774
Partnership's share of operations of unconsolidated ventures (note 1). . . . 624,809 788,621 1,291,697 1,693,668
----------- ---------- ---------- ----------
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 967,879 760,113 1,052,523 1,827,442
=========== ========== ========== ==========
Net earnings per limited partnership interest (note 1) . . . . . . $ 5.36 4.21 5.83 10.12
=========== ========== ========== ==========
Cash distributions per limited partnership interest. . . . . . . . $ 3.00 3.00 6.00 6.00
=========== ========== ========== ==========
<FN>
See accompanying notes to financial statements.
</TABLE>
<TABLE>
JMB INCOME PROPERTIES, LTD. - XI
(A LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1994 AND 1993
(UNAUDITED)
<CAPTION>
1994 1993
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,052,523 1,827,442
Items not requiring (providing) cash or cash equivalents:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 907,893 797,290
Amortization of deferred expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,966 51,770
Amortization of discounts on long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . 67,125 95,251
Partnership's share of operations of unconsolidated ventures, net of distributions . . . . . . . . 136,756 (8,591)
Changes in:
Rents and other receivables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (63,542) 608,397
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 317,552 91,555
Escrow deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (800,865) --
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46,752 223,558
Accrued interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 490,986 (1,662)
Tenant security deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,000) (4,053)
------------ -----------
Net cash provided by operating activities. . . . . . . . . . . . . . . . . . . . . . . . . . 2,180,146 3,680,957
------------ -----------
Cash flows from investing activities:
Net sales and maturities of short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . 7,245,242 5,473,974
Additions to investment properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,859,322) (413,681)
Payment of deferred expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (242,969) (10,027)
------------ -----------
Net cash provided by (used in) investing activities. . . . . . . . . . . . . . . . . . . . . (857,049) 5,050,266
------------ -----------
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (230,759) (209,925)
Distributions to limited partners. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,040,466) (1,040,466)
------------ -----------
Net cash used in financing activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,271,225) (1,250,391)
------------ -----------
Net increase in cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . $ 51,872 7,480,832
============ ===========
Supplemental disclosure of cash flow information:
Cash paid for mortgage and other interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 694,036 1,140,558
============ ===========
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
JUNE 30, 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 six months ended June
30:
1994 1993
--------------------- ---------------------
GAAP BASIS TAX BASIS GAAP BASIS TAX BASIS
---------- --------- ---------- ---------
Net earnings (loss). . $1,052,523 (52,798) 1,827,442 428,849
Net earnings (loss)
per limited partner-
ship interest . . . . $ 5.83 (.29) 10.12 2.37
========== ======= ========= =======
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 June 30, 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.
No provision for State or Federal income taxes has been made as the
liability for such taxes is that of the investors rather than the Partnership.
However, in certain circumstances, the Partnership has been required under
applicable law to remit directly to the tax authorities amounts representing
withholding from distributions paid to partners.
(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 June 30, 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 commenced
discussions with the building's first mortgage lender in order to seek a loan
modification. In connection with these discussions, effective February 1994,
the Partnership has suspended payment of debt service to the lender. As a
result, approximately $411,000 of interest has been accrued but not paid as of
June 30, 1994. The Partnership has decided not to voluntarily commit any
additional amounts to the property. In response to the foregoing, the lender
has accelerated its mortgage loan and has commenced proceedings to acquire
title to the property. In turn, the Partnership has commenced discussions to
possibly transfer title to the property to the lender via a deed in lieu of
foreclosure. Accordingly, the entire balance of the loan is reflected as a
current liability in the accompanying financial statements. When the lender
proceeds 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
JMB INCOME PROPERTIES, LTD. - XI
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
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. In view of this situation, the
Partnership has had discussions with the lender concerning a complete release
from its potential obligations under this indemnity for a fee considerably
less than the above amount. There can be no assurance the Partnership and the
lender will be able to finalize such discussions in a satisfactory manner.
(c) Riverside Square Mall
The Partnership is proceeding with its plans to renovate and
remerchandise the center. In connection with the renovation, the Partnership,
in early 1994, signed 15-year operating covenant extensions with both Saks and
Bloomingdales, the latter of which owns their own store. 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 upcoming store renovation. In
connection with the payment to Saks, the Partnership also acquired title to
the Saks building which had previously been owned by Saks. 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 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 has recently received a commitment letter for
new financing of $36 million (with an initial interest rate of 8.375%) which
would mature in September 2006. Such financing is expected to be funded in
late August of 1994 and will be used to retire the previous mortgage loan
(with an outstanding balance of approximately $13,000,000 at June 30, 1994)
and fund a portion of the renovation. In addition, a prepayment penalty of
approximately $650,000 will be paid for the early repayment of the original
mortgage. In connection with the refinancing, the Partnership has escrowed
approximately $801,000 to serve as collateral to secure a letter of credit.
