SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K405/A
AMENDMENT NO. 1
Filed pursuant to Section 12, 13, or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended
December 31, 1998 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) (I.R.S. Employer Identification No.)
900 N. Michigan Ave., Chicago, Illinois 60611
--------------------------------------- ----------
(Address of principal executive office) (Zip Code)
The undersigned registrant hereby amends the following section of its
Report for the year ended December 31, 1998 on Form 10-K405 as set forth in
the pages attached hereto:
PART II
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations. Pages 11 through 15A.
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
JMB INCOME PROPERTIES, LTD. - XI
By: JMB Realty Corporation
Managing General Partner
GAILEN J. HULL
By: Gailen J. Hull
Vice President and
Principal Accounting Officer
Dated: May 12, 1999
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
As a result of the public offering of interests as described in
Item 1, the Partnership had approximately $156,493,000 after deducting
selling expenses and other offering costs, with which to make investments
in commercial real property, to pay legal fees and other costs (including
acquisition fees) related to such investments and for working capital. A
portion of such proceeds was utilized to acquire the properties described
in Item 1 above.
The board of directors of JMB Realty Corporation ("JMB"), the managing
general partner of the Partnership, has established a special committee
(the "Special Committee") consisting of certain directors of JMB to deal
with all matters relating to tender offers for Interests in the
Partnership, including any and all responses to such tender offers. The
Special Committee has retained independent counsel to advise it in
connection with any potential tender offers for Interests and has retained
Lehman Brothers Inc. as financial advisor to assist the Special Committee
in evaluating and responding to these and any additional potential tender
offers for Interests.
During 1996, 1997 and 1998, some of the Limited Partners in the
Partnership received from unaffiliated third parties unsolicited tender
offers to purchase up to 4.9% of the Interests in the Partnership at
between $125 and $400 per Interest. The Partnership recommended against
acceptance of these offers on the basis that, among other things, the offer
prices were inadequate. All of such offers expired. As of the date of
this report, the Partnership is aware that 7.43% of the Interests have been
purchased by such unaffiliated third parties either pursuant to such tender
offers or through negotiated purchases. It is possible that other offers
for Interests may be made by unaffiliated third parties in the future,
although there is no assurance that any other third party will commence an
offer for Interests, the terms of any such offer or whether any such offer,
if made, will be consummated, amended or withdrawn.
The Partnership has one remaining investment property, the Riverside
Square Mall Shopping Center, which it is actively marketing for sale.
There can be no assurance that the Partnership will be able to complete a
sale or liquidate the Partnership in the 1999-2000 time frame.
At December 31, 1998, the Partnership had cash and cash equivalents of
approximately $15,863,000. Such funds may be utilized for distributions to
partners and for working capital requirements including operating deficits,
costs of re-leasing vacant space, and certain capital improvements.
Additionally, funds may be utilized to fund a potential theater expansion
at the Riverside Square Mall investment property which would add
approximately 20,000 square feet of space and would include new
restaurants. The Partnership intends to fund the estimated cost of
approximately $7.6 million for the expansion from its working capital
reserves. However, the expansion, including the theater lease, is subject
to many contingencies, including final documentation, and as such there can
be no assurance that the expansion will be completed on these or any other
terms. The Partnership's wholly-owned property has currently budgeted in
1999 approximately $4,274,000 for tenant improvements and other capital
expenditures including the first phase of the theater expansion. Actual
amounts expended in 1999 may vary depending on a number of factors
including actual leasing activity, results of property operations,
liquidity considerations, progression of the theater expansion and other
market conditions, including the possible sale of the shopping center in
1999, over the course of the year. 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 Riverside Square Mall and
through its sale and/or refinancing. In such regard, reference is made to
the Partnership's property specific discussions below and also to the
Partnership's disclosure of certain property lease expirations in Item 6.
11
<PAGE>
In February 1998, the Partnership made a distribution of sale proceeds
related to the sale of the Royal Executive Park II office complex of
$28,439,404 ($164 per Interest) and paid a special operating distribution
of $2,774,576 ($16 per Interest), to the Limited Partners. In addition,
effective in 1998, the Partnership changed from a semi-annual distribution
of cash flow from operations of $6 per Interest to an annual distribution
of $4 per Interest as a result of (a) the Partnership's reduction in cash
flow from operations after the sales of the Royal Executive Park II office
complex in December 1997 and the Park Center Financial Plaza office complex
in February 1998 and (b) the need to reserve funds necessary for the
potential theater/restaurant expansion at the Riverside Square Mall. The
1998 annual operating distribution of $693,644 ($4 per Interest) was made
in May 1998. In addition, the Partnership made a distribution of sale
proceeds of $24,277,540 ($140 per Interest) in May 1998 related to the sale
in 1998 of the remaining assets of the Park Center Financial Plaza
investment property. The General Partners have been deferring receipt of
their distributions in accordance with the subordination requirements of
the Partnership Agreement as discussed in the Notes.
