QUARTERLY REPORT FOR THE PERIOD ENDED MARCH 31, 1996
FELLOW PARTNERS:
We have changed the format of our reports in an effort to improve the
information given to you and reduce the complexity of the message. A major
addition is the table below where you will find the period-end as well as the
average leased status and the contribution to net income from each property in
the portfolio. The leased status will probably fluctuate during any given
period, so we feel the average number will be a better performance indicator.
By showing the contribution to net income by property along with the total
square footage and average leased status, we also believe you will gain a
better perspective on the relationship among the holdings. Finally, we have
broken out properties earmarked for sale so that you have an idea of the
effect the absence of these properties may have on future income.
Results of Operations
Rental income was up modestly for both the three and six months ended March
31, 1996, relative to the same periods last year. The higher average leased
status and rental rates at The Business Park and increased rates at Newport
Center more than offset the decline in occupancy and rental income at
Montgomery. As was true for the first fiscal quarter, Montgomery had the most
significant negative effect on the bottom line for the first six months of
fiscal 1996. However, its contribution to net income in the second quarter was
off only $41,000, substantially less than the $110,000 drop in the first
quarter.
Real Estate Investments (Dollars in thousands)
______________________________________________________________________________
Average Contribution
Leased Status Leased Status to Net Income
________________________________________________
Gross Six Months Six Months
Property Leasable March 31, Ended March 31, Ended March 31,
Name Area (Sq. Ft.) 1996 1995 1996 1995 1996
________________ ____________ ______ _______ _______ _______ _____
Airport Perimeter 120,986 70% 73% 72% $ 2 $ 17
Montgomery 116,348 70 81 72 137 (14)
Springdale 144,000 100 100 100 161 161
The Business Park 157,153 94 86 96 48 104
Newport Center 62,411 90 95 95 92 85
_________ _______ _______ _______ _______ _______
600,898 86 87 87 440 353
Held for Sale
Spring Creek 51,430 100 100 100 76 393
Royal Biltmore 71,443 100 99 98 106 86
Van Buren 173,878 92 90 92 90 89
_________ _______ _______ _______ _______ _______
897,649 89 89 90 712 921
Fund Expenses
Less Interest
Income - - - - (209) (216)
___________ _______ _______ _______ _______ _______
Total 897,649 89% 89% 90% $503 $705
The driving force behind the overall rise in net income for the quarter
and six months was the recovery in Spring Creek's value. When we last wrote
you, we were negotiating with a potential purchaser for this industrial
property in Richardson, Texas. Because the sales price exceeded the value at
which the Fund was carrying Spring Creek, we made an upward adjustment of
$303,000 to the property's book value. The sale was concluded on April 30, and
your share of the net proceeds of approximately $1.68 million, or $17.79 per
unit, will be sent along with your quarterly distribution from operations.
Of the remaining properties, the contribution to net income of only two
warrant discussion - The Business Park and Royal Biltmore. These two holdings
were the bright spots in the portfolio in the first quarter of the year, and
The Business Park continued in this mode in the second quarter. Royal Biltmore
is 100% leased and its rental income was stable, but higher real estate taxes
this year have cut into its bottom line comparison. This office property in
Phoenix, Arizona, is now for sale.
The Fund's cash position dropped in the first six months of this fiscal
year because of higher distributions paid in November. As you may remember, at
that time the Fund distributed $9.00 per unit from operations and the same
per-unit amount from previously retained sales proceeds.
Turning now to noteworthy activity for the remainder of the year, there
are two properties which have significant lease expirations - Airport
Perimeter and The Business Park. At the latter, 45% of the space is involved.
The metropolitan Atlanta industrial market is strong, which could bode well
for renewals and/or new tenants. The outlook for renewing or replacing tenants
for 38% of Airport Perimeter is less sanguine even though it is in the same
general market as The Business Park. As we have reported to you over the last
two years, this three-building complex sits on land being considered for a
potential expansion of the Hartsfield-Atlanta airport. No decision on the
expansion has been made, but brokers and prospective tenants are very aware
that the building could be condemned. As a result, our ability to lease or
sell the building is limited.
Cash Distribution
The $4.75 per-unit distribution from second quarter operations, together with
your share of the Spring Creek sales proceeds, will be paid to you on May 15.