There are no assurances that such new financing will be obtained on these or
any other terms. However, if the Partnership is unsuccessful in concluding
the new loan negotiations, the escrow deposit would be refunded to the
Partnership. 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. 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
JMB INCOME PROPERTIES, LTD. - XI
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
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.
San Jose 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, San Jose is 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, San Jose has commenced discussions with
the appropriate lender for additional loan proceeds to pay for all or a
portion of these costs. San Jose is also continuing to discuss terms for a
possible loan extension (which would likely include a partial paydown of the
outstanding principal balance of approximately $2.5 million) 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. San Jose and the
lender have been able to agree, in principle, upon mutually acceptable terms
for a further loan extension. However, San Jose still must negotiate terms to
an acceptable set of loan documents before the loan can be extended. Should a
final loan agreement not be reached and as San Jose 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, San Jose 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 San Jose 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, San Jose 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 San Jose would no longer have an ownership interest in such portion.
JMB INCOME PROPERTIES, LTD. - XI
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
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 $4,828,000 and $4,956,000 at June 30, 1994 and
December 31, 1993, respectively.
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. Effective July 1,
1994, management and leasing activities at the complex were transferred from
an affiliate of the venture partner to an affiliate of the General Partners of
the Partnership.
(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 June 30, 1994 and for
the six months ended June 30, 1994 and 1993 are as follows:
Unpaid at
1994 1993 June 30, 1994
-------- -------- -------------
Property management
and leasing fees. . . . . $133,334 163,984 --
Insurance commissions. . . 32,036 37,949 --
Reimbursement (at cost)
for out-of-pocket
expenses. . . . . . . . . 855 4,666 398
-------- ------- ----
$166,225 206,599 398
======== ======= ====
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 $20,719 and
$87,649 for the six months ended June 30, 1994 and the twelve months ended
December 31, 1993, respectively, of which $87,649 is unpaid as of June 30,
1994, and all of which has been paid as of the date of this report.
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 $1,208,000 as of June 30, 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.
JMB INCOME PROPERTIES, LTD. - XI
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS - CONCLUDED
(5) UNCONSOLIDATED VENTURES - SUMMARY INFORMATION
The summary income statement information for the JMB/San Jose Associates
and Royal Executive Park II for the six months ended June 30, 1994 and 1993 is
as follows:
1994 1993
---------- ---------
Total income . . . . . . . . . . . . $7,761,635 8,207,829
========== =========
Operating income . . . . . . . . . . $1,153,166 1,700,420
========== =========
Net earnings to the Partnership. . . $1,291,697 1,693,668
========== =========
(6) SUBSEQUENT EVENT - PARK CENTER PLAZA
During August 1994, San Jose received notification from the Redevelopment
Agency of the City of San Jose of its offer to purchase one of the parking
garage structures in the office building complex, for an approved Agency
project. The price offered is deemed by the Agency to be just compensation in
compliance with applicable State and Federal laws. San Jose is currently
investigating its options with regard to the Agency's offer. Should the
Agency proceed to purchase the property, San Jose would likely recognize a
gain for financial reporting and Federal income tax purposes. However, there
can be no assurance that this proceeding will be consummated on any terms.
(7) 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 June 30, 1994
and for the three and six months ended June 30, 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 June 30, 1994, the Partnership had cash and cash equivalents of
approximately $319,000. Such funds and short-term investments of
approximately $16,436,000 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
for the Partnership's share of re-leasing costs and capital improvements at
certain portions of the Park Center Financial Plaza and any costs associated
with the proposed transfer of title at the Bank of Delaware office building as
described below. The Partnership and its consolidated ventures have currently
budgeted in 1994 approximately $3,320,000 for tenant improvements and other
capital expenditures excluding amounts budgeted for the renovation at
Riverside Square Mall as discussed below. The Partnership's share of such
items for its unconsolidated ventures for 1994 is currently budgeted to be
approximately $442,000. 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 and/or refinancing 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.
San Jose 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, San Jose is 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, San Jose has commenced discussions with
the appropriate lender for additional loan proceeds to pay for all or a
portion of these costs.