The Partnership's mortgage obligation is a separate non-recourse loan
secured individually by the investment property. The Partnership is not
personally liable for the payment of the mortgage indebtedness.
SAN JOSE
On February 24, 1998, San Jose sold the remaining assets of the Park
Center Financial Plaza office complex to an independent third party for
$76,195,000 (before selling costs). San Jose received approximately
$49,537,000 of net sale proceeds at closing (after the repayment by San
Jose of the mortgage loans secured by the 170 Almaden, 150 Almaden and 185
Park Avenue buildings with a balance of approximately $23,281,000, loan
prepayment premiums of approximately $2,422,000 and closing costs), of
which the Partnership's share was approximately $24,768,500. Reference is
made to the Notes for a further description of such sale.
RIVERSIDE SQUARE MALL
As previously disclosed, the Partnership has reached an agreement in
principle with a theater operator to open a multiscreen theater complex at
the mall. This expansion would add approximately 20,000 square feet of
space and would include new restaurants. The Partnership intends to fund
the estimated cost of approximately $7.6 million for the expansion from its
working capital reserves. The Partnership received planning and zoning
board approval from the City of Hackensack for such expansion in October
1998. However, this expansion, including the theater lease, is subject to
many contingencies, including final documentation and the possible sale of
the shopping center in 1999. As such there can be no assurance that this
expansion will be completed on these or any other terms.
The mortgage loan on the property in the original amount of
$36,000,000 provided for rate adjustments every four years, beginning
November 1, 1998. In addition, the loan allowed the Partnership to prepay
the loan without penalty for a 60 day period every four years starting
October 1, 1998. On May 1, 1998, in accordance with the loan documents,
the lender notified the Partnership of the rate adjustment effective
November 1, 1998. Given that the Partnership was actively marketing the
property for sale and that the prepayment penalty would be substantial if
the property were sold outside of the 60 day window provided in the loan
documents, the Partnership elected not to accept the lender's rate
adjustment. The election accelerated the maturity date of the loan to
December 1, 1998, from December 1, 2006. On November 24, 1998, the
Partnership finalized a new one-year mortgage loan in the amount of
$34,000,000. The proceeds of the new loan were utilized to retire the
previous mortgage loan with an outstanding balance of approximately
$33,871,000. The net cost to the Partnership of refinancing, including
costs and fees of approximately $255,000 was approximately $126,000.
Reference is made to the Notes for a further description of such
transaction.
12
<PAGE>
GENERAL
The Partnership continues to conserve its working capital. All
expenditures are carefully analyzed and certain capital projects are
deferred when appropriate. In an effort to reduce partnership operating
expenses, the Partnership elected to make annual rather than semi-annual
distributions of available operating cash flow commencing with the 1998
distribution. By conserving working capital, the Partnership will be in a
better position to meet the future needs of its remaining property since
the availability of satisfactory outside sources of capital may be limited
given current debt levels. The Partnership has held its remaining
investment property longer than originally anticipated in an effort to
maximize the return to the Limited Partners. However, after reviewing the
remaining property and the marketplace in which it operates, the General
Partners of the Partnership expect to be able to conduct an orderly
liquidation of its remaining investment portfolio as quickly as practicable
upon the sale of its remaining investment property, the Riverside Square
Mall, and the subsequent expiration of any representations and warranties
to a potential purchaser that may be required in connection with a sale of
the property. Consequently, the affairs of the Partnership are expected to
be wound up in the 1999-2000 time frame, barring unforeseen economic
developments.
RESULTS OF OPERATIONS
The decrease in cash and cash equivalents at December 31, 1998 as
compared to December 31, 1997 is primarily due to the distribution in 1998
of sales proceeds related to the sale in 1997 of the Royal Executive Park
II office complex as more fully discussed in the Notes.
The decrease in rents and other receivables as of December 31, 1998 as
compared to December 31, 1997 is primarily due to the lower occupancy
levels and the timing of payment of rentals at the Riverside Square Mall
investment property.