We plan to continue distributing $4.75 on a quarterly basis but will review
this rate periodically to see if operating conditions, dispositions, and/or
cash needs warrant a change.
Outlook
With the exception of Airport Perimeter, overall occupancy and rental rates in
the markets where your properties compete remained stable or are rising.
Whenever a market is nearing its peak in these terms along with the advent of
new construction, sales of portfolio properties may be warranted. As the table
above indicates, Royal Biltmore and Van Buren are currently being "held for
sale," which means that we have hired brokers to market these holdings. In
addition, we are looking carefully at events involving Newport Center, a South
Florida industrial holding, and The Business Park, a flex warehouse complex in
suburban Atlanta. We will keep you up-to-date on developments in future
reports.
Sincerely,
James S. Riepe
Chairman
May 13, 1996
CONDENSED BALANCE SHEETS
Unaudited
(In thousands)
March 31, September 30,
1996 1995
___________ ____________
Assets
Real Estate Property Investments
Land . . . . . . . . . . . . . . $ 7,398 $ 11,014
Buildings and Improvements . . . 42,967 54,237
________ ________
50,365 65,251
Less: Accumulated Depreciation
and Amortization. . . . . . . . (19,193) (24,092)
________ ________
31,172 41,159
Properties Held for Sale . . . . 10,881 1,226
________ ________
42,053 42,385
Cash and Cash Equivalents. . . . . 1,627 2,832
Accounts Receivable
(less allowances of $81 and $85). 467 292
Other Assets . . . . . . . . . . . 318 624
________ ________
$ 44,465 $ 46,133
________ ________
________ ________
Liabilities and Partners' Capital
Security Deposits and Prepaid Rents $ 336 $ 364
Accrued Real Estate Taxes. . . . . 123 202
Accounts Payable and
Other Accrued Expenses. . . . . . 249 281
________ ________
Total Liabilities. . . . . . . . . 708 847
Partners' Capital. . . . . . . . . 43,757 45,286
________ ________
$ 44,465 $ 46,133
________ ________
________ ________
See the accompanying notes to condensed financial statements.
CONDENSED STATEMENTS OF OPERATIONS
Unaudited
(In thousands except per-unit amounts)
Three Months EndedSix Months Ended
March 31, March 31,
1996 1995 1996 1995
_______ ______________ _______
Revenues
Rental Income. . . . . . . . . $1,542 $1,492 $3,022 $2,975
Interest Income. . . . . . . . 23 13 45 36
______________ ______________
1,565 1,505 3,067 3,011
______________ ______________
Expenses
Property Operating Expenses. . 406 349 857 796
Real Estate Taxes. . . . . . . 153 147 327 302
Depreciation and Amortization. 604 593 1,220 1,221
Recovery of Property Values. . (303) (28) (303) (56)
Partnership Management Expenses 138 134 261 245
______________ ______________
998 1,195 2,362 2,508
_______ _______ ______________
Net Income . . . . . . . . . . $ 567 $ 310 $ 705 $ 503
_______ _______ ______________
_______ _______ ______________
Activity per Limited Partnership Unit
Net Income . . . . . . . . . . $ 5.63 $ 3.08 $ 7.00 $ 5.00
_______ _______ ______________
_______ _______ ______________
Cash Distributions Declared
from Operations. . . . . . . $ 4.75 $ 4.00 $ 9.50 $ 8.00
from Sale Proceeds . . . . . 17.79 - 17.79 -
_______ _______ ______________
Total Distributions Declared . $22.54 $ 4.00 $27.29 $ 8.00
_______ _______ ______________
_______ _______ ______________
Units Outstanding. . . . . . . 90,622 90,622 90,622 90,622
_______ _______ ______________
_______ _______ ______________
See the accompanying notes to condensed financial statements.
CONDENSED STATEMENT OF PARTNERS' CAPITAL
Unaudited
(In thousands)
General Limited
Partner Partners Total
________ ________ ________
Balance,
September 30, 1995. . . . . . $(3,747) $49,033 $45,286
Net Income . . . . . . . . . . 71 634 705
Cash Distributions . . . . . . (173) (2,061) (2,234)
_______ _______ _______
Balance, March 31, 1996. . . . $(3,849) $47,606 $43,757
_______ _______ _______
_______ _______ _______
See the accompanying notes to condensed financial statements.