San Jose is also continuing to discuss terms for a possible loan
extension (which would likely include a partial paydown of the outstanding
principal balance of approximately $2.5 million) 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. San Jose and the lender have
been able to agree, in principle, upon mutually acceptable terms for a further
loan extension. However, San Jose still must negotiate terms to an acceptable
set of loan documents before the loan can be extended. Should a final loan
agreement not be reached and as San Jose 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, San Jose 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
San Jose 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, San Jose 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 San
Jose would no longer have an ownership interest in such portion. 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, the latter of
which owns their own store. 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 upcoming store renovation. In connection with the
payment to Saks, the Partnership also acquired title to the Saks building
which had previously been owned by Saks. 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 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. This restoration
should be completed over the course of the next two years. The Partnership
has recently received a commitment letter for new financing of $36 million
(with an initial interest rate of 8.375%) which would mature in September
2006. Such financing is expected to be funded in late August 1994 and will be
used to retire the previous mortgage loan (with an outstanding balance of
approximately $13,000,000 at June 30, 1994) and fund a portion of the
renovation which is expected to be substantially completed by late 1994. In
addition, a prepayment penalty of approximately $650,000 will be paid for the
early repayment of the original mortgage. In connection with the refinancing,
the Partnership has escrowed approximately $801,000 to serve as collateral to
secure a letter of credit. There are no assurances that such new financing
will be obtained on these or any other terms. However, if the Partnership is
unsuccessful in concluding the new loan negotiations, the escrow deposit would
be refunded to the Partnership. 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. 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
commenced discussions with the building's first mortgage lender in order to
seek a loan modification. In connection with these discussions, effective
February 1994, the Partnership has suspended payment of debt service to the
lender. As a result, approximately $411,000 of interest has been accrued but
not paid as of June 30, 1994. The Partnership has decided not to voluntarily
commit any additional amounts to the property. In response to the foregoing,
the lender has accelerated its mortgage loan and has commenced proceedings to
acquire title to the property. In turn, the Partnership has commenced
discussions to possibly transfer title to the property to the lender via a
deed in lieu of foreclosure. Accordingly, the entire balance of the loan is
reflected as a current liability in the accompanying financial statements.
When the lender proceeds 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. In view of this situation, the
Partnership has had discussions with the lender concerning a complete release
from its potential obligations under this indemnity for a fee considerably
less than the above amount. There can be no assurance the Partnership and the
lender will be able to finalize such discussions in a satisfactory manner.
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 property. 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, an affiliate of the venture partner,
continued an aggressive marketing program to lease the remaining vacant space
but the competitive nature of the market continued to extend the time period
required to lease space to initial tenants. Effective July 1, 1994,
management and leasing activities at the complex were transferred to an
affiliate of the General Partners of the Partnership.
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 aggregate decrease in cash and cash equivalents and in short-term
investments and the increase in building and improvements as of June 30, 1994
as compared to December 31, 1993 and the increase in related depreciation for
the three and six months ended June 30, 1994 as compared to the three and six
months ended June 30, 1993 is primarily due to funds utilized in 1994 for
improvements to Saks Fifth Avenue, a major tenant's space, and renovation work
of $7,699,000 at Riverside Square Mall.
The decrease in prepaid expenses as of June 30, 1994 as compared to
December 1993 is primarily due to the 1994 amortization of approximately
$201,000 of the December 31, 1993 prepaid real estate tax balance at the Bank
of Delaware property, and the amortization of approximately $92,000 and
$24,000 of the December 31, 1993 prepaid insurance balance at the Riverside
Square Mall and Bank of Delaware office building, respectively.
The increase in escrow deposits as of June 30, 1994 as compared to
December 31, 1993 is due to approximately $801,000 being escrowed as
collateral for a letter of credit as part of refinancing the loan at the
Riverside Square mall property. Reference is made to Note 2(c).
The increase in deferred expenses at June 30, 1994 as compared to
December 31, 1993 is primarily due to certain costs associated with the
refinancing of the mortgage loan at the Riverside Square Mall property.
The increase in accrued interest at June 30, 1994 as compared to December
31, 1993 is primarily due to the February 1994 suspension of debt service
payments at the Bank of Delaware property. Reference is made to Note 2(b).
The increase in rental income for the three and six months ended June 30,
1994 as compared to the three and six months ended June 30, 1993 is primarily
due to an increase in recoverable expenses at Riverside Square Mall partially
offset by lower average occupancy at the Bank of Delaware building.
The decrease in interest income for the three and six months ended June
30, 1994 as compared to the three and six months ended June 30, 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 six months ended June
30, 1994 as compared to the six months ended June 30, 1993 is primarily due to
an increase of approximately $113,000 of snow removal costs (partially
recoverable from tenants) and an increase in provision for doubtful accounts
of approximately $227,000 at the Riverside Square Mall property.
The Partnership's share of operations of unconsolidated ventures
decreased for the three and six months ended June 30, 1994 as compared to the
three and six months ended June 30, 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 the
Royal Executive Park II property.
PART II. OTHER INFORMATION
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Effective February 1994, the Partnership has suspended payment of debt
service on the $9.5 million mortgage on the Bank of Delaware property. As a
result, approximately $411,000 of interest has been accrued but not paid.
Equitable Life Assurance Society has 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.
<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% 83%
2. Riverside Square Mall
Hackensack, New Jersey . . . . . . . . 83% 83% 80% 81% 80% 65%
3. Bank of Delaware Building
Wilmington, Delaware . . . . . . . . . 92% 90% 90% 61% 61% 61%
4. Royal Executive Park II
Rye Brook, New York. . . . . . . . . . 92% 92% 93% 92% 92% 93%
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) The following reports on Form 8-K were filed since the
beginning of the last quarter of the period covered by this report
(i) None
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:August 12, 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:August 12, 1994
</TABLE>