The decrease in escrow deposits at December 31, 1998 as compared to
December 31, 1997 is primarily due to the termination of the escrow
accounts in conjunction with the November 1998 refinancing of the mortgage
loan at the Riverside Square Mall investment property.
The decrease in investment in unconsolidated ventures, at equity at
December 31, 1998 as compared to December 31, 1997 is primarily due to the
sale in 1998 of the remaining assets of the Park Center Financial Plaza
investment property.
The increase in current portion of long-term debt and corresponding
decrease in long-term debt, less current portion as of December 31, 1998 as
compared to December 31, 1997 is primarily due to the November 1999
maturity of the new mortgage loan secured by the Riverside Square Mall
investment property.
The decrease in accounts payable and other current liabilities as of
December 31, 1998 as compared to December 31, 1997 is primarily due to a
decrease in unearned rents due to the timing of the collection of rental
income at the Riverside Square Mall investment property. The decrease is
also due to an overfunding of approximately $136,000 in sale proceeds in
December 1997 related to the Royal Executive Park II joint venture, which
was returned to London and Leeds in January of 1998.
The decrease in accrued interest payable as of December 31, 1998 as
compared to December 31, 1997 is due to the variable interest rate on the
new mortgage loan at the Riverside Square Mall investment property which is
currently lower than the previous loan's rate.
The increase in rental income for the year ended December 31, 1997 as
compared to the year ended December 31, 1996 is primarily due to an
increase in base rentals as a result of an increase in tenant occupancies
in 1997 at the Riverside Square Mall investment property.
13
<PAGE>
The increase in interest income for the twelve months ended
December 31, 1998 as compared to the twelve months ended December 31, 1997
is primarily due to the temporary investment of proceeds related to the
1997 sale of the Royal Executive Park II office complex and the 1998 sale
of the remaining assets of the Park Center Financial Plaza office complex,
which proceeds were subsequently distributed to the limited partners in
February and May 1998, respectively.
The decrease in depreciation expense for the twelve months ended
December 31, 1998 as compared to the twelve months ended December 31, 1997
and for the twelve months ended December 31, 1997 as compared to the twelve
months ended December 31, 1996 is primarily due to the Riverside Square
Mall investment property being identified as held for sale or disposition
as of September 30, 1997, and therefore, no longer subject to depreciation
beyond such date.
The decrease in property operating expenses for the twelve months
ended December 31, 1998 as compared to the twelve months ended December 31,
1997 is primarily due to a decrease in advertising expense due to the
timing of promotional campaigns and also to a decrease in snow removal and
certain maintenance and repair projects at the Riverside Square Mall
investment property. The decrease is also due to a decrease in tenant
occupancies during 1998 at the Riverside Square Mall investment property.
The decrease in property operating expenses for the year ended December 31,
1997 as compared to the year ended December 31, 1996 is primarily due to
the decrease in snow removal and other administrative expenses and certain
maintenance and repair projects (partially recoverable from tenants) at the
Riverside Square Mall investment property. However, the decrease is
partially offset by an increase in certain other property operating
expenses as a result of higher tenant occupancies in 1997 at the Riverside
Square Mall investment property.
The decrease in professional services for the year ended December 31,
1997 as compared to the year ended December 31, 1996 is primarily due to
expenses incurred in 1996 in connection with tender offer matters as
discussed above.
The increase in general and administrative expenses for the year ended
December 31, 1997 as compared to the year ended December 31, 1996 is
primarily due to the timing of the incurrence of reimbursable costs to
affiliates of the General Partners.
The decrease in the Partnership's share of operations of
unconsolidated ventures for the twelve months ended December 31, 1998 as
compared to the twelve months ended December 31, 1997 is primarily due to
the sales of the Royal Executive Park II office complex and the remaining
assets of the Park Center Financial Plaza office complex in December 1997
and February 1998, respectively. The increase in the Partnership's share
of operations of unconsolidated ventures for the year ended December 31,
1997 as compared to the year ended December 31, 1996 is primarily due to
such unconsolidated ventures being identified as held for sale or
disposition as of December 31, 1996, and therefore, no longer subject to
depreciation beyond such date.
The Partnership's share of gain on sale of investment properties of
unconsolidated venture of $20,648,190 in 1998 is due to the gain recognized
on the sale of the remaining assets of the Park Center Financial Plaza
investment property in February 1998. The Partnership's share of gain on
sale of investment properties of unconsolidated ventures of $13,349,139 in
1997 is due to the gain recognized on the sale of the Royal Executive Park
II office complex. The Partnership's share of gain on sale of investment
properties of unconsolidated ventures of $1,412,610 in 1996 is due to the
gain recognized on the sale of the 190 San Fernando Building and one of the
parking structures at the Park Center Financial Plaza investment property.