CONDENSED STATEMENTS OF CASH FLOWS
Unaudited
(In thousands)
Six Months Ended
March 31,
1996 1995
________ _________
Cash Flows from Operating Activities
Net Income . . . . . . . . . . . . $ 705 $ 503
Adjustments to Reconcile Net Income
to Net Cash Provided by
Operating Activities
Depreciation and Amortization. . 1,220 1,221
Recovery of Property Values. . . (303) (56)
Other Changes in
Assets and Liabilities. . . . . (157) (147)
________ ________
Net Cash Provided by
Operating Activities. . . . . . . 1,465 1,521
________ ________
Cash Flows Used in Investing Activities
Investments in Real Estate . . . . (436) (437)
________ ________
Cash Flows Used in Financing Activities
Cash Distributions . . . . . . . . (2,234) (899)
________ ________
Cash and Cash Equivalents
Net Increase (Decrease) during Period (1,205) 185
At Beginning of Year . . . . . . . 2,832 2,603
________ ________
At End of Period . . . . . . . . . $ 1,627 $ 2,788
________ ________
________ ________
See the accompanying notes to condensed financial statements.
NOTES TO CONDENSED FINANCIAL STATEMENTS
Unaudited
The unaudited interim condensed financial statements reflect all adjustments
which are, in the opinion of management, necessary for a fair statement of the
results for the interim periods presented. All such adjustments are of a
normal, recurring nature.
The unaudited interim financial information contained in the
accompanying condensed financial statements should be read in conjunction with
the financial statements contained in the fiscal 1995 Annual Report to
Partners.
NOTE 1 - TRANSACTIONS WITH RELATED PARTIES AND OTHER
As compensation for services rendered in managing the affairs of the
Partnership, the General Partner receives 10% of cash available for
distribution from operations and a portion of the proceeds from property
dispositions. The General Partner's share of cash available for distribution
from operations totaled $96,000 and from property dispositions totaled $67,000
for the first six months of fiscal 1996.
In accordance with the partnership agreement, certain operating expenses
are reimbursable to the General Partner. The General Partner's reimbursement
of such expenses totaled $69,000 for communications and administrative
services performed on behalf of the Partnership during the first six months of
fiscal 1996.
An affiliate of the General Partner earned a normal and customary fee of
$2,000 from the money market mutual funds in which the Partnership made its
interim cash investments during the first six months of fiscal 1996.
LaSalle Advisors Limited Partnership ("LaSalle") is the Partnership's
advisor and is compensated for its advisory services directly by the General
Partner. LaSalle is reimbursed by the Partnership for certain operating
expenses pursuant to its contract with the Partnership to provide real estate
advisory, accounting, and other related services to the Partnership. LaSalle's
reimbursement for such expenses during the first six months of fiscal 1996
totaled $75,000.
The partnership agreement includes provisions limiting the maximum
contribution the General Partner can be required to fund upon the dissolution
and termination of the Partnership if, at that time, the General Partner's
capital account has a negative balance. The maximum contribution is
approximately $913,000. If after making such a contribution, the General
Partner's capital account still has a negative balance, a reallocation of
income equal to the remaining negative balance will be made to the General
Partner from the Limited Partners.
An affiliate of LaSalle earned $98,000 in the first six months of fiscal
1996 as property manager for several of the Partnership's properties.
NOTE 2 - PROPERTIES HELD FOR SALE
During the first six months of fiscal 1996, the Partnership recognized a
$303,000 valuation recovery related to Spring Creek, to reflect the value of
this property realized at its sale on April 30, 1996.
The Partnership began actively marketing Royal Biltmore and Van Buren
late in March 1996 and has classified these properties as such in the
accompanying balance sheet at March 31, 1996.
NOTE 3 - SUBSEQUENT EVENT
The Partnership declared a quarterly cash distribution of $22.54 per unit to
Limited Partners of the Partnership as of the close of business on March 31,
1996. The Limited Partners will receive $2,042,000, and the General Partner
will receive $115,000. The distribution represents $4.75 per unit from
operations and $17.79 per unit from the sale proceeds of Spring Creek, which
in the aggregate were $1,679,000.