14
<PAGE>
The Partnership's extraordinary item from investment property is due
to the write off of $237,805 of deferred mortgage expense in conjunction
with the new mortgage loan put in place at the Riverside Square Mall
investment property in November 1998. The Partnership's share of
extraordinary loss from unconsolidated venture of $1,259,118 in 1998
comprises loan prepayment premiums of $1,211,062 and the write-off of the
deferred mortgage balance of $48,056 resulting from the sale of the
remaining assets of the Park Center Financial Plaza investment property in
February 1998.
INFLATION
Due to the decrease in the level of inflation in recent years,
inflation generally has not had a material effect on rental income or
property operating expenses.
Inflation is not expected to significantly impact future operations
due to the expected liquidation of the Partnership in the 1999-2000 time
frame. However, to the extent that inflation in future periods would have
an adverse impact on property operating expenses, the effect would
generally be offset by amounts recovered from tenants as many of the
long-term leases at the Partnership's remaining commercial property have
escalation clauses covering increases in the cost of operating and main-
taining the property as well as real estate taxes. Therefore, there should
be little effect from inflation on operating earnings if the property
remains substantially occupied. In addition, substantially all of the
leases at the Partnership's shopping center investment contain provisions
which entitle the Partnership to participate in gross receipts of tenants
above fixed minimum amounts.
YEAR 2000
The year 2000 problem is the result of computer programs being written
with two digits rather than four to define a year. Consequently, any
computer programs that have time-sensitive software may recognize a date
using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculations causing disruptions of operations
including, among other things, an inability to process transactions or
engage in other normal business activities. In addition, other date-
sensitive electronic devices could experience various operational
difficulties as a result of not being year 2000 compliant.
The Partnership uses the telephone, accounting, transfer agent and
other administrative systems, which include both hardware and software,
provided by affiliates of the Corporate General Partner and certain third
party vendors. Except as noted in the following sentence, the Partnership
or its affiliates have received representations to the effect that the
telephone, accounting, transfer agent and other administrative systems are
year 2000 compliant in all material respects. Both the hardware and
software for individual personal computers used in the Partnership's
administrative systems are expected to be tested for their year 2000
compliance during the summer of 1999.
The property manager for the Riverside Square Mall has conducted an
assessment of various aspects of the property's operating systems in regard
to their year 2000 compliance. In general, such assessment was performed
through written inquiries to third party vendors and service personnel for
the property. Based on the responses to these inquiries, the Partnership
believes that the major operating systems for the property, including HVAC
controls, elevators and escalators, and alarm and safety systems, are or
will be year 2000 compliant in all material respects. In addition, the
Partnership believes that the computer hardware and software used in the
administration of the property, including transaction processing and record
keeping, is or will be year 2000 compliant in all material respects.
15
<PAGE>
The Partnership does not believe that the year 2000 problem presents
any material risks to its business, results of operations or financial
condition and has not developed, and does not intend to develop, any
contingency plans to address the year 2000 problem. Given its limited
operations, the Partnership believes that its accounting, transfer agent
and most of its other administrative systems functions could, if necessary,
be performed manually (i.e., without significant information technology)
for an extended period of time without a material increase in costs to the
Partnership. The Partnership has not incurred and does not expect to
incur, any material direct costs for year 2000 compliance.
The Partnership is relying on the representation of various third
party vendors and service personnel for the Riverside Square Mall in regard
to that property's operating systems year 2000 compliance in all material
respects. The Partnership is also relying on the property manager's
assessment of the third party vendors and suppliers to be contacted in
regard to year 2000 compliance. In the event that the Riverside Square
Mall is not year 2000 compliant in all material respects, the property
could experience various operational difficulties or systems failures.
This could result in unanticipated remediation costs and, under certain
circumstances, possible other costs and expenses. If such were to occur,
there is no assurance that such costs and expenses would not, under certain
circumstances, have a material adverse effect on the Partnership or its
investment in the Riverside Square Mall in the event that the property is
not sold during 1999.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership has identified interest rate changes as a potential
market risk. The Riverside Square Mall mortgage loan which matures on
November 24, 1999 provides for interest only payments based on the 30 day
LIBOR rate plus 1.3%.
15A
